<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IRI INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3533 75-2044681
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
1000 LOUISIANA, SUITE 5900
HOUSTON, TEXAS 77002
(713) 651-8002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MUNAWAR H. HIDAYATALLAH
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
1000 LOUISIANA, SUITE 5900
HOUSTON, TEXAS 77002
(713) 651-8002
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<C> <C>
WILLIAM F. HENZE II, ESQ. JOSHUA DAVIDSON, ESQ.
JONES, DAY, REAVIS & POGUE BAKER & BOTTS, L.L.P.
599 LEXINGTON AVENUE 910 LOUISIANA
NEW YORK, NEW YORK 10022 HOUSTON, TEXAS 77002
(212) 326-3939 (713) 229-1234
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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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<S> <C> <C>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED(1) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share.................... $234,600,000 $71,090.91
==============================================================================================================
</TABLE>
(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 determining the registration fee.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and the other to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The two
prospectuses are identical in all respects except for the front and back cover
pages.
The form of the U.S. Prospectus is included herein. The forms of the
alternate pages for the International Prospectus follow the U.S. Prospectus.
Each of the pages for the International Prospectus included herein is labeled
"Alternate Page for International Prospectus."
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, dated September , 1997
PROSPECTUS
12,000,000 SHARES
[LOGO]
IRI INTERNATIONAL CORPORATION
COMMON STOCK
---------------------------
Of the 12,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of IRI International Corporation (the "Company") offered
hereby, 9,000,000 shares are being issued and sold by the Company and 3,000,000
shares are being offered for the account of certain stockholders of the Company
(the "Selling Stockholders"). Of the shares being offered hereby, 9,600,000
shares are being offered initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering"), and 2,400,000 shares are being offered
initially outside the United States and Canada by the International Managers
(the "International Offering" and, together with the U.S. Offering, the
"Offering"). The initial public offering price and underwriting discounts and
commissions will be identical for both offerings. See "Underwriting." The
Company will not receive any of the proceeds from the sale of the shares by the
Selling Stockholders.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Common Stock will be between $14.00 and $17.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Company intends to apply to have the Common Stock
listed for trading on the New York Stock Exchange (the "NYSE") under the symbol
"IIL".
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS 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 U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated to be
$ .
(3) Each of the Company and the Selling Stockholders have granted the U.S.
Underwriters a 30-day option to purchase up to 720,000 additional shares of
Common Stock on the same terms and conditions as set forth above to cover
over-allotments, if any. Each of the Company and the Selling Stockholders
have granted the International Managers a similar option to purchase up to
180,000 additional shares of Common Stock to cover over-allotments, if any.
If such options (the "Underwriters' Over-Allotment Options") are exercised
in full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered severally
by the U.S. Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York on or about , 1997.
---------------------------
LEHMAN BROTHERS
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
CREDIT LYONNAIS SECURITIES (USA) INC.
, 1997
<PAGE> 4
[Diagram and Photos to Come]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Unless the context otherwise requires, references in this
Prospectus to the "Company" refer to IRI International Corporation together with
its subsidiaries and its predecessors, including its Bowen Tools Division
("Bowen"), its IRI Division ("IRI") and its wholly-owned subsidiary, Cardwell
International, Ltd. ("Cardwell"). Except as otherwise specified herein, all
information assumes that the Underwriters' Over-Allotment Options will not be
exercised. This Prospectus contains certain forward-looking statements within
the meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in the
forward-looking statements due to a number of factors, including those set forth
under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
The Company is one of the world's largest manufacturers of land-based
drilling and well-servicing rigs and rig component parts for use in the global
oil and gas industry and is principally engaged in the design, manufacture,
service, sale and rental of onshore and offshore oilfield equipment for the
domestic and international markets. Through its IRI and Cardwell operations, the
Company designs and produces rigs to meet the special requirements of its global
clientele for service in remote areas and harsh climatic conditions. Through its
Bowen Tools Division, the Company is a leading manufacturer of downhole fishing
and drilling tools and offers a complete line of oilfield power equipment,
including top drives, power-swivels, wireline pressure control equipment and
coiled tubing systems, which complement the Company's drilling and well-
servicing rigs. The Company also manufactures and maintains a significant
inventory of replacement parts for rigs produced by the Company and by others,
enabling it to meet the needs of its customers on a timely basis. As a result of
its diverse product lines and the availability, on a sale or rental basis, of
the products of the Bowen Tools Division, the Company is able to satisfy a wide
range of its customers' special requirements. Through its Specialty Steel
Division, the Company produces premium alloy steel for commercial and military
use and for use in manufacturing oilfield equipment products.
The Company markets its oilfield equipment primarily through its own sales
force and through designated agents and distributors in every major oil and gas
producing region in the world. The Company supplements its marketing efforts by
maintaining 27 domestic sales, parts and service centers in areas of significant
drilling and production operations and 7 international parts and service
centers. The Company's network of service centers in the United States provides
its customers with refurbishment or repair services as well as ready access to
replacement parts for equipment in the field. The Company's worldwide sales and
marketing activities are closely coordinated with and supported by a staff of
more than 50 engineers and design technicians, resulting in a competitive
advantage for the Company to provide its customers with products meeting
customized design specifications for drilling and well-servicing rigs and
associated equipment.
The Company has combined the global recognition of its strong brand names,
the extensive background and experience of its management team in international
markets and its commitment to technological excellence and high quality products
to achieve significant growth in a favorable industry climate. As of June 30,
1997, the Company's rig manufacturing backlog was $93.0 million. See
"Business -- Drilling and Well-Servicing Rigs -- Backlog." In the fiscal year
ended March 31, 1996, the nine month period ended December 31, 1996 and the six
month period ended June 30, 1997, the Company's revenues were $52.5 million,
$62.3 million and $57.8 million, respectively. Operating income for the same
periods was $7.6 million, $9.1 million and $4.2 million, respectively. Giving
pro forma effect to the Acquisitions (as defined below) as if they had been
completed as of January 1, 1996, revenues for the twelve month period ended
December 31, 1996 and the six month period ended June 30, 1997 would have been
$188.4 million and $80.2 million, respectively. Pro forma operating income for
the same periods would have been $17.9 million and $5.3 million, respectively.
The Company, which traces its history in the oilfield equipment industry
for nearly 100 years, was acquired in 1994 from Dresser Industries, Inc. and
Ingersoll-Rand Corporation. The Company acquired the business and operations of
Bowen (the "Bowen Acquisition") on March 31, 1997 and Cardwell (the "Cardwell
Acquisition") on April 17, 1997 (together, the "Acquisitions"). See "Recent
Developments."
3
<PAGE> 6
BUSINESS STRATEGY
The Company's business strategy is to continue its significant expansion
and growth as a leader in the design, manufacture, service, sale and rental of
oilfield equipment products by:
Leveraging Strong Brand Names and Leading Market Shares. The Company
manufactures its drilling rigs and well-servicing rigs and component parts under
internationally recognized brand names which include IDECO(R), FRANKS(R),
CARDWELL(R), CABOT(TM) and IRI(TM). The Company manufactures fishing and
drilling tools, top drives, power-swivels and coiled tubing systems under the
BOWEN(R) brand name. The Company believes the majority of the land-based
drilling rigs and well-servicing rigs currently operating worldwide were
manufactured by it or its predecessors. The Company estimates that BOWEN(R)
fishing tools, considered the industry standard since they were first introduced
by S.R. Bowen in 1930, maintain an approximate 50% share of the worldwide market
for such products. Under the BOWEN(R) brand name, the Company maintains the
leading market share in power-swivels and is among the market leaders in
drilling tools and wireline equipment. The Company believes it will benefit
significantly from increased demand for oilfield equipment and products as
customers seek to obtain new equipment or replace existing equipment with
similarly branded products.
Building on Manufacturing, Engineering and Design Capabilities. The
Company manufactures a substantial portion of the equipment and components for
its rigs, as contrasted with most of its competitors, which primarily assemble
components manufactured by third parties. The Company's integrated design,
engineering and manufacturing process is central to the production of its high
quality products and enables the Company to provide its customers with products
meeting customized design specifications. The Company employs more than 50
people on its engineering and design staff and maintains a research and
development program to develop creative solutions for its customers. Recent
innovations include rotating substructures for drilling rigs, hydraulic disc
brake systems for drawworks, skidding systems for 270 ton and 400 ton drilling
rigs and the V/S 110/130 power-swivel. The Company believes its manufacturing,
engineering and design capabilities give it a strategic competitive advantage.
Capitalizing on Strategic Acquisitions. The Company expects to evaluate
and, where feasible, make strategic acquisitions that (i) strengthen the
Company's market shares for existing products, (ii) diversify the Company's
product lines in key business segments or (iii) increase the Company's
geographic diversity. The Company believes that strategic acquisitions should
also enhance profitability by leveraging the Company's existing products,
engineering and design capabilities, sales force or network of parts and service
centers. The Company believes the recent Bowen Acquisition and Cardwell
Acquisition were consistent with these criteria, and the Company will seek to
capitalize on similar opportunities when available.
Emphasizing Recurring Revenue Businesses. The Company intends to focus on
its recurring revenue businesses to mitigate the effects of potential
fluctuations in the worldwide demand for rigs. The Company's replacement parts
business takes advantage of the increased demand for parts required by the aging
worldwide rig fleet, which was generally constructed prior to 1982. The Company
is well positioned to provide replacement parts as a result of the large number
of operating rigs manufactured under the Company's brand names and the
preference of equipment owners to obtain replacement parts fabricated by the
original manufacturer. The Company's rental tool business takes advantage of the
increased number of customers who prefer to rent or lease equipment on a
temporary basis.
Increasing Efficiency and Cost Containment. The Company is in the process
of implementing MRP2, a fully integrated business planning and control system
supported by Baan and Symix software packages designed to increase productivity
and enhance the Company's ability to coordinate design engineering, raw material
orders and deliveries and manufacturing schedules. The Company expects the new
system to increase its ability to process large orders simultaneously and reduce
working capital requirements by shortening cycle times. The MRP2 system should
enable the Company to improve its profit margins and respond more effectively to
the current strong demand for oilfield equipment products and services.
4
<PAGE> 7
RECENT DEVELOPMENTS
On March 31, 1997, the Company acquired substantially all of the assets and
business of Bowen from Air Liquide America Corporation ("Air Liquide") and
established its Bowen Tools Division. Management believes that the acquisition
of Bowen significantly facilitates its acquisition strategy by diversifying into
key product lines that have dominant market shares and are complementary to the
Company's existing product lines. The Bowen Acquisition brings to the Company an
additional brand name long recognized in the oilfield equipment industry as
being associated with innovative products. BOWEN(R) tools have significant, and
in the case of fishing tools and power-swivels, dominant, market shares. The
Company's Bowen Tools Division will continue to market its products under the
BOWEN(R) brand name. Management anticipates that the acquisition of Bowen will
also result in future cost savings and margin improvement opportunities.
On April 17, 1997, the Company acquired all of the outstanding capital
stock of Cardwell. Cardwell designs and manufactures a full line of land-based
drilling and well-servicing rigs and related components. Management believes
that the acquisition of Cardwell furthers its acquisition strategy by
strengthening its overall market share in the land-based drilling and
well-servicing rig market. Land-based well-servicing rigs manufactured under the
Company's brand names together with those manufactured by Cardwell accounted for
a majority of 1996 sales of such products worldwide. In addition to the
IDECO(R), FRANKS(R), CABOT(TM) and IRI(TM) brand names, the Company will
continue to market land-based drilling and well-servicing rigs under the
CARDWELL(R) brand name. The acquisition of Cardwell, a brand name associated
with quality products, will also provide opportunities to achieve cost savings
and margin improvements through the consolidation of engineering and
administrative functions and sales and service locations.
The Acquisitions were financed with the proceeds of a $65.0 million Term
Loan (as defined below) and $31.0 million principal amount of the Company's
Senior Notes (as defined below), all of which remained outstanding as of July
31, 1997. See "Use of Proceeds."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company.................................. 9,000,000 shares
The Selling Stockholders..................... 3,000,000 shares
Total Shares.................................... 12,000,000 shares
Common Stock to be Outstanding after the
Offering........................................ 39,000,000 shares(1)
Use of Proceeds................................... The net proceeds of the Offering received by
the Company will be used to repay in full the
indebtedness incurred in connection with the
Acquisitions and for general corporate
purposes. See "Use of Proceeds."
Proposed New York Stock Exchange Symbol........... "IIL"
</TABLE>
- ---------------
(1) Excludes Common Stock issuable upon exercise of options to purchase Common
Stock granted under the Incentive Plan (as defined herein). See
"Management - Stock Options."
RISK FACTORS
See "Risk Factors" for a discussion of certain material factors that should
be considered in connection with an investment in the Common Stock offered
hereby.
5
<PAGE> 8
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth certain summary historical and pro forma
condensed consolidated financial data of the Company. The summary historical
financial data presented below for the period from April 1, 1994 through
September 19, 1994, the period from September 20, 1994 through March 31, 1995,
the year ended March 31, 1996 and the nine month period ended December 31, 1996
are derived from the audited financial statements of the Company included
elsewhere in this Prospectus. The summary historical financial data presented
below for the nine months ended December 31, 1995 are derived from unaudited
financial statements of the Company. The summary historical financial data
presented below for the six month periods ended June 30, 1996 and 1997 are
derived from the unaudited financial statements of the Company included
elsewhere in this Prospectus which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial data for such
periods.
The summary unaudited pro forma consolidated statements of operations are
derived from the unaudited Pro Forma Condensed Consolidated Statements of
Operations included elsewhere in this Prospectus. The unaudited pro forma
consolidated statements of operations give effect to (i) the Acquisitions and
(ii) the completion of this Offering and the application of the estimated net
proceeds to the Company therefrom as if these transactions occurred on January
1, 1996. The unaudited as adjusted balance sheet data give effect to the
completion of this Offering and the application of the estimated net proceeds to
the Company therefrom as described under "Use of Proceeds" as if these
transactions occurred on June 30, 1997. The pro forma information set forth
below is not necessarily indicative of results that actually would have been
achieved as of the dates and for the periods set forth below or that may be
achieved in the future. The summary financial data set forth below should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Selected Financial Data, the Financial
Statements of the Company and related notes thereto and the unaudited Pro Forma
Condensed Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------- -------------------------------------------------
HISTORICAL
-------------------------------------------------
PERIOD FROM PERIOD FROM NINE MONTHS
APRIL 1, 1994 SEPTEMBER 20, ENDED
THROUGH 1994 THROUGH YEAR ENDED DECEMBER 31,
SEPTEMBER 19, MARCH 31, MARCH 31, -------------------
1994 1995 1996 1995 1996
------------- ------------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues...................... $16,473 $20,206 $52,506 $39,141 $62,298
Cost of goods sold(1)......... 16,216 14,058 36,877 28,815 44,968
Administrative and selling
expense..................... 2,102 2,305 7,990 5,400 8,220
------- ------- ------- ------- -------
Operating income (loss)....... (1,845) 3,843 7,639 4,926 9,110
Interest expense.............. (2,675) (25) (47) -- (615)
Other income
(expense) -- net............ 106 8 371 210 (20)
Income taxes.................. -- (263) -- -- (98)
------- ------- ------- ------- -------
Net income (loss)............. (4,414) 3,563 7,963 5,136 8,377
Preferred stock dividend
requirements(2)............. (400) (400) (800) (600) (600)
------- ------- ------- ------- -------
Net income (loss) attributable
to outstanding common
stock....................... $(4,814) $ 3,163 $ 7,163 $ 4,536 $ 7,777
======= ======= ======= ======= =======
Common stock outstanding(2)...
Income (loss) per common
share(2)....................
<CAPTION>
THE COMPANY
---------------------------------------------
PRO FORMA HISTORICAL PRO FORMA
------------ ----------------- ----------
SIX MONTHS
YEAR ENDED SIX MONTHS
ENDED JUNE 30, ENDED
DECEMBER 31, ----------------- JUNE 30,
1996 1996 1997 1997
------------ ------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues...................... $188,391 $29,347 $57,785 $80,195
Cost of goods sold(1)......... 126,272 21,149 44,631 57,688
Administrative and selling
expense..................... 44,246 5,295 8,928 17,213
-------- ------- ------- -------
Operating income (loss)....... 17,873 2,903 4,226 5,294
Interest expense.............. (1,308) (207) (3,147) (280)
Other income
(expense) -- net............ (72) 213 (490) (303)
Income taxes.................. (1,896) -- (168) (850)
-------- ------- ------- -------
Net income (loss)............. 14,597 2,909 421 3,861
Preferred stock dividend
requirements(2)............. -- (400) (400) --
-------- ------- ------- -------
Net income (loss) attributable
to outstanding common
stock....................... $ 14,597 $ 2,509 $ 21 3,861
======== ======= ======= =======
Common stock outstanding(2)... 39,000 39,000
======== =======
Income (loss) per common
share(2).................... $ 0.37 $ 0.10
======== =======
</TABLE>
- ---------------
(1) Cost of goods sold is adjusted for amortization of negative goodwill. See
Notes to Pro Forma Condensed Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
(2) Pursuant to the Merger, the Company increased its issued and outstanding
shares of Common Stock to 30,000,000 and effected the cancellation of all
issued and outstanding shares of its preferred stock (including all accrued
and unpaid dividends thereon). See "Certain Relationships and Related Party
Transactions -- Corporate Consolidation."
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 89,865 119,068
Total assets............... 164,191 187,081
Long-term debt and
obligations under capital
lease, less current
installments............. 100,281 1,031
Shareholder's equity....... 25,324 150,214
</TABLE>
6
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risks and investment considerations should be carefully considered
before purchasing shares of Common Stock offered hereby. Each of the following
factors may have a material adverse effect on the Company's operations,
financial results, financial condition, liquidity, market valuation or market
liquidity in future periods. In addition, this Prospectus contains
forward-looking statements reflecting the Company's current views with respect
to future events and financial performance. Actual results could differ
materially from those expressed in such forward-looking statements due to a
number of factors described in this Prospectus, including those set forth below.
DEPENDENCE ON OIL AND GAS INDUSTRY
The Company's business is substantially dependent upon the condition of the
oil and gas industry and worldwide levels of exploration, development and
production activity, including the number of oil and gas wells being drilled,
the depth and drilling conditions of such wells, the number of well completions
and the level of workover activity. Exploration, development and production
activity is largely dependent on the prevailing view of future oil and natural
gas prices, which have been characterized by significant volatility over the
last 20 years. Oil and natural gas prices are influenced by numerous factors
affecting the supply and demand for oil and gas, including the level of drilling
activity, worldwide economic activity, interest rates and the cost of capital,
environmental regulation, tax policies, political requirements of national
governments, coordination by the Organization of Petroleum Exporting Countries
("OPEC") and the cost of producing oil and gas. Demand for the Company's
products in certain emerging market countries may depend somewhat less on the
prevailing view of future oil and natural gas prices as such countries may
generally place greater emphasis on their need for internal development, energy
self-sufficiency or hard currency earnings. Since 1986, domestic spot oil prices
(West Texas Intermediate) have ranged from a month-end low of approximately
$11.63 per barrel in July 1986 to a month-end high of approximately $40 per
barrel in October 1990; domestic spot gas prices (Henry Hub) have ranged from a
month-end low of approximately $1.19 per mcf of gas in July 1991 to a month-end
high of approximately $4.41 per mcf in February 1996. These price changes have
caused numerous shifts in the strategies of oil and gas companies and drilling
contractors and their expenditure levels and patterns, particularly with respect
to decisions to purchase major capital equipment of the type manufactured by the
Company. Any significant reduction in oil and natural gas prices would likely
cause a reduction in exploration, development and production activity which, in
turn, would likely result in a drop in demand for products manufactured and sold
by the Company. No assurance can be given as to the future price levels of oil
and gas or the volatility thereof or that the future price of oil and gas will
be sufficient to support the level of exploration and production-related
activities necessary for the Company to grow or maintain its business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
COMPETITION
The Company's revenues and earnings are affected by a competitive oilfield
equipment industry, the introduction of new or improved products by competitors,
increases in the supply of, or improvements in the deliverability of, competing
products and significant price competition. The Company competes with a number
of entities, some of which may possess greater financial and other resources
than the Company. See "Business -- Competition."
INTEGRATION OF RECENT ACQUISITIONS
The Company recently consummated the Bowen Acquisition and the Cardwell
Acquisition and expects to evaluate and, where feasible, make additional
strategic acquisitions in the future. The Company expects to successfully
integrate the operations and assets of Bowen and Cardwell with those of IRI;
however, there is no guarantee that the Company will not encounter integration
difficulties or that it will extract expected cost savings and margin
enhancements.
7
<PAGE> 10
RISKS OF INTERNATIONAL SALES
On a pro forma basis, giving effect to the Acquisitions as if they had
occurred on January 1, 1996, for the twelve months ended December 31, 1996, 60%
of the Company's total revenues were earned from international sales of its
products, and as of June 30, 1997, approximately 79% of the Company's backlog
consisted of orders from customers outside of North America. International sales
may be subject to risks of instability of certain foreign economies, currency
fluctuations, risks of expropriation and changes in law affecting international
trade and investment. The Company attempts to mitigate certain financial risks
in sales to international markets by requiring, where commercially feasible,
cash advances, irrevocable letters of credit denominated in U.S. dollars and
confirmed by a United States money center bank or foreign equivalent or similar
credit support arrangements. See "Business -- Drilling and Well-Servicing
Rigs -- Backlog."
SIGNIFICANT CONTRACTS
A significant portion of the Company's revenues has historically been
derived from a limited number of rig manufacturing contracts. On a pro forma
basis, giving effect to the Acquisitions as if they had occurred on January 1,
1996, for the twelve month period ended December 31, 1996, 40% of the Company's
revenues were derived from five contracts with five customers. The cancellation
of any significant rig manufacturing contract or failure to replace such
contracts as they are completed could adversely affect future revenues. In
addition, the existence of a limited number of large contracts increases the
effect associated with potential cost overruns.
POTENTIAL PRODUCT LIABILITY AND WARRANTY CLAIMS
Certain products of the Company are used in potentially hazardous drilling,
completion and production applications that can cause personal injury or loss of
life, damage to property, equipment or the environment and suspension of
operations. In addition, claims for loss of oil and gas production and damages
to formations can occur in the workover business. The Company maintains
insurance coverage against such risks in such amounts as it believes to be in
accordance with normal industry practice. See "Business -- Risks and Insurance."
Such insurance does not, however, provide coverage for all liabilities
(including liabilities for certain events involving pollution), and there can be
no assurance that such insurance will be adequate to cover all losses or
liabilities that may be incurred by the Company in its operations. Moreover, no
assurance can be given that in the future the Company will be able to maintain
insurance at levels it deems adequate and at rates it considers reasonable or
that any particular types of coverage will be available. Litigation arising from
a major accident or occurrence at a location where the Company's equipment is
used may, in the future, result in the Company's being named as a defendant in
product liability or other lawsuits asserting potentially large claims. The
Company is a party to various legal and administrative proceedings which have
arisen for ongoing and discontinued operations. See "Business -- Legal
Proceedings." No assurance can be given with respect to the outcome of these or
any other pending legal and administrative proceedings or the effect such
outcomes may have on the Company.
IMPACT OF GOVERNMENTAL REGULATIONS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulation, including regulations relating to oilfield operations, worker safety
and the protection of the environment. The technical requirements of these laws
and regulations, particularly those related to the environment, are becoming
increasingly expensive, complex and stringent. 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, such as those curtailing
exploration for or production of oil and gas for economic or other policy
reasons. The Company cannot determine the extent to which its future operations
and earnings may be affected by new legislation, new regulations or changes in
existing regulations. See "Business -- Environmental Matters."
8
<PAGE> 11
RELIANCE ON MANAGEMENT
The Company is dependent on the services of several key management
personnel. The loss of the services of certain of these individuals could have a
material adverse effect on the Company. The Company does not maintain key-man
life insurance on any member of management. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDER
Following the Offering, Hushang Ansary, the Chairman of the Board and the
Chief Executive Officer of the Company, will directly own or have direct voting
control of approximately 47.6% of the outstanding shares (excluding shares owned
by his children) of Common Stock (assuming exercise of all vested options held
by Directors of the Company). See "Security Ownership of Certain Beneficial
Owners and Management." As a result of such ownership, Mr. Ansary may be able to
control the vote on matters submitted to stockholders, including the election of
members of the Company's Board of Directors. The interests of Mr. Ansary may not
always reflect the interests of other stockholders.
NO ANTICIPATED DIVIDENDS
The Company does not anticipate paying any dividends on the Common Stock in
the foreseeable future following the consummation of the Offering, and in
addition, the payment of dividends is limited by the terms of the Senior
Facility (as defined below). The Company intends to retain earnings to provide
funds for the continued growth and development of the Company's business. See
"Dividend Policy."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The Company intends to apply to have the Common Stock listed for trading
on the NYSE. However, there can be no assurance that an active public market for
the Common Stock will develop upon completion of the Offering or, if developed,
that such market will be sustained. The initial public offering price of the
Common Stock will be determined through negotiations among the Company, the
Selling Stockholders and the Underwriters and may bear no relationship to the
market prices of the Common Stock after the Offering. For information relating
to the factors to be considered in determining the initial public offering
price, see "Underwriting." Prices for the Common Stock after the Offering may be
influenced by a number of factors, including the liquidity of the market for the
Common Stock, the Company's results of operations, actual or anticipated
announcements of technical innovations or new products and services by the
Company or its competitors, general conditions in the oilfield services industry
and the oil and gas industry and general economic and other conditions. Sales of
substantial amounts of Common Stock in the public market, or the perception of
the availability of shares for sale, following the Offering could adversely
affect the prevailing market price of the Common Stock. Subject to Rule 144
restrictions, 27,000,000 shares of Common Stock will be eligible to be sold in
the public market within 180 days after the Offering. See "Shares Eligible for
Future Sale." Additionally, the Company has granted to each of the Directors not
employed by the Company options to purchase shares of Common Stock which
commence vesting on the date of the Offering. See "Management -- Stock Options."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. At an assumed initial public
offering price of $15.50 per share (the mid-point of the filing range), the
dilution to new investors would be $11.47 per share. See "Dilution."
9
<PAGE> 12
THE COMPANY
The Company is one of the world's largest manufacturers of land-based
drilling and well-servicing rigs and rig component parts for use in the global
oil and gas industry and is principally engaged in the design, manufacture,
service, sale and rental of onshore and offshore oilfield equipment for the
domestic and international markets. Through its IRI and Cardwell operations, the
Company designs and produces rigs to meet the special requirements of its global
clientele for service in remote areas and harsh climatic conditions. Through its
Bowen Tools Division, the Company is a leading manufacturer of downhole fishing
and drilling tools and offers a complete line of oilfield power equipment,
including top-drives, power-swivels, wireline pressure control equipment and
coiled tubing systems, which complement the Company's drilling and well-
servicing rigs. The Company also manufactures and maintains a significant
inventory of replacement parts for rigs produced by the Company and by others,
enabling it to meet the needs of its customers on a timely basis. As a result of
its diverse product lines and the availability, on a sale or rental basis, of
the products of the Bowen Tools Division, the Company is able to satisfy a wide
range of its customers' special requirements. Through its Specialty Steel
Division, the Company produces premium alloy steel for commercial and military
use and for use in manufacturing oilfield equipment products.
The Company markets its oilfield equipment primarily through its own sales
force and through designated agents and distributors in every major oil and gas
producing region in the world. The Company supplements its marketing efforts by
maintaining 27 domestic sales, parts and service centers in areas of significant
drilling and production operations and 7 international parts and service
centers. The Company's network of service centers in the United States provides
its customers with refurbishment or repair services as well as ready access to
replacement parts for equipment in the field. The Company's worldwide sales and
marketing activities are closely coordinated with and supported by a staff of
more than 50 engineers and design technicians, resulting in a competitive
advantage for the Company to provide its customers with products meeting
customized design specifications for drilling and well-servicing rigs and
associated equipment.
The Company has combined the global recognition of its strong brand names,
the extensive background and experience of its management team in international
markets and its commitment to technological excellence and high quality products
to achieve significant growth in a favorable industry climate. As of June 30,
1997, the Company's rig manufacturing backlog was $93.0 million. See
"Business -- Drilling and Well-Servicing Rigs -- Backlog." In the fiscal year
ended March 31, 1996, the nine month period ended December 31, 1996 and the six
month period ended June 30, 1997, the Company's revenues were $52.5 million,
$62.3 million and $57.8 million, respectively. Operating income for the same
periods was $7.6 million, $9.1 million and $4.2 million, respectively. Giving
pro forma effect to the Acquisitions as if they had been completed as of January
1, 1996, revenues and operating income for the twelve month period ended
December 31, 1996 and the six month period ended June 30, 1997 would have been
$188.4 million and $80.2 million, respectively. Pro forma operating income for
the same periods would have been $17.9 million and $5.3 million, respectively.
The Company's executive offices are located at 1000 Louisiana, Suite 5900,
Houston, Texas 77002, and its telephone number at that address is (713)
651-8002.
10
<PAGE> 13
USE OF PROCEEDS
Net proceeds to the Company from the Offering, calculated at an assumed
initial public offering price of $15.50 per share, are expected to be
approximately $128.5 million, after deducting underwriting discounts and
commissions and estimated offering expenses. The Company will use a portion of
the net proceeds of the Offering to repay indebtedness outstanding under the
Company's credit facilities, which consist of the Senior Notes, the Term Loan
and the Revolving Credit Facility (each as defined below and collectively, the
"Credit Facilities") as follows:
(i) $31.0 million to redeem the Senior Notes in full;
(ii) $64.5 million to repay in full the principal amount outstanding under
the Term Loan; and
(iii) $15.0 million to repay all amounts anticipated to be outstanding
under the Revolving Credit Facility.
The remaining proceeds to the Company of approximately $18.0 million will
be used for general corporate purposes, which may include, under certain
circumstances, the making of strategic acquisitions. See "Business -- Business
Strategy." Pending the application of the net proceeds of the Offering, such net
proceeds will be invested in short-term, investment grade, interest bearing
instruments. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders offered hereby.
The Credit Facilities consist of (i) a senior secured credit facility (the
"Senior Facility") and (ii) the Company's outstanding $31.0 million aggregate
principal amount Senior Subordinated Increasing Rate Notes (the "Senior Notes").
In March 1997, pursuant to the Senior Facility, certain financial institutions,
as lenders, Credit Lyonnais New York Branch, as a lender and as administrative
agent, and Lehman Commercial Paper Inc., an affiliate of Lehman Brothers Inc.,
as a lender and as advisor, arranger and syndication agent (collectively, the
"Lenders") provided to the Company a $65.0 million five-year term loan (the
"Term Loan") and a $25.0 million three-year revolving credit facility with a
$20.0 million sublimit for the issuance of letters of credit (the "Revolving
Credit Facility"). As of July 31, 1997, the outstanding indebtedness under the
Term Loan and the Revolving Credit Facility were $64.5 million and $9.0 million,
respectively. Absent a default or an event of default (as defined in the Senior
Facility), outstanding borrowings under the Term Loan accrue interest at a rate
per annum equal to one, two, three or six month LIBOR plus 3 1/4% and
outstanding borrowings under the Revolving Credit Facility accrue interest at a
rate per annum equal to one, two, three or six month LIBOR plus 2 3/4%. As of
July 31, 1997, the weighted average interest rate applicable to outstanding
borrowings under the Term Loan and the Revolving Credit Facility were 8.97% and
8.52%, respectively. For a description of the Senior Facility, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Senior Facility."
In March 1997, the Company issued the Senior Notes pursuant to a Senior
Subordinated Increasing Rate Note Purchase Agreement (the "Senior Notes
Agreement") to certain investors, as interim lenders, including Strategic
Resource Partners, an affiliate of Lehman Brothers Inc. As of July 31, 1997, the
principal amount of the outstanding Senior Notes was $31.0 million. As of July
31, 1997, the weighted average interest rate applicable to the outstanding
principal amounts of the Senior Notes was 12.27%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Senior Notes."
DIVIDEND POLICY
The Company does not anticipate paying any dividends on the Common Stock
for the foreseeable future following the consummation of the Offering. The
Company intends to retain earnings to provide funds for the continued growth and
development of the Company's business. Any determination to pay dividends in the
future will be at the discretion of the Board of Directors and will be dependent
upon the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant by the Board of Directors. In
addition, the payment of dividends is limited by the terms of the Senior
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
11
<PAGE> 14
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company at June 30, 1997 and (ii) the adjusted capitalization of the Company at
June 30, 1997 after giving effect to the Offering, certain changes in its
capital structure effected by the Company in contemplation of the Offering and
the application of the estimated net proceeds therefrom as described under "Use
of Proceeds." The net proceeds to the Company from the Offering (after deduction
of the underwriting discounts and commissions and estimated offering expenses
payable by the Company) are estimated to be approximately $128.5 million,
assuming an initial public offering price of $15.50 per share. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the pro forma financial
information and the financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current installments of long-term debt and current
obligations under capital lease........................ $ 2,970 $ 220
========= =========
Long-term debt and obligations under capital lease (less
current installments):
Obligations under capital lease (less current
installments).......................................... 468 468
Term Loan................................................. 62,250 --
Revolving Credit Facility................................. 6,000 --
Senior Notes.............................................. 31,000 --
Other..................................................... 563 563
--------- ---------
Total long-term debt...................................... 100,281 1,031
--------- ---------
Stockholders' equity:
Preferred Stock, $1.00 par value, 8,000,000 shares
authorized, 80,000 issued and outstanding (historical);
25,000,000 shares authorized, 0 issued and outstanding
(as adjusted)(1)....................................... 80 --
Common Stock, $.01 par value, 100,000,000 shares
authorized, 168,000 issued,163,600 outstanding
(historical); 100,000,000 shares authorized, 39,000,000
shares issued and outstanding (as adjusted)(1)......... 2 390
Additional paid-in capital.................................. 5,358 132,694
Retained earnings(2)........................................ 20,324 17,130
Treasury stock, 4,400 common shares at cost (historical), 0
shares (as adjusted)(1)................................... (440) --
--------- ---------
Total stockholders' equity............................. 25,324 150,214
--------- ---------
Total capitalization.............................. $ 128,575 $ 151,465
========= =========
</TABLE>
- ---------------
(1) Pursuant to the Merger, the Company increased its issued and outstanding
shares of Common Stock to 30,000,000, effected the cancellation of all
issued and outstanding shares of its preferred stock (including all accrued
and unpaid dividends thereon) and of the treasury stock. See "Certain
Relationships and Related Party Transactions -- Corporate Consolidation."
(2) As adjusted reflects a charge of $3.2 million for write-off of deferred debt
issuance costs associated with the Credit Facilities to be repaid with
proceeds of this Offering.
12
<PAGE> 15
DILUTION
"Dilution" means the difference between the initial public offering price
per share of Common Stock and the pro forma tangible book value per share of
Common Stock after giving effect to the Offering. Pro forma net tangible book
value per share represents the amount of tangible assets of the Company, less
total liabilities, divided by the number of shares of Common Stock outstanding.
The pro forma net tangible book value of the Company prior to the Offering at
June 30, 1997 was $28.6 million, or $0.95 per share of Common Stock. Without
taking into account any other changes in pro forma net tangible book value after
June 30, 1997, other than to give effect to the sale of 9,000,000 shares of
Common Stock offered hereby by the Company at an assumed offering price of
$15.50 per share (after deduction of the underwriting discount and other
estimated offering expenses and the application of the estimated net proceeds
therefrom as specified in "Use of Proceeds"), the pro forma net tangible book
value of the Company at June 30, 1997 would have been $157.0 million, or $4.03
per share. This represents an immediate increase in pro forma net tangible book
value of $3.08 per share of Common Stock to existing stockholders and an
immediate dilution of approximately $11.47 per share to new investors purchasing
shares in the Offering. The following table illustrates the per share dilution
to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.50
Pro forma net tangible book value per share as of June 30,
1997...................................................... 0.95
----
Increase per share attributable to new investors............ 3.08
----
Pro forma net tangible book value per share after the
Offering.................................................. 4.03
------
Dilution per share to new investors......................... $11.47
======
</TABLE>
The following table sets forth on a pro forma basis at June 30, 1997 the
number shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders (including the Selling Stockholders) and new investors
purchasing shares of Common Stock in the Offering, assuming an initial public
offering price of $15.50 per share (in thousands).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 30,000 77% 5,000 3% $ 0.17
New investors............................ 9,000 23% 139,500 97% $15.50
------- --- ------- ---
Total............................. 39,000 100% 144,500 100%
======= === ======= ===
</TABLE>
13
<PAGE> 16
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth (i) the unaudited pro forma condensed
consolidated balance sheet as of June 30, 1997 after giving effect to this
Offering, as if it had occurred on June 30, 1997, and (ii) the unaudited pro
forma condensed consolidated statements of income for the twelve months ended
December 31, 1996 and the six months ended June 30, 1997 after giving effect to
the Bowen Acquisition, the Cardwell Acquisition and this Offering, as if all of
such transactions had occurred on January 1, 1996. The unaudited pro forma
condensed consolidated balance sheet is based on the unaudited balance sheet of
the Company as of June 30, 1997, included elsewhere in this Prospectus. The
unaudited pro forma condensed consolidated statements of income are based on the
historical Statements of Income of the Company and unaudited financial
information related to the Acquisitions.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma financial
information does not purport to represent what the Company's financial position
or results of operations would actually have been had the transactions occurred
on the dates set forth above. In addition, the pro forma financial statements
are not necessarily indicative of the results of future operations of the
Company and should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and the related notes
thereto included elsewhere in this Prospectus.
14
<PAGE> 17
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
IRI HISTORICAL ADJUSTMENTS PRO FORMA
CONSOLIDATED FOR THE OFFERING CONSOLIDATED
-------------- ---------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................... $ 2,366 $ 128,453(a) $ 28,819
(102,000)(b)
Accounts receivable................................ 23,073 -- 23,073
Inventories........................................ 84,629 -- 84,629
Other current assets............................... 4,550 -- 4,550
-------- --------- --------
Total current assets....................... 114,618 26,453 141,071
Property, plant and equipment, net................... 38,354 -- 38,354
Excess of cost over fair value of net tangible assets
of businesses acquired, net........................ 5,842 -- 5,842
Other assets......................................... 5,377 (3,194)(b) 1,814
(369)(a)
-------- --------- --------
Total assets............................... $164,191 $ 22,890 $187,081
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........... $ 12,187 $ -- $ 12,187
Customer advances and security deposits............ 7,875 -- 7,875
Other liabilities.................................. 1,721 -- 1,721
Current installment of long-term debt and capital
lease........................................... 2,970 (2,750)(b) 220
-------- --------- --------
Total current liabilities.................. 24,753 (2,750) 22,003
Negative goodwill, net............................... 12,657 -- 12,657
Long-term debt and capital lease, less current
installments....................................... 100,281 (99,250)(b) 1,031
Accrued postretirement benefits...................... 1,176 -- 1,176
-------- --------- --------
Total liabilities.......................... 138,867 (102,000) 36,867
-------- --------- --------
Shareholders' equity:
Preferred stock.................................... 80 (80)(c) --
Common stock....................................... 2 90(a) 390
298(c)
Additional paid-in capital......................... 5,358 127,994(a) 132,694
(658)(c)
Retained earnings.................................. 20,324 (3,194)(b) 17,130
Less treasury stock, 4,400 common shares, at
cost............................................ (440) 440(c) --
-------- --------- --------
Total shareholders' equity................. 25,324 124,890 150,214
-------- --------- --------
Total liabilities and shareholders'
equity................................... $164,191 $ 22,890 $187,081
======== ========= ========
</TABLE>
15
<PAGE> 18
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR
ACQUISITIONS PRO FORMA
IRI CARDWELL BOWEN ------------------ FOR THE PRO FORMA
HISTORICAL HISTORICAL HISTORICAL CARDWELL BOWEN SUBTOTAL OFFERING CONSOLIDATED
---------- ---------- ---------- -------- ------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $75,663 $45,871 $66,857 $ -- $ -- $188,391 $ -- $188,391
Cost of goods sold(1)...... 53,030 35,885 36,636 (498)(d) -- 126,272 -- 126,272
1,219(e)
------- ------- ------- ------- ------- -------- ------- --------
Gross profit........... 22,633 9,986 30,221 (721) 62,119 62,119
Administrative and selling
expense.................. 10,810 8,026 25,362 48(e) 44,246 -- 44,246
------- ------- ------- ------- ------- -------- ------- --------
Operating income......... 11,823 1,960 4,859 (769) 17,873 -- 17,873
Other income (expense):
Interest expense......... (662) (646) -- (1,302)(f) (8,823)(f) (11,433) 10,125(g) (1,308)
Interest income.......... 251 116 -- -- -- 367 -- 367
Other, net............... (110) 123 (452) -- -- (439) -- (439)
------- ------- ------- ------- ------- -------- ------- --------
(521) (407) (452) (1,302) (8,823) (11,505) 10,125 (1,380)
------- ------- ------- ------- ------- -------- ------- --------
Income before taxes........ 11,302 1,553 4,407 (2,071) (8,823) 6,368 10,125 16,493
Income taxes............... (98) (407) (1,603) 301(h) 1,462(h) (345) (1,551)(h) (1,896)
------- ------- ------- ------- ------- -------- ------- --------
Net income............. 11,204 1,146 2,804 (1,770) (7,361) 6,023 8,574 14,597
Preferred stock dividend
requirements............. (800) -- -- -- -- (800) 800(i) --
------- ------- ------- ------- ------- -------- ------- --------
Net income attributable
to outstanding common
stock................ $10,404 $ 1,146 $ 2,804 $(1,770) $(7,361) $ 5,223 $ 9,374 $ 14,597
======= ======= ======= ======= ======= ======== ======= ========
Net income per common share $ 63.59 $ 31.93 $ 0.37
======= ======== ========
Weighted average shares
outstanding.............. 164 164 38,836(j) 39,000
======= ======== ======= ========
</TABLE>
- ---------------
(1) Cost of goods sold is adjusted for amortization of negative goodwill. See
Notes to Pro Forma Condensed Consolidated Statement of Operations and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
16
<PAGE> 19
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR
ACQUISITIONS PRO FORMA
IRI CARDWELL BOWEN ------------------ FOR THE PRO FORMA
HISTORICAL HISTORICAL HISTORICAL CARDWELL BOWEN SUBTOTAL OFFERING CONSOLIDATED
---------- ---------- ---------- -------- ------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $57,785 $5,818 $16,592 $ -- $ -- $80,195 $ -- $80,195
Cost of goods sold(1)........ 44,631 4,736 8,141 (125)(d) -- 57,668 -- 57,688
305(e)
------- ------ ------- ----- ------- ------- ------- -------
Gross profit............... 13,154 1,082 8,451 (180) -- 22,507 -- 22,507
Administrative and selling
expense.................... 8,928 1,016 7,257 12(e) 17,213 -- 17,213
------- ------ ------- ----- ------- ------- ------- -------
Operating income (loss).... 4,226 66 1,194 (192) 5,294 5,294
Other income (expense):
Interest expense........... (3,147) (132) -- (365)(f) (2,240)(f) (5,884) 5,604(g) (280)
Interest income............ 79 41 -- -- -- 120 -- 120
Other, net................. (569) 22 124 -- -- (423) -- (423)
------- ------ ------- ----- ------- ------- ------- -------
Income (loss) before taxes... 589 (3) 1,318 (557) (2,240) (893) 5,604 4,711
Income taxes................. (168) -- (493) -- 323(h) (338) (512)(h) (850)
------- ------ ------- ----- ------- ------- ------- -------
Net income (loss).......... 421 (3) 825 (557) (1,917) (1,231) 5,092 3,861
Preferred stock dividend
requirements............... (400) -- -- (400) 400(i) --
------- ------ ------- ----- ------- ------- ------- -------
Net income attributable to
outstanding common
stock.................... $ 21 $ (3) $ 825 $(557) $(1,917) $(1,631) $ 5,492 $ 3,861
======= ====== ======= ===== ======= ======= ======= =======
Net income per common
share...................... $ 0.13 $ 9.97 $ 0.10
======= ======= =======
Weighted average shares
outstanding................ 164 164 38,836(j) 39,000
======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
(1) Cost of goods sold is adjusted for amortization of negative goodwill. See
Notes to Pro Forma Condensed Consolidated Statement of Operations and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
17
<PAGE> 20
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
GENERAL
The following sets forth the assumptions used in preparing the unaudited
pro forma condensed consolidated financial statements. The pro forma adjustments
are based on estimates made by the Company's management using information
currently available. For purposes of preparing these unaudited pro forma
condensed consolidated financial statements, the allocations of the purchase
prices of the Cardwell Acquisition and the Bowen Acquisition were based on
preliminary purchase price allocations and are subject to change pending the
completion of detailed evaluation and appraisal of the assets acquired and
liabilities assumed.
The pro forma condensed statement of income for the year ended December 31,
1996 does not include $1.6 million of additional cost of sales related to the
purchase price allocation to inventory which is expected to be sold in the year
following the Bowen Acquisition. The pro forma condensed consolidated statement
of income for the year ended December 31, 1996 does not reflect amortization of
debt acquisition costs ($3,194,000) associated with the Company's indebtedness
assumed to be retired with Offering proceeds as described in (f).
PRO FORMA ADJUSTMENTS
BALANCE SHEET
(a) To record the sale by the Company of 9,000,000 shares of Common Stock
at $15.50 per share in this Offering after deducting estimated
underwriting commissions of $9,416,250 and offering expenses of
$2,000,000, including $369,000 incurred as of June 30, 1997.
(b) To record the reduction of indebtedness and write-off of related
deferred debt issuance costs of the Company through the application of
a portion of the net proceeds to the Company from this Offering.
(c) To record the cancellation of preferred stock outstanding and
cancellation of treasury stock outstanding prior to this Offering.
STATEMENTS OF INCOME
(d) To reverse payments under license agreements for the use of trademark,
patterns and prints purchased by the Company as part of the Cardwell
Acquisition.
(e) To record additional depreciation and amortization expense as a result
of the purchase price allocations of the net assets acquired in the
Acquisitions as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
ESTIMATED LIFE 1996 1997
-------------- ------------ ----------
<S> <C> <C> <C>
Additional depreciation of Cardwell
Acquisition property, plant and
equipment.................................. 7 to 30 years $ 48,000 $ 12,000
Amortization of excess of cost over fair
value of Cardwell net tangible assets
acquired................................... 5 years 403,000 101,000
Amortization of excess of cost over fair
value of Cardwell affiliate tangible assets
acquired................................... 5 years 816,000 204,000
---------- --------
$1,267,000 $317,000
========== ========
</TABLE>
(f) To record additional interest expense and related amortization of debt
issuance costs associated with Company indebtedness incurred related to
the Acquisitions. Amortization of debt issuance costs is
18
<PAGE> 21
based on the interest method. Interest expense was estimated based on the
average 90-Day LIBOR as of June 30, 1997 plus the applicable percentage as
specified in the debt agreements.
(g) To record reduction in interest expense and amortization of debt
issuance costs for repayment of Company indebtedness related to the
Acquisitions.
(h) To record the income tax related to the effects of the pro forma
adjustments.
(i) To eliminate preferred stock dividend requirements after the
cancellation of preferred stock prior to this Offering.
(j) To adjust weighted average shares outstanding to reflect an increase to
30,000,000 in the number of shares of Common Stock outstanding prior to
the Offering and issuance of 9,000,000 shares of Common Stock in
conjunction with the Offering.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company. The information presented for the period from September 20,
1994 through March 31, 1995, for the year ended March 31, 1996 and the nine
month period ended December 31, 1996 is derived from the audited financial
statements of the Company. The information presented for the period from April
1, 1994 through September 19, 1994 is derived from the audited financial
statements of the Company while owned by Dresser Industries, Inc. and
Ingersoll-Rand Corporation (the "Predecessor"). The information presented as of
and for the years ended March 31, 1993 and 1994 is derived from the unaudited
financial statements of the Company while owned by the Predecessor. The
information for the nine month period ended December 31, 1995 is derived from
the unaudited financial statements of the Company. The information presented as
of June 30, 1997 and for the six month periods ended June 30, 1996 and 1997 is
derived from the unaudited financial statements of the Company, which include
all adjustments that the Company considers necessary for a fair presentation of
the financial position and results of operations for those periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1997.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements of the Company, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------------------------------- ----------------------------------------------
PERIOD FROM PERIOD FROM NINE MONTHS
YEARS ENDED APRIL 1, 1994 SEPTEMBER 20, ENDED
MARCH 31, THROUGH 1994 THROUGH YEAR ENDED DECEMBER 31,
------------------- SEPTEMBER 19, MARCH 31, MARCH 31, -----------------
1993 1994 1994 1995 1996 1995 1996
-------- -------- ------------- ------------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue......................... $ 45,547 $ 95,312 $16,473 $20,206 $52,506 $39,141 $62,298
Cost of goods sold(1)........... 46,747 87,073 16,216 14,058 36,877 28,815 44,968
-------- -------- ------- ------- ------- ------- -------
Gross profit (loss)............. (1,200) 8,239 257 6,148 15,629 10,326 17,330
Selling and administrative
expense....................... 5,430 5,027 2,102 2,305 7,990 5,400 8,220
-------- -------- ------- ------- ------- ------- -------
Operating income (loss)......... (6,630) 3,212 (1,845) 3,843 7,639 4,926 9,110
Interest expense................ (7,981) (7,015) (2,675) (25) (47) -- (615)
Other income
(expense) -- net(2)........... (17,257) (617) 106 8 371 210 (20)
Income taxes.................... -- -- -- (263) -- -- (98)
-------- -------- ------- ------- ------- ------- -------
Net income (loss)............... (31,868) (4,420) (4,414) 3,563 7,963 5,136 8,377
Preferred stock dividend
requirements.................. (800) (800) (400) (400) (800) (600) (600)
-------- -------- ------- ------- ------- ------- -------
Net income (loss) attributable
to outstanding common stock... $(32,668) $ (5,220) $(4,814) $ 3,163 $ 7,163 $ 4,536 $ 7,777
======== ======== ======= ======= ======= ======= =======
Weighted average shares
outstanding................... 164 164 164 164 164 164 164
======== ======== ======= ======= ======= ======= =======
Income (loss) per common
share......................... $(199.68) $ (31.91) $(29.43) $ 19.33 $ 43.78 27.73 $ 47.54
======== ======== ======= ======= ======= ======= =======
<CAPTION>
THE COMPANY
-----------------
SIX MONTHS
ENDED JUNE 30,
-----------------
1996 1997
------- -------
<S> <C> <C>
OPERATING DATA:
Revenue......................... $29,347 $57,785
Cost of goods sold(1)........... 21,149 44,631
------- -------
Gross profit (loss)............. 8,198 13,154
Selling and administrative
expense....................... 5,295 8,928
------- -------
Operating income (loss)......... 2,903 4,226
Interest expense................ (207) (3,147)
Other income
(expense) -- net(2)........... 213 (490)
Income taxes.................... -- (168)
------- -------
Net income (loss)............... 2,909 421
Preferred stock dividend
requirements.................. (400) (400)
------- -------
Net income (loss) attributable
to outstanding common stock... $ 2,509 $ 21
======= =======
Weighted average shares
outstanding................... 164 164
======= =======
Income (loss) per common
share......................... $ 15.34 $ 0.13
======= =======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
-------------------- ----------------------------------------------
MARCH 31,
------------------------------------------ DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1996 1997
-------- -------- ------- ------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $(45,343) $(47,776) $33,767 $35,461 $38,658 $ 89,865
Total assets........................................... 97,655 71,200 39,644 46,631 58,671 164,191
Long-term debt and obligation under capital lease, less
current installments................................. -- -- -- -- 522 100,281
Shareholder's equity................................... (56,063) (60,483) 8,563 16,526 24,903 25,324
</TABLE>
- ---------------
(1) Cost of goods sold is adjusted for amortization of negative goodwill. See
Notes to Pro Forma Condensed Consolidated Statement of Operations and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
(2) Other expense for the year ended March 31, 1993 includes a charge of
approximately $17.5 million related to the adoption of Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions."
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Prospectus.
GENERAL
The Company is one of the world's largest manufacturers of land-based
drilling and well-servicing rigs and rig component parts for use in the domestic
and international markets. The Company's revenues are thus substantially
dependent upon the condition of the oil and gas industry and worldwide levels of
exploration, development and production activity, including the number of oil
and gas wells being drilled, the depth and drilling conditions of such wells,
the number of well completions and the level of workover activity. Exploration,
development and production activity is largely dependent on the prevailing view
of future oil and natural gas prices which have been characterized by
significant volatility over the last 20 years. Oil and natural gas prices are
influenced by numerous factors affecting the supply of and demand for oil and
gas, including the level of drilling activity, worldwide economic activity,
interest rates and the cost of capital, environmental regulation, tax policies,
political requirements of national governments, coordination by OPEC and the
cost of producing oil and gas. Demand for the Company's products in certain
emerging market countries may depend somewhat less on the prevailing view of
future oil and natural gas prices as such countries may generally place greater
emphasis on their need for internal development, energy self-sufficiency or hard
currency earnings.
The Company has achieved significant growth in recent years through the
efforts of its experienced management team and its focus on expanding the
Company's international sales and marketing activities, while also taking
advantage of the favorable industry climate in the United States. The Company's
revenues were $36.7 million, $52.5 million and $62.3 million, respectively, in
the fiscal year ended March 31, 1995 (which included the results of operations
of the Predecessor from April 1, 1994 through September 19, 1994), for the
fiscal year ended March 31, 1996 and for the nine month period ended December
31, 1996. Operating income for the same periods was $2.0 million, $7.6 million
and $9.1 million, respectively. As discussed below, the Company Acquisition (as
defined below) was recorded using the purchase method of accounting, making
operating income for the fiscal year ended March 31, 1995 not comparable to
operating income for later periods.
An important component of the Company's growth strategy has been, and will
continue to be, to evaluate and, where feasible, make strategic acquisitions
that (i) strengthen the Company's market share for existing products, (ii)
diversify the Company's product lines in key business segments or (iii) increase
the Company's geographic diversity. In furtherance of these strategies, the
Company recently acquired the businesses and operations of Bowen and Cardwell.
See "-- Capital Expenditures and Acquisitions."
The Company currently expects that 1997 results will continue to benefit
from the favorable industry climate. The Acquisitions are also expected to
result in increased revenue and, over time, improved margins. Results, however,
will be dependent on market conditions, in particular the level of worldwide oil
and gas exploration and production activity. Accordingly, there can be no
assurance as to future results and profitability.
On September 20, 1994, all of the outstanding stock of the Company was
acquired by an affiliate of the Selling Stockholders for $5 million in cash (the
"Company Acquisition"). The Company Acquisition was recorded using the purchase
method of accounting and the purchase price allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of the Company
Acquisition. The excess of the fair value of net assets acquired over
consideration paid was applied against nonmonetary assets (property, plant and
equipment), reducing the balances at the date of the Company Acquisition to
zero. The remaining excess of the fair value of net assets acquired over
consideration paid was recorded as negative goodwill in the amount of $26.8
million and is being amortized using the straight-line method over five years
ending September 19, 1999. The comparability of the results of operations
between the periods ended March 31, 1995 (which included the results of
operations of the Predecessor from April 1, 1994 to September 19, 1994) and
March 31, 1996 is affected by, in addition to the amortization of negative
goodwill (which reduces the post-
21
<PAGE> 24
Company Acquisition cost of sales), the exclusion of depreciation expense
related to fixed assets written down to zero on the Company Acquisition date,
both of which have a positive effect on earnings. See Note 1 to the Consolidated
Financial Statements. Amortization of negative goodwill decreased cost of goods
sold by $2.7 million in each of the six month periods ended June 30, 1997 and
June 30, 1996, $4.0 million in each of the nine month periods ended December 31,
1996 and December 31, 1995, $5.4 million in the year ended March 31, 1996 and
$2.7 million for the period from September 20, 1994 through March 31, 1995.
RESULTS OF OPERATIONS
Sales of new rigs manufactured by the Company can produce large
fluctuations in revenues depending on the size and timing of the shipment of
orders. Individual orders of rig packages range from $1 million to $25 million
and cycle times for the design, engineering and manufacturing of rig packages
range from six to nine months. These fluctuations affect the Company's revenues
and operating income.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues and operating income were $57.8 million and $4.2 million,
respectively, for the six month period ended June 30, 1997, as compared to $29.3
and $2.9, respectively, for the six month period ended June 30, 1996. For the
six month period ended June 30, 1997, revenues and operating income/(loss)
reflect contributions thereto by Bowen of $19.7 million and $1.4 million,
respectively, and by Cardwell of $4.8 million and $(.3) million, respectively.
The increases in revenues and operating income were primarily the result of the
Acquisitions. Gross margin for the six month period ended June 30, 1997 was
22.8%, as compared to 27.9% for the six month period ended June 30, 1996. This
decrease resulted principally from the inclusion of the results of Bowen's
operations (gross margin of 23.1%) and Cardwell's operations (gross margin of
8.7%) in the results for the six month period ended June 30, 1997.
Selling and administrative expenses were $8.9 million for the six month
period ended June 30, 1997 as compared to $5.3 million for the six month period
ended June 30, 1996. The increase was due primarily to the inclusion of Bowen
and Cardwell's selling and administrative expenses of $3.1 million and $0.7
million, respectively, for the 1997 period.
Interest expense increased from $0.2 million for the six month period ended
June 30, 1996 to $3.1 million for the six month period ended June 30, 1997. The
increase in interest expense is a result of (i) borrowings on March 31, 1997
under the Term Loan facility and the issuance of the Senior Notes on such date
to fund the Acquisitions and (ii) borrowings under the Revolving Credit Facility
during the period to fund working capital requirements of Cardwell.
NINE MONTHS ENDED (FISCAL YEAR) DECEMBER 31, 1996 COMPARED TO NINE MONTHS
ENDED DECEMBER 31, 1995
Revenues and operating income were $62.3 million and $9.1 million,
respectively, for the nine month period ended December 31, 1996 as compared to
$39.1 million and $4.9 million, respectively, for the nine month period ended
December 31, 1995. The increases in revenues and operating income were primarily
attributable to an increase in sales of the Company's oilfield equipment
products to exploration and production companies and contract drillers. The
elevated levels of sales of the Company's products reflected the increased oil
and gas exploration and production activity worldwide. Gross margin for the nine
month period ended December 31, 1996 was 27.8% compared to 26.4% for the nine
month period ended December 31, 1995, reflecting a different product mix sold by
the Company in each period.
Selling and administrative expenses were $8.2 million, representing 13.2%
of revenues, for the nine month period ended December 31, 1996 and $5.4 million,
representing 13.8% of revenues, for the nine month period ended December 31,
1995. The higher levels of selling and administrative expense were a consequence
of increased international sales efforts.
Interest expense was $0.6 million for the nine month period ended December
31, 1996, compared to $0.2 million of interest income for the nine month period
ended December 31, 1995, due to borrowings by the Company under a former credit
facility established in April 1996. The funds borrowed were used by the
22
<PAGE> 25
Company to fund increased working capital needs necessitated by the increases in
the orders for its oilfield equipment products during the nine month period
ended December 31, 1996.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
The results of operations for the year ended March 31, 1995 include
approximately 5 1/2 months of operations of the Predecessor. The application of
the purchase method of accounting in connection with the Company Acquisition
makes the results of operations for the fiscal year ended March 31, 1995 not
comparable to the fiscal year ended March 31, 1996 or later periods.
The Company Acquisition was recorded using the purchase method of
accounting and the purchase price was allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of the acquisition.
See "-- General" and Note 1 to the Consolidated Financial Statements.
Revenues were $52.5 million in the fiscal year ended March 31, 1996,
compared to $36.7 million in the fiscal year ended March 31, 1995 (which
included the results of operations of the Predecessor from April 1, 1994 to
September 19, 1994). This increase was due primarily to an increase in sales of
the Company's oilfield equipment products to exploration and production
companies and contract drillers, resulting from the increase in oil and gas
production activities worldwide and management's focus on expanding the
Company's international marketing activities and sales. As a result of the
application of the purchase method of accounting to the Company Acquisition,
operating income, gross margin and selling and administrative expenses for the
fiscal year ended March 31, 1995 are not comparable to the fiscal year ended
March 31, 1996 or later periods.
ACCOUNTING POLICIES
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The methodology
required by SFAS No. 121 is not materially different from the Company's past
practice, and its adoption on April 1, 1996 did not have a material impact on
the Company's financial position.
In March 1997, the Company changed its fiscal year from a March 31 year-end
to a December 31 year-end, effective with the period ending December 31, 1996,
in order to harmonize the fiscal years of IRI, Cardwell and Bowen.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock or potential common
stock. This Statement is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The Company believes the adoption of this statement will not have a
material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. The Company believes the adoption of
this statement will not have a material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effect of adoption of this statement on
its financial statements.
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents of $2.4
million, compared to $8.6 million at December 31, 1996. At June 30, 1997, the
Company's working capital was $89.9 million, compared to $38.7 million at
December 31, 1996. The increase in working capital at June 30, 1997 was
attributable to the establishment of the Credit Facilities and the consummation
of the Acquisitions.
At June 30, 1997, the Company's debt to total capitalization ratio was
approximately 80.3%.
On March 31, 1997, the Company established the Credit Facilities and
borrowed approximately $98 million thereunder, primarily to fund the
Acquisitions. The Credit Facilities replaced a $15 million revolving credit
facility established in April 1996. At July 31, 1997, approximately $17.7
million was available for additional borrowings under the Credit Facilities, and
the average interest rate under the Credit Facilities was 10%.
The Credit Facilities consist of the Senior Facility, which includes the
Term Loan and the Revolving Credit Facility, and the Senior Notes. With proceeds
of the Offering, the Company will redeem fully the Senior Notes, repay in full
the outstanding balance of Term Loan and reduce the outstanding balance of the
Revolving Credit Facility to zero. See "Use of Proceeds."
The Senior Facility
The Company is permitted to make voluntary prepayments of amounts
outstanding under the Term Loan at any time without premium or penalty. Amounts
prepaid may not be reborrowed. The Revolving Credit Facility matures on March
31, 2000, and prior thereto amounts repaid may be reborrowed.
The Company's obligations under the Senior Facility are secured by first
priority security interests in substantially all of the assets of the Company,
including all personal property and material real property, the pledge by the
Company of all of the outstanding capital stock of Cardwell and the pledge by
the Company or Cardwell, as the case may be, of 66% of the outstanding capital
stock of each of the Company's direct and indirect foreign subsidiaries. Such
obligations are also guaranteed by Cardwell.
The Senior Facility contains certain representations and warranties and
covenants customary for facilities of this type, including: (i) financial
maintenance tests consisting of a fixed charge coverage ratio, an interest
coverage ratio, a leverage ratio and a minimum EBITDA test; (ii) conduct of
business, preservation of corporate existence, compliance with laws, maintenance
of properties and insurance, maintenance of interest rate protection and
reporting requirements; and (iii) limitations (subject to certain baskets and
exceptions) on indebtedness, liens, guarantees, mergers and acquisitions, asset
sales, cash dividends and stock repurchases and redemptions, capital
expenditures, leases, investments, loans and advances, optional prepayments of
indebtedness, modifications of the documentation relating to the Senior Notes,
material amendments to the Company's organizational documents, transactions with
affiliates, changes in the Company's fiscal year, negative pledge clauses,
changes in lines of business and creation of foreign subsidiaries.
The Senior Facility contains events of default customary for facilities of
this type, including: (i) the nonpayment of principal, interest or other amounts
due under the Senior Facility when due; (ii) breaches of representations and
warranties by the Company; (iii) the failure of the Company to observe certain
covenants contained in the Senior Facility, subject to applicable cure periods;
(iv) the nonpayment of principal or interest on certain other indebtedness of
the Company having an outstanding principal amount of $1.0 million or more; (v)
the occurrence of certain events of insolvency or bankruptcy involving the
Company; (vi) the occurrence of certain events under ERISA; (vii) a judgment for
the payment of money in the amount of $1.0 million or more being rendered
against the Company and not being discharged, stayed or bonded pending appeal
for a period of 60 days; (viii) the failure of any of the security documents
securing the Senior Facility to be in full force and effect or to create
enforceable security interests; and (ix) certain changes in control of the
Company.
24
<PAGE> 27
Senior Notes
The Senior Notes currently bear interest at a rate per annum equal to
three-month LIBOR plus 6 1/2%, and will be fully redeemed out of proceeds from
the Offering.
The Senior Notes may be redeemed at the option of the Company, in whole or
in part, at a redemption price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest to the date of redemption.
CAPITAL EXPENDITURES AND ACQUISITIONS
On March 31, 1997, the Company acquired substantially all of the assets and
business of Bowen from Air Liquide America Corporation for a purchase price of
approximately $73.1 million, and established its Bowen Tools Division. On April
17, 1997, the Company acquired all of the outstanding capital stock of Cardwell,
a privately owned company, as well as certain assets held by affiliates of
Cardwell, for approximately $12.0 million in cash and partial payment ($3.0
million) of a note payable to one of Cardwell's bank lenders. In addition, the
Company incurred approximately $2.4 million ($1.8 million for Bowen and $0.6
million for Cardwell) of transaction costs in connection with the Acquisitions.
The Acquisitions were financed with the proceeds of the Credit Facilities.
The Acquisitions have been recorded using the purchase method of
accounting, and the results of operations of the acquired companies will be
included in the statement of operations of the Company from the date of the
respective closings.
In addition to funds used to finance the Acquisitions, capital expenditures
by the Company during the twelve months ended June 30, 1997 totaled $11.8
million. During the nine month period ended December 31, 1996, on a pro forma
basis, capital expenditures were $6.4 million and included those relating to
information technology hardware and software, the re-opening of the Company's
Beaumont, Texas plant, which had been closed since 1985, and the purchase of
machinery and equipment at its Pampa, Texas facility.
For the six months ended June 30, 1997, the Company used cash flow in
operations of $8.2 million primarily to increase inventory levels to support
anticipated increases in sales. The Company believes that cash generated from
operations, amounts available under the Revolving Credit Facility and proceeds
from this Offering will be sufficient to fund operations, working capital needs,
capital expenditure requirements and financing obligations.
Ongoing routine capital expenditures for the last two quarters of 1997 are
budgeted at $5.3 million and include approximately $1.2 million for the MRP2
system, $2.1 million for purchases of equipment facilities and $2.0 million for
the purchase of equipment for use in the Bowen Tools Division's rental tool
operations. Capital expenditures are expected to be funded with available cash,
cash flow from operations and borrowings under the Revolving Credit Facility.
25
<PAGE> 28
BUSINESS
The Company is one of the world's largest manufacturers of land-based
drilling and well-servicing rigs and rig component parts for use in the global
oil and gas industry and is principally engaged in the design, manufacture,
service, sale and rental of onshore and offshore oilfield equipment for the
domestic and international markets. Through its IRI and Cardwell operations, the
Company designs and produces rigs to meet the special requirements of its global
clientele for service in remote areas and harsh climatic conditions. Through its
Bowen Tools Division, the Company is a leading manufacturer of downhole fishing
and drilling tools and offers a complete line of oilfield power equipment,
including top drives, power-swivels, wireline pressure control equipment and
coiled tubing systems, which complement the Company's drilling and well-
servicing rigs. The Company also manufactures and maintains a significant
inventory of replacement parts for rigs produced by the Company and by others,
enabling it to meet the needs of its customers on a timely basis. As a result of
its diverse product lines and the availability, on a sale or rental basis, of
the products of the Bowen Tools Division, the Company is able to satisfy a wide
range of its customers' special requirements. Through its Specialty Steel
Division, the Company produces premium alloy steel for commercial and military
use and for use in manufacturing oilfield equipment products.
The Company markets its oilfield equipment primarily through its own sales
force and through designated agents and distributors in every major oil and gas
producing region in the world. The Company supplements its marketing efforts by
maintaining 27 domestic sales, parts and service centers in areas of significant
drilling and production operations and 7 international parts and service
centers. The Company's network of service centers in the United States provides
its customers with refurbishment or repair services as well as ready access to
replacement parts for equipment in the field. The Company's worldwide sales and
marketing activities are closely coordinated with and supported by a staff of
more than 50 engineers and design technicians, resulting in a competitive
advantage for the Company to provide its customers with products meeting
customized design specifications for drilling and well-servicing rigs and
associated equipment.
The Company has combined the global recognition of its strong brand names,
the extensive background and experience of its management team in international
markets and its commitment to technological excellence and high quality products
to achieve significant growth in a favorable industry climate. As of June 30,
1997, the Company's rig manufacturing backlog was $93.0 million. See
"-- Drilling and Well-Servicing Rigs -- Backlog." In the fiscal year ended March
31, 1996, the nine month period ended December 31, 1996 and the six month period
ended June 30, 1997, the Company's revenues were $52.5 million, $62.3 million
and $57.8 million, respectively. Operating income for the same periods was $7.6
million, $9.1 million and $4.2 million, respectively. Giving pro forma effect to
the Acquisitions as if they had been completed as of January 1, 1996, revenues
for the twelve month period ended December 31, 1996 and the six month period
ended June 30, 1997 would have been $188.4 million and $80.2 million,
respectively. Pro forma operating income for the same periods would have been
$17.9 million and $5.3 million, respectively.
The Company, which traces its history in the oilfield equipment industry
for nearly 100 years, was acquired in 1994 from Dresser Industries, Inc. and
Ingersoll-Rand Corporation.
BUSINESS STRATEGY
The Company's business strategy is to continue its significant expansion
and growth as a leader in the design, manufacture, service, sale and rental of
oilfield equipment products by:
Leveraging Strong Brand Names and Leading Market Shares. The Company
manufactures its drilling rigs and well-servicing rigs and component parts under
internationally recognized brand names which include IDECO(R), FRANKS(R),
CARDWELL(R), CABOT(TM) and IRI(TM). The Company manufactures fishing and
drilling tools, top drives, power-swivels and coiled tubing systems under the
BOWEN(R) brand name. The Company believes the majority of the land-based
drilling rigs and well-servicing rigs currently operating worldwide were
manufactured by it or its predecessors. The Company estimates that BOWEN(R)
fishing tools, considered the industry standard since they were first introduced
by S.R. Bowen in 1930, maintain an approximate 50% share of the worldwide market
for such products. Under the BOWEN(R) brand name, the
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Company maintains the leading market share in power-swivels and is among the
market leaders in drilling tools and wireline equipment. The Company believes it
will benefit significantly from increased demand for oilfield equipment and
products as customers seek to obtain new equipment or replace existing equipment
with similarly branded products.
Building on Manufacturing, Engineering and Design Capabilities. The
Company manufactures a substantial portion of the equipment and components for
its rigs, as contrasted with most of its competitors, which primarily assemble
components manufactured by third parties. The Company's integrated design,
engineering and manufacturing process is central to the production of its high
quality products and enables the Company to provide its customers with products
meeting customized design specifications. The Company employs more than 50
people on its engineering and design staff and maintains a research and
development program to develop creative solutions for its customers. Recent
innovations include rotating substructures for drilling rigs, hydraulic disc
brake systems for drawworks, skidding systems for 270 ton and 400 ton drilling
rigs and the V/S 110/130 power-swivel. The Company believes its manufacturing,
engineering and design capabilities give it a strategic competitive advantage.
Capitalizing on Strategic Acquisitions. The Company expects to evaluate
and, where feasible, make strategic acquisitions that (i) strengthen the
Company's market shares for existing products, (ii) diversify the Company's
product lines in key business segments or (iii) increase the Company's
geographic diversity. The Company believes that strategic acquisitions should
also enhance profitability by leveraging the Company's existing products,
engineering and design capabilities, sales force or network of parts and service
centers. The Company believes the recent Bowen Acquisition and Cardwell
Acquisition were consistent with these criteria, and the Company will seek to
capitalize on similar opportunities when available.
Emphasizing Recurring Revenue Businesses. The Company intends to focus on
its recurring revenue businesses to mitigate the effects of potential
fluctuations in the worldwide demand for rigs. The Company's replacement parts
business takes advantage of the increased demand for parts required by the aging
worldwide rig fleet, which was generally constructed prior to 1982. The Company
is well positioned to provide replacement parts as a result of the large number
of operating rigs manufactured under the Company's brand names and the
preference of equipment owners to obtain replacement parts fabricated by the
original manufacturer. The Company's rental tool business takes advantage of the
increased number of customers who prefer to rent or lease equipment on a
temporary basis.
Increasing Efficiency and Cost Containment. The Company is in the process
of implementing MRP2, a fully-integrated business planning and control system
supported by Baan and Symix software packages designed to increase productivity
and enhance the Company's ability to coordinate design engineering, raw material
orders and deliveries and manufacturing schedules. The Company expects the new
system to increase the Company's ability to process large orders simultaneously
and reduce working capital requirements by shortening cycle times. The MRP2
system should enable the Company to improve its profit margin and respond more
effectively to the current strong demand for oilfield equipment products and
services.
DRILLING AND WELL-SERVICING RIGS
The Company designs, constructs and sells a complete line of drilling and
well-servicing rigs which utilize component parts manufactured by the Company
under the IDECO(R), FRANKS(R), CARDWELL(R), CABOT(TM) and IRI(TM) brand names.
The sale of drilling and well-servicing rigs accounted for $24.3 million of the
Company's revenues for the six month period ended June 30, 1997.
A drilling rig is used to bore an oil production hole and to install pipe
in order for the continuous extraction of oil to begin. A well-servicing rig
performs services on producing wells in need of service in order to sustain or
accelerate production, including removing the existing well head equipment,
installing or pulling up the down-hole pump, installing or pulling up the
existing pipe and reversing this process by installing new pipe and replacing
the down-hole pump and well head. A well-servicing rig also handles certain
completion operations that must take place before the oil extraction process can
begin.
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The Company specializes in manufacturing highly mobile rigs that are
designed to meet the specified requirements of its customers, many of whom
demand products suitable for harsh and remote environments, including arctic,
desert and jungle locations. In addition, the Company manufactures offshore
platform well-servicing rigs in modular, easily transported units that allow for
a significant reduction in the time and expense historically associated with
offshore workover operations.
A typical well-servicing rig package consists of a mast, guy wires for
stability, drawworks (or large winch) and multiple motors mounted on a truck
chassis. A drilling rig package is equipped with modules including engines, an
AC/DC converter, rotary table with substructure, mast to support the drill
string, racking for pipe, tools, air compressors and a mud pump system. The
hoisting system, which consists of a mast or derrick, drawworks, crown block,
traveling block and deadline anchor, is used to raise and lower the drill pipe.
Power transmission from electric motors or diesel engines to the drawworks,
rotary table and mud pumps is through a drive group. The mud system, which
consists of separators, degassers, hoppers, valves and pumps, is used to
circulate and clean drilling mud which carries the cuttings from the drill bit
to the surface. The function of a rig, either drilling or well-servicing,
dictates the size of the rig chassis, drawworks and mast, and also determines
the type of equipment necessary for operation.
In addition to the production of complete drilling and well-servicing rigs,
the Company designs, manufactures and sells component products used in the
original construction, modernization or repair of land and offshore rigs under
its IDECO(R), FRANKS(R), CARDWELL(R), CABOT(TM) and IRI(TM) brand names,
including masts, derricks, substructures and other components used in hoisting,
power transmission, pumping and mud systems.
Products
The Company manufactures a total of 48 standard models of land-based
drilling and well-servicing rigs under the IDECO(R), FRANKS(R), CARDWELL(R),
CABOT(TM) and IRI(TM) brand names. In addition to the standard models, the
Company manufactures customized drilling and well-servicing rigs to customer
specifications to accommodate, among other things, extreme weather conditions,
moving systems or hook load capacities. The Company's drilling and
well-servicing rigs and component parts fall within the following categories and
classifications:
Land-Based Skid-Mounted Drilling Rigs. Large, high-horsepower and
skid-mounted, these rigs are used primarily for exploration drilling. With the
addition of a moving system, these rigs can be used for multi-well production
pad drilling. The Company manufactures 14 models of skid-mounted rigs under the
IDECO(R) and CARDWELL(R) brand names ranging from 500 to 3,000 horsepower for
operations at well depths up to 35,000 feet. These rigs are furnished complete
with power, drawworks, mast, mud pumps and mud circulation systems.
Offshore Drilling and Well-Servicing Rigs. The Company manufactures 34
models of offshore drilling and well-servicing rigs under the IDECO(R) and
CARDWELL(R) brand names. The Company's offshore well-servicing rigs are
specifically engineered and manufactured in module units to be deployable on an
existing offshore production platform using the platform's own pedestal crane.
This innovative design has enhanced the economics of offshore workovers by
eliminating the need for a heavy-lift barge crane, thereby reducing the expense
and eliminating one of the scheduling difficulties historically associated with
offshore platform rig deployment.
Self-Propelled Drilling and Well-Servicing Rigs. These land-based rigs can
be driven from location to location. Each unit utilizes its diesel engines for
both road transportation and rig machinery operation. Highly mobile, this type
of rig is used for well-servicing and shallow drilling, and makes up the largest
portion of the land-based rig fleet currently in operation. The Company believes
that the FRANKS(R) well-servicing rig is the most popular mobile rig in the
domestic market and that the Company's IDECO(R), FRANKS(R) and CARDWELL(R)
brands account for 50% of the domestic market. The Company offers 30 models of
self-propelled rigs ranging from 200 horsepower to 900 horsepower.
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Trailer Drilling Rigs. The Company manufactures three models of trailer
drilling rigs designed for medium depth drilling to 16,000 feet, in 1,100, 1,200
and 1,500 horsepower ratings, under its CABOT(TM) brand name. The Company also
manufactures trailer rigs under the IDECO(R) and CARDWELL(R) brand names. These
rigs are designed to accommodate 500 to 1,000 horsepower mechanical or electric
drawworks and 350,000 to 750,000 pound hook load masts.
Slant Hole Drilling Rigs. The Company's slant hole drilling and
well-servicing rigs are manufactured under the IDECO(R), FRANKS(R) and
CARDWELL(R) brand names and are available mounted on carriers, trailers,
truck-type carriers and skid units. Carrier-mounted units are typically equipped
with a combination top-head drive and pull-down unit, a platform with hydraulic
slip specially designed for slant mast use, pipe handling equipment to add or
remove pipe and all necessary controls. All units are capable of drilling from 0
degrees (vertical) to 45 degrees.
Heli-Rigs. The Company's heli-rigs are manufactured under the IDECO(R) and
CARDWELL(R) brand names and consist of drawworks, substructure and a
free-standing cantilever mast in mechanical and electrical units. All components
can be divided into loads of 4,000, 6,000, 8,000 and 16,000 pounds for transport
by helicopter. The drawworks is equipped with rotary drive, assist brakes and
hydraulic make-up and break-out systems. Rig assembly for operations is done at
ground level so no crane is required.
Masts and Derricks. Hoisting systems consist of a mast or derrick,
drawworks, crown block, traveling block and deadline anchor. Masts and derricks
manufactured by the Company are designed to support vertical loads ranging from
60 to 1,000 tons for drilling to depths of more than 35,000 feet. Masts are
generally used on land-based drilling rigs and are manufactured in easily joined
sections so that they are easily transportable. Once at the drilling site, masts
are self-erected or, after assembly, are erected by the drawworks. Derricks are
generally used on offshore drilling rigs and are delivered in pieces for
semi-permanent assembly on the rig.
Substructures. Substructures are rig floors and support structures which
are used on both land and offshore rigs. The Company manufactures substructures
in a wide range of sizes, depending upon the size of mast or derrick chosen, the
drawworks and power transmission system used and the working floor space and
floor height required.
Mud Pumps and Mud Systems. Mud systems are used to contain and treat
drilling mud which is circulated through the drill pipe and drill bits to remove
cuttings from the hole being drilled. The Company manufactures mud system
components and fabricates complete mud systems using components manufactured by
the Company and by others. Mud pumps manufactured by the Company under the
IDECO(R) trade name include duplex and triplex mud pumps.
Drawworks. A drawworks is essentially a large winch used to raise and
lower drill pipe. Drawworks manufactured by the Company under the IDECO(R),
CARDWELL(R) and CABOT(TM) trade names range in size from 250 to 3,000 input
horsepower and are suitable for drilling to depths up to 35,000 feet.
Drawwork Braking Systems. The Company manufactures drawwork braking
systems under the IRI(TM) and CARDWELL(R) brand names. The Company's patented
DuraBrake(TM) system features engineered brake blocks which allow for better air
flow, improved flexibility between the brakes and the flange and improved
braking efficiency. The Company believes the DuraBrake(TM) system is one of the
simplest, safest and most affordable drawworks braking systems in the industry.
The Company has also developed and patented a hydraulic actuated disc brake
which eliminates water cooling and hydromatic retardation and is simple to
maintain. This new braking system is being installed on new rigs and is being
retro-fitted on the older rigs with standard band brake systems.
Additional Drilling and Well-Servicing Equipment. Under the CARDWELL(R),
IDECO(R), VARI-SWIVEL(TM) and HYDRAULIC FLOORMAN(TM) trade names, the Company
manufactures tubing and traveling blocks and power swivels. The Company also
manufactures drive groups that transmit power to the drawworks and mud pumps,
independent rotary drives that transmit power to the rotary table, crown blocks,
traveling blocks and deadline anchors that attach the drilling line to the
hoisting system.
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Competition
The Company's revenues and earnings are affected by the actions of
competitors, including price changes, introduction of new or improved products
and changes in the supply of, and improvements in the deliverability of,
competing products. The Company's principal competitors in the manufacture of
drilling rigs and components are National-Oilwell, Inc., Dreco Energy Services
Ltd., Continental Emsco Company and Varco International, Inc.
The Company believes that its manufacturing capabilities distinguish it
from certain of its competitors that are believed to subcontract the production
of the majority of their manufactured drilling equipment and rig component parts
to third parties. The Company believes that its ability to control the complete
manufacturing process, and thus product delivery schedules, is a competitive
advantage.
Backlog
Sales of the Company's drilling and well-servicing rigs are made almost
exclusively on the basis of written purchase orders or contracts. The Company
includes in its rig backlog those orders or purchase commitments which
management believes to be reasonably certain of consummation based on industry
practice, the historical relationship between the Company and the customer or
the financial terms of the sale, including cash advances, letters of credit or
similar credit support arrangements. Giving pro forma effect to the Acquisitions
as if they had occurred on January 1, 1996, the Company estimates that the total
value of its rig backlog as of June 30, 1997 and June 30, 1996 was $93.0 million
and $92.2 million, respectively. Of the $93.0 million in value of rig backlog at
June 30, 1997, the Company expects approximately $76.0 million will be shipped
during the remainder of 1997, with the balance being shipped during 1998.
As of June 30, 1997, the Company has received approximately $7.7 million in
cash down payments and approximately $18.8 million of letters of credit or
assignments of letters of credit.
Raw Materials
The Company's manufacturing operations require a variety of components,
parts and raw materials which the Company purchases from multiple commercial
sources. The Company believes that the loss of any of its suppliers would not
have a material adverse effect on the Company's operations.
FISHING AND DRILLING TOOLS
Through Bowen, the Company designs, manufactures, sells and rents fishing
and drilling tools under the BOWEN(R) brand name. Fishing and drilling tool
sales and rentals accounted for $26.3 million of the Company's revenues for the
six months ended June 30, 1997.
Fishing tools are used in the retrieval of drill bits, drill pipe, tubing,
casings and bottomhole assemblies from a well bore in order to permit normal
drilling operations or production to continue. Bowen fishing tools have been
considered the industry standard since they were first introduced in 1930 by
S.R. Bowen, who pioneered the forerunner of all modern fishing tools, the Bowen
Overshot. Drilling tools are used to assist in drilling operations. The Company
estimates that it maintains approximately 50% of the world market for the sale
of fishing tools and a 20% market share in the sale of drilling tools. The
Company provides certain of its drilling equipment, principally stroking tools
such as jars and bumper subs as well as top drives, to its domestic customers on
a rental basis.
Products
Bowen manufactures a broad range of fishing and drilling tools, including:
External Catch Fishing Tools. Products in this group include releasing and
circulating overshots, sucker rod overshots, overshot accessories, die collars
and impression blocks. These products are primarily used to retrieve tubing,
casing or drill pipe when well bore conditions allow the external diameter to be
engaged. The "Series 150" overshot is the most widely used fishing tool in the
industry and employs an internal "grapple"
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with sharp teeth to engage the fish while an outer bowl with internal tapers
forces the grapple into the fish with increasing force as pull loads increase.
Internal Catch Fishing Tools. Products in this group include rotary taper
taps, a variety of releasing spears, knuckle joints and packer retrievers. These
products are used to retrieve tubing, casing drill pipe and packers when well
bore conditions allow only the internal diameter of the fish to be engaged. The
ITCO spear is the most widely used internal catch fishing tool and operates much
like the overshot described above except from an internal catch direction.
Packer retrievers are used specifically for catching and retrieving a packer
which must be disengaged from the casing and removed from a well.
Junk Catch Fishing Tools. Products in this group include standard junk
baskets, reverse circulation junk baskets and fishing magnets. These products
are used to retrieve small irregularly shaped bits of debris from the well bore.
A junk basket employs a series of spring loaded "fingers" which flex upward to
allow a bit of debris to enter but will not flex downward to allow it to escape.
Reverse circulation baskets use a series of fluid ports to redirect flow from a
mud pump and "pull" bits of debris into the fingers. A fishing magnet is a
permanent magnet fitted within a housing to allow retrieval of a variety of
metallic debris from a well. These tools are frequently used to "clean" a well
bore so that drilling may continue.
Milling and Cutting Tools. Products in this group include Itcoloy milling
tools, junk subs, ditch magnets, magnet chargers, internal cutters and external
cutters. Milling tools are available in variety of shapes and employ crushed
carbide (Itcoloy) teeth to mill or cut away a fish that cannot otherwise be
retrieved. They may also be used to reshape the top of a fish for retrieval with
an overshot. Ditch magnets and junk subs are employed to catch the cuttings from
milling operations. Internal and external cutters are used to cut pipe for
removal in sections. They are available in both mechanical and hydraulically
operated models.
Accessory Tools. Products in this group include jars, jar intensifiers and
bumper subs. Tools in this group are often referred to as "stroking" tools since
they all operate by telescoping open and closed as they perform their function.
Jars are most often used in conjunction with a fishing tool and provide the
operator with a means of delivering a sharp upward or downward blow to a fish
that is "stuck" in the well bore. The jar intensifier is often used with a jar
as a means of enhancing or "intensifying" the jarring blow. A computer program
developed by Bowen accurately predicts the intensity of the "jarring" blow
delivered to a stuck fish. Jars are available in a wide variety of types and
sizes. Bumper subs may be used to aid in loosening a stuck fish but are most
often used to release a fishing tool from a fish downhole if necessary. Drilling
tools in this category include a drilling jar designed for continuous drilling
operations and the Bowen Cushion Sub. The Cushion Sub is a fluid filled shock
sub which is used near the drilling bit to reduce shock load on the bit and
improve drilling penetration rates. The low spring rates of the fluid spring
make this tool highly desirable.
Repair and Remedial Tools. Products in this group include casing patches,
tubing patches, casing scrapers and tubing and casing rollers. Casing and tubing
patches are devices related to the overshot which allow a portion of damaged
casing or tubing to be replaced downhole without removing the entire string.
They are available in a wide range of sizes, types and pressure ratings. Casing
scrapers employ a series of blades set in a housing to scrape paraffin and scale
from the internal diameter of casing. Rollers are a series of eccentric rollers
mounted on a shaft which are used to "roll" the internal diameter of casing back
to the original size after it has been damaged, possibly by a formation shift.
Competition
In the fishing and drilling tool business, like the rig manufacturing
business, the Company's revenues and earnings can be affected by actions of
competitors, including price changes, the introduction of new products or
improved products and changes in supply of, and improvements in the
deliverability of, competing products. The Company's primary competitors in the
manufacture of fishing tools are Gotco International Inc. and Houston Engineers
Inc., which the Company believes have market shares of approximately 15% and
25%, respectively. In the drilling tool market, the Company's primary
competitors are Houston Engineers Inc. and Dailey Petroleum Services Corp., each
with an estimated 35% market share.
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POWER AND WIRELINE/PRESSURE CONTROL EQUIPMENT
Power Equipment
The Company, through its Bowen Tools Division, has more than 50 years'
experience in the power equipment market, particularly with power-swivel systems
used in well-servicing and drilling applications. The Company estimates it holds
a 75% market share in these product lines. Other power equipment products
include top drives, power subs, bucking units, power tongs and coiled tubing
systems. Sales and rentals of power equipment products accounted for $8.0
million of the Company's revenues for the six month period ended June 30, 1997.
The Company manufactures power equipment under the BOWEN(R) brand name.
Top drives play a critical role in new drilling and well-servicing
applications, replacing a rig's rotary swivel, kelly and rotary table. Top
drives enable drilling companies to significantly reduce drilling times, lessen
the probability of stuck pipe and improve well control.
The Company's top drive features a fully integrated swivel and pipe
handler, which the Company believes is more compact and lighter than competing
products and can be installed in hours, as opposed to days for similar products.
The Company's top drives are all portable. The portable segment of the top drive
market enjoys the greatest demand since these systems offer customers increased
flexibility. The Company currently manufactures two top drive models: a 350 ton
unit for offshore and heavy-duty land applications and a 120 ton model designed
for the workover rig market. The Company is developing a 250 ton unit for
applications between its 120 ton and 350 ton designs, as well as a high range
unit having 450-500 ton capacity.
Other products in this group include power tongs, manufactured under the
Peck-O-Matic brand name, grease injection systems and bucking units.
The market for power equipment is very competitive. Competition is based on
product design and quality, ability to meet delivery requirements and pricing.
The Company's principal competitor in this segment is Tesco Drilling Company. In
addition, the Company's power equipment products compete with products
manufactured by Maritime Hydraulics US, Inc., Canadian Rig Ltd. and Varco
International, Inc.
Wireline/Pressure Control Equipment
The Company manufactures products in this group under the BOWEN(R) brand
name. The products include small blowout preventers, unions, tool traps, tool
catchers, lubricator risers, control heads, stuffing boxes and wellhead
adapters. These products are designed to seal around a wire line and control
well pressure during wire-line logging operations. Tool traps and tool catchers
are included in a set of pressure control equipment to catch expensive logging
tools which may be inadvertently pulled loose from the logging cable. Many of
these products are also adapted for use in controlling well pressure during
coiled tubing operations. This line of products accounted for 3.3% of the
Company's revenues on a pro forma basis in the twelve month period ended
December 31, 1996. The Company estimates that its market share is approximately
12%.
The market for pressure control equipment is very competitive. Competition
is based on product design, quality, ability to meet delivery requirements and
pricing. The Company's principal competitors in the market include Hydrolex,
Inc., Elmar Ltd. and Texas Oil Tools.
REPLACEMENT PARTS
The Company manufactures and maintains a significant inventory of
replacement parts and replacement components. The Company also refurbishes older
rigs for its customers. The Company believes that the replacement parts and
refurbishment businesses will grow significantly over the next several years as
a result of increased worldwide rig utilization and the age of the international
rig fleet. The Company is well positioned to provide replacement parts and
refurbishment services as a result of the large number of operating rigs
manufactured under the Company's brand names and the preference of equipment
owners to obtain replacement parts and refurbishment services from the original
manufacturer. Replacement parts accounted for $13.1 million of the Company's
revenues for the six month period ended June 30, 1997.
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SPECIALTY STEEL PRODUCTS
Through its Specialty Steel Division, the Company manufactures premium
specialty steel forgings for civilian and military uses. Specialty steel
products accounted for $6.8 million of the Company's revenues for the six month
period ended June 30, 1997.
The Company manufactures over 100 different alloys to form forged products
in round, square and rectangular solid, trepanned, counterbored and stepped
forms to meet customer specifications. The Company sells its specialty steel
products primarily to customers in the heavy equipment, aircraft, petroleum and
power generation industries in North America and to the United States military.
Specialty steel products are also sold as feedstock directly to forgers and
extruders. The Division's largest customer accounted for 24% of the Division's
revenue for the nine months ended December 31, 1996. In addition, 13% of
production for 1996 was sold to the government and military sectors.
Raw Materials
Raw materials used to manufacture specialty steel products consist of
premium steel scrap and various alloys, of which the Company believes there is
an adequate supply in the North American market.
Competition
The U.S. specialty steel market is highly competitive due primarily to the
high cost of freight associated with moving small amounts of high tonnage
finished goods. Competitive factors include price, delivery, quality and
service. Steel ingots and billets are commodities and are extremely price
competitive. The Company's major competitors in the specialty steel market are
National Flame and Forge Company Inc., Ellwood Group Inc., Scot Forge Company
Inc., Erie Forge and Steel Inc., First Miss Steel Inc. and British Steel PLC.
ENGINEERING AND PRODUCT DEVELOPMENT
The Company maintains a staff of more than 50 engineers and design
technicians to (i) design and test new products, components and systems for use
in manufacturing and drilling applications, (ii) enhance the capabilities of
existing products and (iii) assist the Company's sales organization and
customers with special requirements and products. The Company intends to
continue its research, engineering and product development programs to develop
proprietary products that are complementary to the Company's existing products,
particularly with respect to harsh environment rigs and equipment. Recent
innovations include (i) articulating mobile carrier rigs for former Soviet Union
markets, (ii) a disc brake hydraulic actuated system, (iii) skidding systems for
270 ton and 400 ton drilling rigs, (iv) the V/S 110/130 power swivel, (v) a
series of jars and intensifiers designed specifically for the coiled tubing
market, (vi) Slide-Lok II blowout preventers, (vii) a lightweight ball check
valve for grease injection control heads, (viii) multi-line vertical blowout
preventers, (ix) a new lightweight wireline grease injector and (x) a new
offshore drifting mast. The Company's total engineering and product development
expenses for the twelve month period ended March 31, 1997 was $1.4 million. The
Company has budgeted $5.1 million for engineering and product development
expenses for the 1997 fiscal year.
MARKETING, SALES AND DISTRIBUTION
The Company markets its oilfield products primarily through its own sales
force and through designated agents and distributors in all important oil and
gas producing countries around the world. The Company's customers include
international and domestic drilling contractors and international and domestic
oil and gas exploration and production companies, including foreign state-owned
oil and gas enterprises. The Company supplements its marketing efforts by
maintaining 27 domestic sales and service centers in areas of significant
drilling and production operations and 7 international parts and service
centers.
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See Note 13 to the Financial Statements for financial information related
to the Company's revenues by geographic region.
INTELLECTUAL PROPERTY
The Company owns or has license to use a number of U.S. and foreign patents
covering a variety of products. Although in the aggregate these patents are of
importance to the Company, the Company does not consider any single patent to be
essential. In general, the Company depends upon product name recognition,
manufacturing quality control and application of its expertise rather than
patented technology in the conduct of its business. The Company enjoys product
brand name recognition, principally through its BOWEN(R), CABOT(TM),
CARDWELL(R), FRANKS(R), IDECO(R) and IRI(TM) trademarks, and considers such
trademarks to be important to its business.
EMPLOYEES
As of July 31, 1997 the Company employed a total of 1,378 persons, of whom
33 were employed outside the United States. Approximately 28% of these employees
were salaried and the balance were compensated on an hourly basis. Approximately
24% of the Company's employees are represented by a union or are parties to
collective bargaining agreements. The Company considers its relations with its
employees to be good.
RISKS AND INSURANCE
The Company's operations are subject to the usual hazards inherent in
manufacturing products and providing services for the oil and gas industry.
These hazards can cause personal injury and loss of life, business
interruptions, property and equipment damage and pollution or environmental
damage. The Company maintains comprehensive insurance covering its assets and
insuring against risks at levels which management believes to be appropriate and
in accordance with industry practice. No assurance can be given, however, that
insurance coverage will be adequate in all circumstances or against all hazards
or risks, or that the Company will be able to maintain adequate insurance
coverage in the future at commercially reasonable rates or on acceptable terms.
The Company's services and products are used in drilling, production and
well-servicing operations which are subject to inherent risks that could result
in property damage, personal injury, suspension of operations or loss of
production. The Company maintains product liability and worker's compensation
insurance. Although the limits of its insurance coverage against an accident are
generally in accordance with industry practice, such insurance may not be
adequate to protect the Company against liability or losses accruing from all
the consequences of such an incident.
ENVIRONMENTAL MATTERS
The manufacture of oilfield equipment and specialty steel products is
subject to a broad range of federal, state and local environmental laws and
regulations, both in the United States and in foreign jurisdictions, including
those governing discharges into the air and water, the handling and disposal of
solid and hazardous wastes, the remediation of soil and groundwater contaminated
by petroleum products or hazardous substances or wastes, and the health and
safety of employees. It has been the Company's policy to eliminate and minimize
generation of wastes at its facilities through plant operations, process design
and maintenance. The Company continually strives to reduce wastes by sending
these materials off-site for recycling and/or reuse. The Company has taken, and
continues to take, into account the requirements of such environmental laws and
regulations in the improvement, modernization, expansion and start-up of its
facilities and believes that it is currently in substantial compliance with such
material laws and regulations. As is the case with most industrial
manufacturers, the Company could incur significant costs related to
environmental compliance. To the extent the Company might incur any such
compliance costs, these costs most likely would be incurred over a number of
years; however, no assurance can be given that future regulatory action
regarding soil or groundwater at the Company's facilities, as well as continued
compliance with environmental requirements, will not require the
34
<PAGE> 37
Company to incur significant costs that may have a material adverse effect on
the Company's financial condition and results of operations.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability without regard to fault or the legality of the
original conduct, on certain classes of persons with respect to the release of a
hazardous substance into the environment. These persons include the owner and
operator of the disposal site or sites where the release occurred and companies
that disposed or arranged for the disposal of the hazardous substances found at
such site. Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that for many years have been used for the manufacture and
storage of products and equipment containing or requiring oil and/or hazardous
substances. Although the Company has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other wastes may
have been disposed of or released on or under the properties owned or leased by
the Company or on or under other locations where such wastes have been taken for
disposal. In addition, many of these properties have been operated by third
parties whose treatment and disposal or release of hydrocarbons or other wastes
was not under the Company's control. These properties and the wastes disposed
thereon may be subject to CERCLA, the Resource Conservation and Recovery Act and
analogous state laws. Under such laws, the Company could be required to remove
or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators) or property contamination (including
groundwater contamination) or to perform remedial operations to prevent future
contamination.
Various federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos containing materials
("ACMs"). Such laws and regulations may impose liability for the release of ACMs
and may provide for third parties to seek recovery from owners or operators of
facilities at which ACMs were or are located for personal injury associated with
exposure to ACMs. The Company is aware of the presence of ACMs at its
facilities, but it believes that such materials are in acceptable condition at
this time. The Company believes that any future costs related to remediation of
ACMs at these sites will not be material, either on an annual basis or in the
aggregate, although there can be no assurance with respect thereto.
The Company has sought to reduce the impact of costs arising from or
related to actual or potential environmental conditions at the Bowen Tool
Division facilities caused or created by Bowen or its predecessors in title
through the Company's contractual arrangements with Air Liquide. Pursuant to
such arrangements, Air Liquide and Bowen agreed to indemnify the Company for
such costs, subject to a limit of $15 million. The indemnity survives the
closing of the Bowen Acquisition for five years. Air Liquide provided the
Company with certain environmental assessments with respect to most of the Bowen
properties conveyed to the Company. Air Liquide is conducting a further
environmental review of the Bowen Tool Division facilities to determine the
potential scope, if any, of required remediation at such facilities by Air
Liquide or Bowen. There can be no assurance that Air Liquide or Bowen will meet
its obligations under the indemnification arrangements or that there will not be
future contamination for which the Company might be fully liable and that may
require the Company to incur significant costs that could have a material
adverse effect on the Company's financial condition and results of operations.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. Moreover, it is possible that
other developments, such as stricter environmental laws, regulations and
enforcement policies thereunder, could result in additional, presently
unquantifiable, costs or liabilities to the Company.
35
<PAGE> 38
FACILITIES
The principal offices and facilities owned or leased by the Company and
their current uses are described in the following table:
<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY SIZE
LOCATION (SQ. FT.) (ACRES) TENANCY USE
-------- ------------- ------------- ------- ---
<S> <C> <C> <C> <C>
Pampa, TX.............. 1,000,000 499 Owned Rig and specialty
steel
manufacturing,
administration and
warehousing
Houston, TX............ 539,700 19 Owned Drilling tool
manufacturing,
administration and
warehousing
Beaumont, TX........... 350,000 10 Owned Rig manufacturing,
administration and
warehousing
El Dorado, KS.......... 139,912 23 Owned Rig manufacturing,
administration and
warehousing
Houston, TX............ 16,249 N/A Leased Executive Offices
Houston, TX............ 50,154 2 Owned Administration
</TABLE>
The Company also owns or leases facilities at 34 domestic and international
locations, substantially all of which are sales, service or warehouse locations.
LEGAL PROCEEDINGS
There are pending or threatened against the Company various claims,
lawsuits and administrative proceedings all arising from the ordinary course of
business with respect to commercial product liability and employee matters which
seek remedies or damages. Although no assurance can be given with respect to the
outcome of these or any other pending legal and administrative proceedings and
the effects such outcomes may have on the Company, management believes that any
ultimate liability resulting from the outcome of such proceedings to the extent
not otherwise provided for will not have a material adverse effect on the
Company's consolidated financial statements.
The Company maintains comprehensive liability insurance. The Company
believes such coverage to be of a nature and amount sufficient to ensure that it
is adequately protected from any material financial loss as a result of such
claims. The Company currently is not the subject of any legal actions for which
it is neither insured nor indemnified and which the Company believes will
individually or in the aggregate have a material adverse effect on the Company's
financial condition or results of operations, nor to the Company's knowledge is
any such litigation threatened.
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<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, and their ages and
positions with the Company as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Hushang Ansary........................... 70 Chairman of the Board and Chief Executive
Officer
Daniel G. Moriarty....................... 63 Vice-Chairman of the Board
Abdallah Andrawos........................ 40 Director and Secretary
Nina Ansary.............................. 31 Director
Frank C. Carlucci........................ 66 Director
Dr. Philip David......................... 65 Director
Munawar H. Hidayatallah.................. 53 Director, Executive Vice President and
Chief Financial Officer
Richard D. Higginbotham.................. 60 Director, President and Chief Operating
Officer -- Bowen Tools Division
John D. Macomber......................... 69 Director
Edward L. Palmer......................... 79 Director
Stephen J. Solarz........................ 56 Director
Gary W. Stratulate....................... 41 Director, President and Chief Operating
Officer -- IRI Division
Arthur C. Teichgraeber................... 41 Director, President and Chief Operating
Officer -- Cardwell International Ltd.
Alexander B. Trowbridge.................. 67 Director
J. Robinson West......................... 50 Director
</TABLE>
HUSHANG ANSARY is an international entrepreneur, investor and
industrialist. He has served as Chairman of the Board of the Company since
September 1994 and was elected to the additional position of Chief Executive
Officer of the Company in March 1997. He has served as Chairman of SunResorts,
Ltd. N.V., a resort company, since 1986 and of Parman Capital Investments Ltd.,
a private investment company, since 1982.
DANIEL G. MORIARTY has been a director of the Company since 1994 and served
as Chief Executive Officer of the Company from 1994 to April 1997, when he was
elected Vice-Chairman of the Board. He served as President of Cooper
Manufacturing, a rig manufacturing division of Allied Production Corp. from 1992
to 1994 and of Smith Energy Services, an oilfield services division of Allied
Production Corp., from 1987 to 1992. From 1982 to 1987, Mr. Moriarty served as
the President and Chief Executive Officer of Leamco Services, Inc. From 1960 to
1982, Mr. Moriarty held various positions with Halliburton Company, rising from
engineer to Vice President of the Central Region.
ABDALLAH ANDRAWOS has been Secretary of the Company since 1994 and a
director of the Company since April 1997. Since 1989 Mr. Andrawos has served as
Secretary and Chief Financial Officer of SunResorts, Ltd. N.V., a resort
company.
NINA ANSARY has served as a director of the Company since April 1997. Ms.
Ansary has been a Vice President of Parman Capital Investments Ltd., a private
investment company, since 1994. Prior to 1994 Ms. Ansary was a student. Ms.
Ansary is the daughter of Hushang Ansary and holds a masters degree in political
science from Columbia University.
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<PAGE> 40
FRANK C. CARLUCCI has been a director of the Company since 1994. Since
1993, Mr. Carlucci has served as Chairman and partner of The Carlyle Group, a
Washington, D.C. based merchant bank and from 1989 to 1993 served as
Vice-Chairman and partner. Mr. Carlucci serves on the following corporate
boards: BDM International, Mass Mutual Life Insurance Company, General Dynamics
Corporation, Kaman Corporation, Neurogen Corporation, Northern Telecom Ltd.,
Quaker Oats Company, SunResorts, Ltd. N.V., Texas Biotechnology Corporation,
Pharmacia & Upjohn Inc., Ashland Inc. and Westinghouse Electric Corporation. He
is also a Trustee of the Rand Corporation.
DR. PHILIP DAVID has been a director of the Company since 1994. Dr. David
was a consultant to Fairchild Corporation from January 1988 to June 1993 and was
a Professor of Urban Studies and Planning at the Massachusetts Institute of
Technology from 1971 until June 1987. Dr. David is a director of Fairchild
Corporation.
MUNAWAR H. HIDAYATALLAH has been a director and Executive Vice
President -- Corporate Development of the Company since 1994 and the Company's
Chief Financial Officer since April 1997. From 1982 to 1994, Mr. Hidayatallah
served as President and Chief Executive Officer of Crescott Inc., a holding
company with interests in financial services, food processing and franchising,
and from 1992 to 1994, President and Chief Executive Officer of its subsidiary,
Beverly Hills Securities Company.
RICHARD D. HIGGINBOTHAM has been a director of the Company and President
and Chief Operating Officer of the Bowen Tools Division of the Company since
April 1997. Prior to the Bowen Acquisition, Mr. Higginbotham served as President
of Bowen since 1988 and from 1982 to 1988 served as Bowen's Senior Vice
President of Marketing.
JOHN D. MACOMBER has been a director of the Company since 1994. Mr.
Macomber has been a principal of JDM Investment Group, a private investment
company, since 1992. From 1988 to 1992, he was Chairman and President of the
Export-Import Bank of the United States, from 1973 to 1986 he was Chairman of
the Board and Chief Executive Officer of Celanese Corp. and from 1954-1973 he
was a managing partner of McKinsey & Co. He is also a director of Bristol-Myers
Squibb Company, The Brown Group, Lehman Brothers Holdings Inc., Pilkington Ltd.,
Textron Inc. and Xerox Corporation. He is also a director and Vice-Chairman of
The Atlantic Council of the United States and a director of the French American
Foundation and the National Executive Services Corp. Mr. Macomber is a trustee
of The Folger Library and a member of the Council on Foreign Relations and the
Bretton Woods Committee. Mr. Macomber is Chairman of the Council for Excellence
in Government and a trustee of the Carnegie Institute of Washington.
EDWARD L. PALMER has been a director of the Company since June 1997. Mr.
Palmer has been President of the Mill Neck Group Inc., a management consulting
firm, since 1982, and prior thereto he served as Chairman of the Executive
Committee and director of Citicorp and Citibank, N.A. He is also director of
Devon Group Inc., Holmes Protection Group Inc. and SunResorts, Ltd. N.V.
STEPHEN J. SOLARZ has been a director of the Company since 1994. Mr. Solarz
has been President of Solarz Associates, an international consulting firm, since
1993. From 1975 to 1993, he was a member of the U.S. House of Representatives,
where he served on the Foreign Affairs, the Merchant Marine and Fisheries, the
Intelligence and the Joint Economic Committees. He is also a director of
Samsonite Corp., Culligan Water Technologies Inc., Geophone Company, L.L.C. and
First Philippine Fund Inc.
GARY W. STRATULATE has been a director of the Company and President and
Chief Operating Officer of its IRI Operations since April 1997. From December
1994 to April 1997, he served as the Executive Vice President of the
International Division of the Company. From June 1991 to May 1994, Mr.
Stratulate was the Chief Operating Officer of Dreco Energy Services Ltd., a
manufacturer of oilfield equipment.
ARTHUR C. TEICHGRAEBER has been a director of the Company and President and
Chief Operating Officer of Cardwell since April 1997. Prior to the Cardwell
Acquisition, Mr. Teichgraeber held various positions at Cardwell, rising from
sales engineer to President.
ALEXANDER B. TROWBRIDGE has been a director of the Company since 1994.
Since 1990, Mr. Trowbridge has been the President of Trowbridge Partners, Inc.,
a management consulting firm. He was
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<PAGE> 41
President of the National Association of Manufacturers from 1980 through 1989.
He is also a director of The Gillette Company, New England Life Insurance
Company, E.M. Warburg-Pincus Counsellors Fund, Rouse Company, Sun Company,
Harris Corporation, Waste Management Inc., ICOS Corporation and SunResorts, Ltd.
N.V. He is a charter trustee of Phillips Academy, Andover.
J. ROBINSON WEST has been a director of the Company since 1994. Mr. West is
Chairman of The Petroleum Finance Company, Ltd., a petroleum industry consulting
firm, and served as its President from 1984 to 1996.
COMMITTEES
The Company has the following standing committees of the Board of
Directors:
Executive Committee. The Executive Committee consists of Messrs. Ansary,
Carlucci, Solarz and Moriarty, with Mr. Ansary serving as Chairman. The
Executive Committee has full power and authority to exercise all the powers of
the Board of Directors in the management of the business except the power to
fill vacancies on the Board of Directors and the power to amend the Bylaws and
except as provided by law.
Audit Committee. The Audit Committee consists of Mr. Macomber and Dr.
David, with Mr. Macomber serving as Chairman. The Audit Committee has
responsibility for, among other things, (i) recommending the selection of the
Company's independent accountants, (ii) reviewing and approving the scope of the
independent accountants' audit activity and extent of non-audit services, (iii)
reviewing with management and the independent accountants the adequacy of the
Company's basic accounting systems and the effectiveness of the Company's
internal audit plan and activities, (iv) reviewing with management and the
independent accountants the Company's financial statements and exercising
general oversight of the Company's financial reporting process, (v) reviewing
the Company's litigation and other legal matters that may affect the Company's
financial condition and (vi) monitoring compliance with the Company's business
ethics and other policies.
Compensation Committee. The Compensation Committee consists of Dr. David
and Mr. West, with Dr. David serving as Chairman. The Compensation Committee has
responsibility for (i) reviewing and approving the recommendations of the Chief
Executive Officer as to appropriate compensation of the Company's principal
executive officers, (ii) examining periodically the general compensation
structure of the Company and (iii) supervising the welfare, pension and
compensation plans of the Company.
DIRECTOR COMPENSATION
Directors who are not also officers or employees of the Company are paid
annual fees equal to $30,000 plus $1,000 for each Board of Directors' meeting
(but not committee meeting) attended.
39
<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid to Hushang Ansary, Chairman and Chief Executive Officer, and
each of the five other most highly compensated executive officers of the Company
for the 12 months ended December 31, 1996 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------
AWARDS
-------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
- --------------------------- -------- -------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hushang Ansary............. -- -- -- -- -- -- --
Chairman and Chief
Executive Officer
Daniel G. Moriarty......... $145,254 $106,504 -- -- -- -- --
Vice-Chairman of the
Board
Munawar H. Hidayatallah.... $186,750 $121,324 -- -- -- -- --
Executive Vice President
and Chief Financial
Officer
Richard D. Higginbotham.... $135,000 -- -- -- -- -- --
President and Chief
Operating Officer of
Bowen Tools Division
Gary W. Stratulate......... $186,750 $137,500 -- -- -- -- --
President and Chief
Operating Officer of IRI
Division
Arthur C. Teichgraeber..... $100,514 -- -- -- -- -- $498,110(2)
President and Chief
Operating Officer of
Cardwell
</TABLE>
- ---------------
(1) Under rules promulgated by the Securities and Exchange Commission, since the
Company was not a reporting company during the three immediately preceding
fiscal years, only the information with respect to the most recent completed
fiscal year is required to be presented in the Summary Compensation Table.
As a consequence of the change in its fiscal year, the Company's most recent
completed fiscal year is a nine month period. In order to provide
compensation information for a twelve month period, the information provided
in the Summary Compensation Table is for the twelve months ended December
31, 1996.
(2) Consists of license fees paid by Cardwell to Mr. Teichgraeber and to certain
entities directly or indirectly owned by Mr. Teichgraeber.
STOCK OPTIONS
On June 17, 1997, in anticipation of the Offering, the Company granted
options to purchase 20,000 shares of Common Stock to each of the Directors not
employed by the Company (the "Outside Directors") contingent on the consummation
of the Offering. The options were granted pursuant to the Incentive Plan (as
described below) and are not intended to qualify as "incentive stock options"
(as described below under "The Incentive Plan -- Options"). The options have an
exercise price per share equal to the Offering price per share and generally
have a five-year term. The options are exercisable (i) cumulatively to the
extent of one-half of the shares on the effective date of the Offering and (ii)
cumulatively to the extent of one-quarter of the shares after each of the first
two anniversaries of the effective date of the Offering for so long as the
Outside Director remains in continuous service with the Company. In addition,
the options become immediately exercisable upon an Outside Director's death or
disability.
40
<PAGE> 43
As of December 31, 1996, no stock options or stock appreciation rights had
been granted to the Named Executive Officers. Except as described above with
respect to the Outside Directors, no stock options have been or will be granted
prior to or in anticipation of the Offering.
COMPENSATION PLANS AND ARRANGEMENTS
Compensation of Named Executive Officers -- In General
Prior to the Offering, the compensation of the Named Executive Officers was
as approved by the Compensation Committee upon the recommendation of the Chief
Executive Officer and, in the case of Mr. Teichgraeber, in accordance with his
employment agreement with Cardwell. Following the Offering, the compensation of
the Named Executive Officers will continue to be approved by the Compensation
Committee upon the recommendation of the Chief Executive Officer and, in the
case of Mr. Teichgraeber, in accordance with his employment agreement with
Cardwell (described below).
The Incentive Plan
On June 17, 1997, the Company adopted an equity incentive plan (the
"Incentive Plan") to attract and retain qualified officers, directors and other
key employees of, and consultants to, the Company.
Shares Available Under the Incentive Plan. Subject to adjustment as
provided in the Incentive Plan, the number of shares of Common Stock that may be
issued or transferred and covered by outstanding awards granted under the
Incentive Plan will not exceed 4,000,000, which may be shares of original
issuance or treasury shares or a combination thereof. Officers, directors and
other key employees of and consultants to the Company ("Participants") may be
selected by the Compensation Committee to receive benefits under the Incentive
Plan.
Options. The Compensation Committee may authorize the grant of rights that
entitle the optionee to purchase Common Stock ("Option Rights") at a price equal
to or greater or less than market value on the date of grant. Subject to
adjustment as provided in the Incentive Plan, no participant will be granted
Option Rights, in the aggregate, for more than 3,000,000 shares during any three
consecutive calendar years. The Compensation Committee may provide that the
option price is payable at the time of exercise (i) in cash, (ii) by the
transfer to the Company of nonforfeitable, unrestricted shares of Common Stock,
(iii) with any other legal consideration the Compensation Committee may deem
appropriate, or (iv) by any combination of the foregoing methods of payment. A
grant may provide for deferred payment of the option price from the proceeds of
sale through a broker on the date of exercise of some or all of the shares of
Common Stock to which the exercise relates if there is then a public market for
the Common Stock. A grant may provide for automatic grant of reload option
rights upon the exercise of Option Rights, including reload option rights, for
shares of Common Stock or any other noncash consideration authorized under the
Incentive Plan, except that the term of any reload option right may not extend
beyond the term of the Option Right originally exercised. The Compensation
Committee has the authority to specify at the time Option Rights are granted
that shares of Common Stock will not be accepted in payment of the option price
until they have been owned by the optionee for a specified period; however, the
Incentive Plan does not require any such holding period and would permit
immediate sequential exchanges of shares of Common Stock at the time of exercise
of Option Rights.
Option Rights granted under the Incentive Plan may be Option Rights that
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Option Rights that are not intended to so qualify. Any grant may provide for the
payment of dividend equivalents to the optionee on a current, deferred or
contingent basis or may provide that dividend equivalents be credited against
the option price.
No Option Right may be exercised more than 10 years from the date of grant.
Each grant must specify the period of continuous employment with, or continuous
engagement of consulting services by, the Company that is necessary before the
Option Rights will become exercisable and may provide for the earlier exercise
of the Option Rights in the event of a change of control of the Company or other
similar transaction or event.
41
<PAGE> 44
Successive grants may be made to the same optionee regardless of whether Option
Rights previously granted to him or her remain unexercised.
Transferability. No Option Right is transferable by a participant except
by will or the laws of descent and distribution. Option Rights may not be
exercised during a participant's lifetime except by the participant or, in the
event of the participant's incapacity, by the participant's guardian or legal
representative acting in a fiduciary capacity on behalf of the participant under
state law and court supervision. Notwithstanding the foregoing, the Compensation
Committee, in its sole discretion, may provide for the transferability of
particular awards under the Incentive Plan.
The Compensation Committee may specify at the date of grant that all or any
part of shares of Common Stock that is to be issued or transferred by the
Company upon the exercise of Option Rights shall be subject to further
restrictions on transfer.
Adjustments. The maximum number of shares that may be issued or
transferred under the Incentive Plan, the number of shares covered by
outstanding Option Rights and the option prices or base prices per share
applicable thereto are subject to adjustment in the event of stock dividends,
stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spinoffs, reorganizations, liquidations, issuances of rights or
warrants and similar transactions or events. In the event of any such
transaction or event, the Committee may in its discretion provide in
substitution for any or all outstanding awards under the Incentive Plan such
alternative consideration as it may in good faith determine to be equitable in
the circumstances and may require the surrender of all awards so replaced. The
Compensation Committee may also, as it determines to be appropriate in order to
reflect any such transaction or event, make or provide for such adjustments in
the number of shares that may be issued or transferred and covered by
outstanding awards granted under the Incentive Plan and the number of shares
permitted to be covered by awards granted under the plan to any one participant
during any calendar year.
Administration and Amendments. The Incentive Plan will be administered by
the Compensation Committee of the Board (such committee is referred to in this
description of the Incentive Plan as the "Committee"). Following the
consummation of the Offering, the Committee must consist of not less than two
members who are "non-employee directors" within the meaning of Rule 16b-3 and
"outside directors" within the meaning of Section 162(m) of the Code. In
connection with its administration of the Incentive Plan, the Committee is
authorized to interpret the Incentive Plan and related agreements and other
documents. The Committee may make grants to participants under any or a
combination of all of the various categories of awards that are authorized under
the Incentive Plan and may condition the grant of awards on the surrender or
deferral by the participant of the participant's right to receive a cash bonus
or other compensation otherwise payable by the Company to the participant.
The Incentive Plan may be amended from time to time by the Committee, but
without further approval by the shareholders of the Company no such amendment
may cause the Incentive Plan to cease to satisfy any applicable condition of
Rule 16b-3 or cause any award under the Incentive Plan to cease to qualify for
any applicable exception to Section 162(m) of the Code.
Federal Income Tax Consequences. The following is a brief summary of
certain of the federal income tax consequences of certain transactions under the
Incentive Plan based on federal income tax laws in effect on the date of this
Prospectus. This summary is not intended to be exhaustive and does not describe
state or local tax consequences.
In general, (i) no income will be recognized by an optionee at the time a
nonqualified Option Right is granted, (ii) at the time of exercise of a
nonqualified Option Right, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares if they are nonrestricted on the date of
exercise and (iii) at the time of sale of shares acquired pursuant to the
exercise of a nonqualified Option Right, any appreciation (or depreciation) in
the value of the shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) depending on how long the shares
have been held.
No income generally will be recognized by an optionee upon the grant or
exercise of an incentive stock option. If shares of Common Stock are issued to
an optionee pursuant to the exercise of an incentive stock option and no
disqualifying disposition of the shares is made by the optionee within two years
after the date of
42
<PAGE> 45
grant or within one year after the transfer of the shares to the optionee, then
upon the sale of the shares any amount realized in excess of the option price
will be taxed to the optionee as long-term capital gain and any loss sustained
will be a long-term capital loss. If shares of Common Stock acquired upon the
exercise of an incentive stock option are disposed of prior to the expiration of
either holding period described above, the optionee generally will recognize
ordinary income in the year of disposition in an amount equal to any excess of
the fair market value of the shares at the time of exercise (or, if less, the
amount realized on the disposition of the shares in a sale or exchange) over the
option price paid for the shares. Any further gain (or loss) realized by the
optionee generally will be taxed as short-term or long-term gain (or loss)
depending on the holding period.
In limited circumstances where the sale of stock that is received as the
result of a grant of an award could subject an officer or director to suit under
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the
tax consequences to the officer or director may differ from the tax consequences
described above. In these circumstances, unless a special election has been
made, the principal difference usually will be to postpone valuation and
taxation of the stock received so long as the sale of the stock received could
subject the officer or director to suit under Section 16(b) of the Exchange Act,
but not longer than six months.
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company will be entitled to a corresponding
deduction provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code and is
not disallowed by the Section 162(m) $1.0 million limitation on certain
executive compensation and (ii) any applicable reporting obligations are
satisfied.
Other Compensation Plans or Programs
The Company does not maintain any other compensation plans or programs that
apply to the Named Executive Officers, other than broad-based retirement plans.
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE-IN-CONTROL AGREEMENTS
Mr. Teichgraeber has a five-year employment agreement with Cardwell,
commencing as of April 17, 1997 and ending as of April 16, 2002. Under the
agreement, Mr. Teichgraeber receives an annual base salary of $250,000, subject
to review by Cardwell for increase (but not decrease) at the end of each twelve
month period. Commencing with the twelve month period ending March 31, 1998, Mr.
Teichgraeber also is eligible to receive an annual performance bonus of up to
$600,000. The actual amount of such bonus, if any, is determined by the Company
in its sole discretion. If a Change in Control (as defined in such agreement)
occurs during the term of the agreement and while Mr. Teichgraeber is still
employed by Cardwell, Mr. Teichgraeber is eligible to receive a special change
in control bonus. The actual amount of such bonus, if any, shall be determined
by the Company in its sole discretion. If Mr. Teichgraeber's employment with
Cardwell is terminated during the term of the agreement: (i) by Cardwell for
Cause (as defined in such agreement) or by Mr. Teichgraeber for any reason other
than Good Reason (as defined in such agreement), Mr. Teichgraeber is not
entitled to receive any further compensation or benefits under the agreement;
(ii) by Cardwell for any reason other than Cause or Disability (as defined in
such agreement), Mr. Teichgraeber is entitled to receive a lump sum payment
equal to his then-current base salary for the remainder of the term of the
agreement; or (iii) as a result of his death or by Cardwell as a result of his
Disability, Mr. Teichgraeber is entitled to receive payments equal to his
then-current base salary (less any applicable disability benefits) for a period
of six months. Finally, during the period ending on the later of the effective
date of the termination of Mr. Teichgraeber's employment with Cardwell or the
last day of the term of the agreement, Mr. Teichgraeber is prohibited from
engaging in Competitive Activity (as defined in such agreement) with the
Company, and is prohibited from soliciting any employee of the Company or any of
its affiliates to terminate employment.
No other Named Executive Officer has an employment agreement, severance
agreement or change-in-control agreement with the Company or any affiliate.
43
<PAGE> 46
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of , 1997 and as adjusted to reflect
the sale of the shares of Common Stock offered hereby by (i) each person that
owns beneficially more than 5% of the Common Stock, (ii) each director and Named
Executive Officer of the Company and (iii) all directors and executive officers
of the Company as a group. For purposes of the table, a person or group of
persons is deemed to have "beneficial ownership" of any shares as of a given
date which such person has the right to acquire within 60 days after such date.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OWNED SHARES OWNED
--------------------------- ----------------------
PRIOR TO AFTER PRIOR TO AFTER
OFFERING OFFERING(1) OFFERING OFFERING(1)
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Hushang Ansary.............................. 27,300,000(2) 24,580,000(2) 91.0% 62.9%
Daniel G. Moriarty.......................... 0 0 0 0
Abdallah Andrawos........................... 0 0 0 0
Nina Ansary................................. 3,000,000 3,010,000(3) 10.0% 7.7%
Frank C. Carlucci........................... 1,200,000 1,090,000(3) 4.0% 2.8%
Dr. Philip David............................ 1,500,000 1,360,000(3) 5.0% 3.5%
Munawar H. Hidayatallah..................... 0 0 0 0
Richard D. Higginbotham..................... 0 0 0 0
John D. Macomber............................ 0 10,000(3) * *
Edward L. Palmer............................ 0 10,000(3) * *
Stephen J. Solarz........................... 0 10,000(3) * *
Gary W. Stratulate.......................... 0 0 0 0
Arthur C. Teichgraeber...................... 0 0 0 0
Alexander B. Trowbridge..................... 0 10,000(3) * *
J. Robinson West............................ 0 10,000(3) * *
All Directors and executive officers as
a group (15 persons)...................... 30,000,000(2) 27,080,000(2)(3) 100% 69.3%
CERTAIN OTHER HOLDERS
Nader Ansary................................ 3,000,000 3,000,000 10.0% 7.7%
The Ansary Family Trust..................... 2,850,000(2) 2,850,000(2) 9.5% 7.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes exercise of vested options held by the Outside Directors. See
"Management -- Stock Options."
(2) Mr. Ansary, The Ansary Family Trust, a trust controlled by Mr. Ansary for
the benefit, inter alia, of members of his immediate family, and a private
charitable foundation controlled by Mr. Ansary directly own in the aggregate
21,300,000 shares of Common Stock. Includes shares of Common Stock owned by
Nina Ansary and Nader Ansary (Mr. Ansary's daughter and son), of which Mr.
Ansary disclaims beneficial ownership.
(3) Including, in the case of Ms. Ansary, Mr Carlucci and Mr. David, and
otherwise consisting of, options to purchase shares of Common Stock granted
pursuant to the Incentive Plan. See "Management -- Stock Options."
SELLING STOCKHOLDERS
The Selling Stockholders consist of Mr. Ansary, Mr. Carlucci and Dr. David,
who are offering 2,730,000, 120,000 and 150,000 shares of Common Stock,
respectively. If the Underwriters' Over-Allotment Options are exercised, Mr.
Ansary, Mr. Carlucci and Dr. David will sell an additional 819,000, 36,000 and
45,000 shares, respectively. See "Security Ownership of Certain Beneficial
Owners and Management." The Company is
44
<PAGE> 47
paying all the expenses of the Offering, including the expenses attributable to
the shares being sold by the Selling Stockholders, other than underwriting
discounts and commissions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CORPORATE CONSOLIDATION
On , 1997, in anticipation of the Offering, the Company and its
then sole stockholder, Energy Services International Ltd. ("ESI"), merged
pursuant to Section 253 of the Delaware General Corporation Law (the "Merger"),
and ESI, as the surviving entity, changed its name to IRI International
Corporation. As a result of the Merger, the stockholders of ESI became the
stockholders of the Company, the number of issued and outstanding shares of
Common Stock was increased to 30,000,000, all issued and outstanding shares of
the Company's preferred stock (including all accrued and unpaid dividends
thereon) and all shares of treasury stock were cancelled.
OTHER TRANSACTIONS
During the three month period ended March 31, 1997, the Company paid ESI
approximately $450,000 to reimburse ESI for certain administrative services
costs (compensation and related expenses) paid by ESI on behalf of the Company
for services rendered between September 20, 1994 and March 31, 1997. ESI
discontinued making such payments on behalf of the Company effective March 31,
1997.
At December 31, 1996, the Company was owed $158,000 by an affiliate for
services rendered by Company personnel to the affiliate during 1996. Payment was
received in July 1997, and no further services have been rendered.
REGISTRATION RIGHTS AGREEMENT
In connection with the Offering, the Company will enter into a registration
rights agreement with each of the current stockholders (the "Registration Rights
Agreement"). The Registration Rights Agreement will provide for demand
registration rights pursuant to which, upon the request of a holder or holders
(the "Requesting Holders") who are affiliates of the Company or who own at least
10% of the shares of Common Stock subject to such agreement (the "Registrable
Securities"), the Company will file a registration statement under the
Securities Act to register Registrable Securities held by the Requesting Holder
and any other stockholders holding Registrable Securities, provided that at
least 10% of the number of shares of Registrable Securities or aggregate
principal amount of Registrable Securities outstanding at such time is requested
to be registered. In addition, subject to certain conditions and limitations,
the Registration Rights Agreement will provide that holders of Registrable
Securities may participate in any registration by the Company of its shares of
Common Stock in an underwritten offering. The Registration Rights conferred by
the Registration Rights Agreement will be transferable to transferees of the
Registrable Securities covered thereby.
Under the Registration Rights Agreement, the Company is required to pay all
the costs associated with such an offer other than underwriting discounts and
commissions and transfer taxes attributable to the Registrable Securities sold.
In addition, the Company will indemnify the Requesting Holders, and the
Requesting Holders will indemnify the Company, against certain liabilities in
respect of any registration statement or offering covered by the Registration
Rights Agreement.
INDEMNIFICATION AGREEMENTS
In connection with the Offering, the Company will enter into an
indemnification agreement (each, an "Indemnification Agreement") with each of
its directors and executive officers (each, an "Indemnitee"). Each
Indemnification Agreement will provide that the Company will indemnify each
Indemnitee when he or she is involved in any manner or is threatened to be
involved in any proceeding (i) by reason of the fact he or she is or was or had
agreed to become a director or officer of the Company, or is or was serving or
had agreed to serve at the request of the Company as a director, officer,
employee or agent of another entity, or by reason of any action alleged to have
been taken or omitted in such capacity, against all liabilities actually
incurred by the Indemnitee in connection therewith so long as the Indemnitee
acted in good faith and in a manner he or
45
<PAGE> 48
she reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful or (ii) by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he or she
is or was or had agreed to become a director or officer of the Company, or is or
was serving or had agreed to serve at the request of the Company as a director,
officer, employee or agent of another entity, against all liabilities actually
incurred by the Indemnitee in connection therewith so long as he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company, except no indemnification will be made if
the Indemnitee is adjudged to be liable to the Company, unless and only to the
extent a proper court determines that despite the adjudication of liability the
Indemnitee is entitled to indemnity.
The Company will also agree to indemnify each Indemnitee against
liabilities arising from the Indemnitee's alleged or actual negligence or breach
of duty or misstatement made, or acquiesced to, in his or her capacity as an
officer or director of the Company, or while serving at the request of the
Company as a director, officer, employee or agent of another entity.
In the event the Company disputes an Indemnitee's right to indemnification
under a Indemnification Agreement, the Company has agreed to pay all expenses
relating to the Indemnitee's enforcement of its rights under his or her
Indemnification Agreement.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation (the "Certificate of
Incorporation") provides that the authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, par value $.01 per share, and
25,000,000 shares of Preferred Stock, par value $1.00 per share (the "Preferred
Stock"). Upon consummation of the Offering, 39,000,000 shares of Common Stock
will be issued and outstanding, and no shares of Preferred Stock will be issued
and outstanding. The summary below is a description summary and is qualified in
its entirety by the provisions of the Certificate of Incorporation.
COMMON STOCK
Except as may otherwise be provided in a Preferred Stock designation, the
holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and do not have cumulative voting rights.
Subject to preferential rights that may be applicable to any Preferred Stock
outstanding, holders of Common Stock are entitled to receive dividends, if, as
and when declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share equally and ratably in
assets remaining after payment of liabilities, subject to prior distribution
rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock.
PREFERRED STOCK
The Board of Directors has the authority, with the approval of the holders
of a majority of the outstanding shares of Common Stock, to issue the Preferred
Stock in one or more series and to fix the number of shares to be included in
any such series and the designations, relative powers, preferences, rights and
qualifications, limitations or restrictions of all shares of each such series.
The issuance of Preferred Stock could decrease the amount of earnings and assets
available for distributions to the holders of Common Stock.
LIMITATIONS OF LIABILITY
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional conduct
or a knowing violation of law, the approval of an improper payment of a dividend
or an improper purchase by the Company of stock or any transaction from which
the
46
<PAGE> 49
director derived an improper personal benefit. The Certificate of Incorporation
provides that, to the full extent permitted by Delaware law, no director will be
personally liable to the Company or its stockholders for or with respect to any
acts or omissions in the performance of his or her duties as a director of the
Company.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Continental Stock Transfer & Trust Co. as the
transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering (assuming the Underwriters'
Over-Allotment Options and the options granted to the Outside Directors are not
exercised), the Company will have 39,000,000 shares of Common Stock outstanding.
The 12,000,000 shares of Common Stock sold in the Offering will be freely
tradeable by persons other than "affiliates" of the Company without restriction
or limitation under the Securities Act. The remaining 27,000,000 shares are
"restricted securities" within the meaning of Rule 144 under the Securities Act
(the "Restricted Shares") and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption contained in Rule 144.
In general, under Rule 144, if one year has elapsed since the later of the
date of acquisition of Restricted Shares from the Company or any "affiliate" of
the Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the Common Stock then
outstanding or the average weekly trading volume of the Common Stock 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 manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of Restricted Shares from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the preceding three months
90 days preceding a sale, such person would be entitled to sell such shares in
the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements. The Company and the Selling Stockholder have agreed that, subject
to certain limited exceptions, for a period of 180 days from the date of this
Prospectus they will not, without the prior written consent of Lehman Brothers
Inc., sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable for Common Stock. See "Certain
Relationships and Related Transactions -- Registration Rights Agreement."
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to such plan generally will be available for sale in the open
market by holders who are not affiliates of the Company and, subject to the
volume and other limitations of Rule 144, by holders who are affiliates of the
Company.
Prior to the Offering there has been no public market for the Common Stock.
See "Risk Factors -- No Prior Public Market for Common Stock; Possible
Volatility of Stock Price." The Company can make no predictions as to the
effect, if any, that future sales of Restricted Shares, or the availability of
such Restricted Shares for sale, or the issuance of shares of Common Stock upon
the exercise of options or otherwise, or the perception that such sales or
exercise could occur, will have on the market price prevailing from time to
time. Sales of substantial amounts of Restricted Shares in the public market or
the perception that such sales might occur could have an adverse effect on the
market price of the Common Stock.
47
<PAGE> 50
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the U.S.
Underwriting Agreement, the U.S. Underwriters, for whom Lehman Brothers Inc.,
Howard, Weil, Labouisse, Friedrichs Incorporated, Prudential Securities
Incorporated and Credit Lyonnais Securities (USA) Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Stockholders, and the Company and the Selling
Stockholders have agreed to sell to each U.S. Underwriter, the aggregate number
of shares of Common Stock set forth opposite the name of each U.S. Underwriter
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc. .......................................
Howard, Weil, Labouisse, Friedrichs Incorporated............
Prudential Securities Incorporated..........................
Credit Lyonnais Securities (USA), Inc. .....................
---------
Total............................................. 9,600,000
=========
</TABLE>
Under the terms of, and subject to the conditions contained in, the
International Underwriting Agreement, the International Managers, for whom
Lehman Brothers International (Europe), Credit Lyonnais Securities, Howard,
Weil, Labouisse, Friedrichs Incorporated and Prudential-Bache Securities (U.K.)
Inc. are acting as representatives (the "Lead Managers"), have severally agreed
to purchase from the Company and the Selling Stockholders, and the Company and
the Selling Stockholders have agreed to sell to each International Manager, the
aggregate number of shares of Common Stock set forth opposite the name of each
International Manager below:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Lehman Brothers International (Europe)......................
Credit Lyonnais Securities..................................
Howard, Weil, Labouisse, Friedrichs Incorporated............
Prudential-Bache Securities (U.K.) Inc. ....................
---------
Total............................................. 2,400,000
=========
</TABLE>
48
<PAGE> 51
The U.S. Underwriters and the International Managers (collectively, the
"Underwriters") propose to offer the shares to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
selected dealers (who may include the U.S. Underwriters and the International
Managers) at such price, less a selling concession not in excess of $
per share. The U.S. Underwriters and the International Managers may allow, and
such dealers may re-allow, a concession not in excess of $ per share to
certain other Underwriters or to certain other brokers and dealers. After the
initial offering to the public, the offering price and other selling terms may
be changed by the Representatives and the Lead Managers.
The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the "Underwriting Agreements") provide that the
obligations of the several U.S. Underwriters and the International Managers,
respectively, to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and certain other conditions. The nature of the U.S. Underwriters' and the
International Managers' obligations is such that, if any of the shares of Common
Stock are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement or by the International Managers pursuant to the International
Underwriting Agreement, all the shares of Common Stock agreed to be purchased by
either the U.S. Underwriters or the International Managers, as the case may be,
pursuant to their respective Underwriting Agreements, must be so purchased. The
initial public offering price and underwriting discounts and commissions for the
U.S. Offering and the International Offering are identical. The closing of the
U.S. Offering is a condition to the closing of the International Offering. The
closing of the International Offering is a condition to the closing of the U.S.
Offering.
The Company and the Selling Stockholders have agreed in the Underwriting
Agreements to indemnify the U.S. Underwriters and the International Managers
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments that the U.S. Underwriters and the International
Managers may be required to make in respect thereof.
Each of the Company and the Selling Stockholders has granted to the U.S.
Underwriters a 30-day option to purchase up to 720,000 additional shares on the
same terms and conditions as set forth above to cover over-allotments, if any.
Each of the Company and the Selling Stockholders has granted to the
International Managers a similar option to purchase up to 180,000 additional
shares to cover over-allotments, if any. To the extent that such options are
exercised, each Underwriter will be committed, subject to certain conditions, to
purchase a number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment, as indicated in the preceding tables.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers (the "Agreement
Between") pursuant to which each U.S. Underwriter has agreed that, as part of
the distribution of the shares of Common Stock (plus any of the shares of Common
Stock to cover over-allotments) offered in the U.S. Offering, (a) it is not
purchasing any of such shares for the account of anyone other than a U.S. or
Canadian Person (as defined below) and (b) it has not offered or sold, and will
not offer, sell, resell or deliver, directly or indirectly, any of such shares
outside the United States or Canada or to anyone other than a U.S. or Canadian
Person. In addition, pursuant to the Agreement Between, each International
Manager has agreed that, as part of the distribution of the shares of Common
Stock (plus any of the shares of Common Stock to cover over-allotments) offered
in the International Offering, (a) it is not purchasing any of such shares for
the account of any U.S. or Canadian Person and (b) it has not offered or sold,
and will not offer, sell, resell or deliver, directly or indirectly, any of such
shares in the United States or Canada or to any U.S. or Canadian Person. Each
International Manager has also agreed that it will offer to sell shares of
Common Stock only in compliance with all relevant requirements of any applicable
laws.
As used herein, "U.S. or Canadian Person" means any resident or citizen of
the United States or Canada, any corporation, partnership or other entity
created or organized in or under the laws of the United States or Canada or any
political subdivision thereof or any estate or trust, the income of which is
subject to United States federal income taxation or Canadian income taxation
regardless of the source of income (other than a foreign branch of any U.S. or
Canadian Person), and includes any United States or Canadian branch of a
49
<PAGE> 52
person who is not otherwise a U.S. or Canadian Person. The term "United States"
means the United States of America (including the District of Columbia) and its
territories, possessions and other areas subject to its jurisdiction. The term
"Canada" means Canada, its provinces, territories and possessions and other
areas subject to its jurisdiction.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between, including: (i) certain purchases and sales between the U.S.
Underwriters and the International Managers; (ii) certain offers, sales,
resales, deliveries or distributions to or through investment advisors or other
persons exercising investment discretion; (iii) purchases, offers or sales by a
U.S. Underwriter who is also acting as an International Manager or by an
International Manager who also is acting as a U.S. Underwriter; and (iv) other
transactions specifically approved by the Representatives and the Lead Managers.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Managers of such number of shares of Common
Stock as may be mutually agreed upon. Unless otherwise agreed, the price of any
shares of Common Stock so sold shall be the public offering price then in effect
for the shares of Common Stock being sold by the U.S. Underwriters and the
International Managers, less the selling concession allocable to such shares. To
the extent that there are sales between the U.S. Underwriters and the
International Managers pursuant to the Agreement Between, the number of shares
initially available for sale by the U.S. Underwriters or by the International
Managers may be more or less than the amount specified on the cover page of this
Prospectus.
This Prospectus is not, and under no circumstances is to be construed as,
an advertisement or a public offering of shares of Common Stock in Canada or any
province or territory thereof. Any offer or sale of shares of Common Stock in
Canada may only be made pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer or sale is
made.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the latest closing date,
will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 (the "1986 Act") with respect to anything done by it in
relation to the shares of Common Stock in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on, and will only issue
or pass on, to any person in the United Kingdom any investment advertisement
(within the meaning of the 1986 Act) relating to the shares of Common Stock if
that person falls within Article II(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on.
No action has been taken or will be taken in any jurisdiction by the
Company, the Selling Stockholders or the Underwriters that would permit a public
offering of shares of Common Stock in any jurisdiction where action for that
purpose is required, other than the United States. Persons into whose possession
this Prospectus comes are required by the Company, the Selling Stockholders and
the Underwriters to inform themselves about, and to observe any restrictions as
to, the offering of shares of Common Stock offered pursuant to the Offering and
the distribution of this Prospectus.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
The Company and each of its stockholders have agreed, for a period of 180
days from the date of this Prospectus, not to, directly or indirectly, offer,
sell or otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any person at
any time in the future of) any Common Stock of the Company, or sell or grant
options, rights or warrants with respect to any
50
<PAGE> 53
Common Stock of the Company, without the prior written consent of Lehman
Brothers Inc. on behalf of the Representatives and the Lead Managers.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company,
the Selling Stockholders, the Representatives and the Lead Managers. Among the
factors considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions, are recent financial
and operating results of the Company, the proposed capital structure, assets and
liabilities of the Company, estimates of the business potential and earnings
prospects of the Company, the prospects for the industry in which the Company
operates, an assessment of the Company's management, consideration of the above
factors in relation to market valuation of companies in related businesses and
other factors deemed relevant. Additionally, consideration was given to the
general status of the securities markets, the market conditions for new
offerings of securities, the demand for similar securities of publicly traded
companies in related businesses and other relevant factors. The initial public
offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price will be subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
At June 30, 1997, Lehman Commercial Paper Inc. and Strategic Resource
Partners Inc., each an affiliate of Lehman Brothers Inc., in the aggregate owned
10% or more of the outstanding subordinated debt of the Company. As a result of
such ownership, the National Association of Securities Dealers, Inc. ("NASD")
may view this offering as a participation by Lehman Brothers in the distribution
in a public offering of securities issued by a company with which Lehman
Brothers has a conflict of interest. As a result, this offering is being made
pursuant to the provisions of Rule 2720 of the NASD's Conduct Rules. Such
provisions require, among other things, that the initial public offering price
be no higher than that recommended by a "qualified independent underwriter," who
must participate in the preparation of the registration statement and the
prospectus and who must exercise the usual standards of "due diligence" with
respect thereto. Prudential Securities Incorporated is acting as a qualified
independent underwriter in this Offering, and the initial public offering price
of the shares is not higher than the price recommended by Prudential Securities
Incorporated, which price was determined based on the factors discussed above.
In accordance with such Rule 2720, the U.S. Underwriters and the International
Managers will not make sales of shares of Common Stock offered hereby to
customers' discretionary accounts without the prior specific written approval of
such customers.
In connection with its roles as Advisor, Arranger and Syndication Agent
under the Senior Credit Facility, Lehman Commercial Paper Inc., an affiliate of
Lehman Brothers Inc., was paid customary fees. In connection with its role as an
interim lender under the Senior Notes Agreement, Strategic Resource Partners, an
affiliate of Lehman Brothers Inc., was paid customary fees.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representatives and the Lead Managers are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions may consist of bids or purchases for the purpose
of pegging, fixing or maintaining the price of the Common Stock.
If the Representatives and Lead Managers create a short position in the
Common Stock in connection with the Offering, (i.e., if they sell more shares of
Common Stock than are set forth on the cover page of this Prospectus), the
Representatives and the Lead Managers may reduce that short position by
purchasing Common Stock in the open market. The Representatives and the Lead
Managers also may elect to reduce any short position by exercising all or part
of the Underwriters' Over-Allotment Options described herein.
The Representatives and the Lead Managers also may impose a penalty bid on
certain Underwriters and selling group members. This means that if the
Representatives or the Lead Managers purchase shares of Common Stock in the open
market to reduce such Underwriters' short position or to stabilize the price of
the
51
<PAGE> 54
Common Stock they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of this
Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this Offering.
Neither the Company, the Selling Stockholders nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company, the Selling Stockholders nor any of the
Underwriters makes any representation that the Representatives or Lead Managers
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
The Company intends to apply to have the Common Stock listed for trading on
the NYSE. In order to meet one of the requirements for listing the Common Stock
on the NYSE, the U.S. Underwriters will undertake to sell lots of 100 or more
shares of Common Stock to a minimum of 2,000 beneficial owners.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Jones, Day, Reavis & Pogue, New York, New York
and for the Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The financial statements of the Company for the period from April 1, 1994
through September 19, 1994 (Predecessor), the period from September 20, 1994
through March 31, 1995, the year ended March 31, 1996 and the nine months ended
December 31, 1996; the financial statements of Bowen Tools, Inc. as of December
31, 1995 and 1996 and for each of the years in the three year period ended
December 31, 1996; and the financial statements of Cardwell International, Ltd.
as of October 31, 1996 and for the ten month period then ended, have been
included herein and in the registration statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is a part of the
Registration Statement, omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common Stock
offered hereby. Statements contained herein concerning the provisions of any
documents are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. The
Registration Statement, including exhibits filed therewith, may be inspected and
copied at the public reference facilities maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and will also be available for inspection and copying at the regional
offices of the Securities and Exchange Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may also be obtained from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of the fees prescribed by the Securities and Exchange Commission. The
Securities and Exchange Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains
52
<PAGE> 55
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission.
The Company will be required to file reports and other information with the
Securities and Exchange Commission pursuant to the Exchange Act. The Company
intends to furnish its stockholders annual reports containing consolidated
financial statements certified by its independent accountants and quarterly
reports containing unaudited condensed consolidated financial statements for
each of the first three quarters of each fiscal year.
53
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IRI INTERNATIONAL CORPORATION
Independent Auditors' Report.............................. F-2
Balance Sheets as of March 31, 1996 and December 31,
1996................................................... F-3
Statements of Operations for the Period from April 1, 1994
through September 19, 1994 (predecessor), Period from
September 20, 1994 through March 31, 1995, Year Ended
March 31, 1996 and Nine Months Ended December 31,
1996................................................... F-4
Statements of Shareholder's Equity for the Period from
April 1, 1994 through September 19, 1994 (predecessor),
Period from September 20, 1994 through March 31, 1995,
Year Ended March 31, 1996 and Nine Months Ended
December 31, 1996...................................... F-5
Statements of Cash Flows for the Period from April 1, 1994
through September 19, 1994 (predecessor), Period from
September 20, 1994 through March 31, 1995, Year Ended
March 31, 1996 and Nine Months Ended December 31,
1996................................................... F-6
Notes to Financial Statements............................. F-7
Consolidated Balance Sheet as of June 30, 1997
(unaudited)............................................ F-17
Consolidated Statements of Operations for the Six Months
Ended June 30, 1996 and 1997 (unaudited)............... F-18
Consolidated Statement of Shareholder's Equity for the Six
Months Ended June 30, 1997 (unaudited)................. F-19
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1997 (unaudited)............... F-20
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-21
BOWEN TOOLS, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................. F-24
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1996...................................... F-25
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996....................... F-26
Consolidated Statements of Shareholder's Equity for the
Years Ended December 31, 1994, 1995 and 1996........... F-27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996....................... F-28
Notes to Consolidated Financial Statements................ F-29
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1997 (unaudited).............. F-37
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1997 (unaudited).............. F-38
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-39
CARDWELL INTERNATIONAL LTD. AND SUBSIDIARIES
Independent Auditors' Report.............................. F-40
Consolidated Balance Sheet as of October 31, 1996......... F-41
Consolidated Statement of Operations for the Ten Months
Ended October 31, 1996................................. F-42
Consolidated Statement of Shareholder's Equity for the Ten
Months Ended October 31, 1996.......................... F-43
Consolidated Statement of Cash Flows for the Ten Months
Ended October 31, 1996................................. F-44
Notes to Consolidated Financial Statements................ F-45
Consolidated Statements of Operations for the Five Months
Ended March 31, 1996 and 1997 (unaudited).............. F-51
Consolidated Statement of Shareholder's Equity for the
Five Months Ended March 31, 1997 (unaudited)........... F-52
Consolidated Statements of Cash Flows for the Five Months
Ended March 31, 1996 and 1997 (unaudited).............. F-53
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-54
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
IRI International Corporation:
We have audited the accompanying balance sheets of IRI International
Corporation as of March 31, 1996 and December 31, 1996 and the related
statements of operations, shareholder's equity and cash flows for the period
from April 1, 1994 through September 19, 1994 (Predecessor), the period from
September 20, 1994 through March 31, 1995, the year ended March 31, 1996 and the
nine months 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 financial position of IRI International
Corporation as of March 31, 1996 and December 31, 1996 and the results of its
operations and its cash flows for the period from April 1, 1994 through
September 19, 1994 (Predecessor), the period from September 20, 1994 through
March 31, 1995, the year ended March 31, 1996 and the nine months ended December
31, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
June 27, 1997
F-2
<PAGE> 58
IRI INTERNATIONAL CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7,704 $ 8,635
Accounts receivable, less allowance for doubtful accounts
of $27 at March 31, 1996 and $36 at December 31,
1996................................................... 5,442 8,036
Inventories............................................... 31,155 37,995
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. -- 23
Other current assets...................................... 855 957
------- -------
Total current assets.............................. 45,156 55,646
Property, plant and equipment, net.......................... 775 2,398
Prepaid pension cost........................................ 700 627
------- -------
$46,631 $58,671
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes payable............................................. $ -- $ 3,157
Accounts payable.......................................... 4,470 6,790
Accrued liabilities....................................... 3,122 3,530
Customer advances......................................... 1,720 2,607
Other liabilities......................................... 383 760
Current installments of obligation under capital lease.... -- 144
------- -------
Total current liabilities......................... 9,695 16,988
Negative goodwill, less accumulated amortization............ 18,786 14,760
Obligation under capital lease, less current installments... -- 522
Accrued postretirement benefits other than pensions......... 1,624 1,498
------- -------
Total liabilities................................. 30,105 33,768
------- -------
Shareholder's equity:
Preferred stock, $1.00 par value, 8,000,000 shares
authorized, 80,000 issued and outstanding.............. 80 80
Common stock, $.01 par value, 100,000,000 shares
authorized, 168,000 shares issued, 163,600 shares
outstanding............................................ 2 2
Additional paid-in capital................................ 5,358 5,358
Retained earnings......................................... 11,526 19,903
Less treasury stock, 4,400 common shares, at cost......... (440) (440)
------- -------
Total shareholder's equity........................ 16,526 24,903
Commitments and contingencies
------- -------
$46,631 $58,671
======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 59
IRI INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 1, SEPTEMBER 20, NINE MONTHS
1994 THROUGH 1994 THROUGH YEAR ENDED ENDED
SEPTEMBER 19, MARCH 31, MARCH 31, DECEMBER 31,
1994 1995 1996 1996
------------- ------------- ---------- ------------
(PREDECESSOR)
<S> <C> <C> <C> <C>
Revenues.................................... $16,473 $20,206 $52,506 $62,298
Cost of goods sold.......................... 16,216 14,058 36,877 44,968
------- ------- ------- -------
Gross profit...................... 257 6,148 15,629 17,330
Selling expense............................. 696 955 3,513 3,026
Administrative expense...................... 1,406 1,350 4,477 5,194
------- ------- ------- -------
Operating income (loss)........... (1,845) 3,843 7,639 9,110
Other income (expense):
Interest income........................... 16 21 371 90
Interest expense.......................... (2,675) (25) (47) (615)
Other, net................................ 90 (13) -- (110)
------- ------- ------- -------
(2,569) (17) 324 (635)
------- ------- ------- -------
Income (loss) before income
taxes........................... (4,414) 3,826 7,963 8,475
Income taxes................................ -- 263 -- 98
------- ------- ------- -------
Net income (loss)................. (4,414) 3,563 7,963 8,377
Preferred stock dividend requirements....... (400) (400) (800) (600)
------- ------- ------- -------
Net income (loss) attributable to
outstanding common stock........ $(4,814) $ 3,163 $ 7,163 $ 7,777
======= ======= ======= =======
Net income (loss) per common share.......... $(29.43) $ 19.33 $ 43.78 $ 47.54
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 60
IRI INTERNATIONAL CORPORATION
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PREFERRED COMMON PAID-IN EARNINGS TREASURY SHAREHOLDER'S
STOCK STOCK CAPITAL (DEFICIT) STOCK EQUITY
--------- ------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1994
(predecessor)................. $80 $ 2 $ 24,718 $(84,843) $(440) $(60,483)
Net loss (predecessor).......... -- -- -- (4,414) -- (4,414)
--- ---- -------- -------- ----- --------
Balances at September 19, 1994
(predecessor)................. 80 2 24,718 (89,257) (440) (64,897)
Acquisition by Energy Services
International................. -- 0 (19,360) 89,257 -- 69,897
--- ---- -------- -------- ----- --------
Balances at September 20,
1994.......................... 80 2 5,358 -- (440) 5,000
Net income...................... -- -- -- 3,563 -- 3,563
--- ---- -------- -------- ----- --------
Balances at March 31, 1995...... 80 2 5,358 3,563 (440) 8,563
Net income...................... -- -- -- 7,963 -- 7,963
--- ---- -------- -------- ----- --------
Balances at March 31, 1996...... 80 2 5,358 11,526 (440) 16,526
Net income...................... -- -- -- 8,377 -- 8,377
--- ---- -------- -------- ----- --------
Balances at December 31, 1996... $80 $ 2 $ 5,358 $ 19,903 $(440) $ 24,903
=== ==== ======== ======== ===== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 61
IRI INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 1, SEPTEMBER 20, YEAR NINE MONTHS
1994 THROUGH 1994 THROUGH ENDED ENDED
SEPTEMBER 19, MARCH 31, MARCH 31, DECEMBER 31,
1994 1995 1996 1996
------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
(PREDECESSOR)
Cash flows from operating activities:
Net income (loss)............................. $(4,414) $ 3,563 $ 7,963 $ 8,377
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation............................... 341 6 64 98
Amortization of negative goodwill.......... -- (2,684) (5,367) (4,026)
Change in employee benefit accounts........ 370 (648) (249) (53)
Changes in assets and liabilities:
Accounts receivable...................... (662) 378 72 (2,594)
Inventories.............................. 684 4,175 (2,043) (6,840)
Other current assets..................... (101) 708 (201) (125)
Accounts payable and accrued
liabilities........................... (555) 995 3,580 2,728
Customer advances and other
liabilities........................... 3,957 (2,612) 360 1,264
Intercompany payable..................... 101 -- -- --
------- ------- ------- -------
Net cash provided by (used in)
operations.......................... (279) 3,881 4,179 (1,171)
------- ------- ------- -------
Cash flows used in investing
activities -- purchases of property, plant and
equipment..................................... (109) (128) (717) (911)
------- ------- ------- -------
Cash flows from financing activities:
Payments on capital lease obligation.......... -- -- -- (144)
Proceeds from notes payable................... -- -- -- 3,157
------- ------- ------- -------
Net cash flows provided by financing
activities.......................... -- -- -- 3,013
------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents................................... (388) 3,753 3,462 931
Cash and cash equivalents at beginning of
year.......................................... 877 489 4,242 7,704
------- ------- ------- -------
Cash and cash equivalents at end of year........ $ 489 $ 4,242 $ 7,704 $ 8,635
======= ======= ======= =======
Interest paid................................... $ -- $ 25 $ 47 $ 303
======= ======= ======= =======
Income taxes paid............................... $ -- $ -- $ 263 $ --
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 62
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL
IRI International Corporation (IRI or Company), a Delaware Corporation, was
formed on July 31, 1985, through the combination of Ingersoll-Rand Oilfield
Products Company, a wholly-owned subsidiary of Ingersoll-Rand Company,
established August 1, 1980, and the Ideco Division of Dresser Industries, Inc.
The Company manufactures and sells a full line of oil and gas mobile well
servicing and drilling rigs, deep oil and gas skid-mounted drilling rigs,
associated drilling equipment (Oilfield Equipment), and specialty steel products
(Specialty Steel). Most of the Company's customers are located in Asia. Raw
materials are readily available and the Company is not dependent upon a single
or a few suppliers.
On September 20, 1994, all of the outstanding common and preferred stock of
IRI was acquired by Energy Services International (ESI) for cash of $5 million.
The acquisition has been recorded using the purchase method of accounting and
the purchase price has been allocated to the assets acquired and liabilities
assumed based upon their fair values at the date of the acquisition as follows
(in thousands):
<TABLE>
<S> <C>
Inventories....................................... $ 33,287
Other current assets.............................. 7,743
Current liabilities............................... (7,372)
Accrued retirement benefits....................... (1,821)
Negative goodwill................................. (26,837)
--------
$ 5,000
========
</TABLE>
The excess of the fair value of net assets acquired over consideration paid
was applied against nonmonetary assets (property, plant and equipment) reducing
the balances at the acquisition date to zero. The remaining excess of the fair
value of net assets acquired over consideration paid was recorded as negative
goodwill and is being amortized using the straight-line method over 5 years.
Financial statements previously issued by the Company for the period from
September 20, 1994 through March 31, 1995 and the year ended March 31, 1996 have
been restated to reflect the purchase adjustments arising from the acquisition
of the Company by ESI.
During 1997, the Company elected to change its fiscal year end from March
31 to December 31.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Statements of Cash Flows
Cash equivalents of $7.7 million and $8.6 million at March 31, 1996 and
December 31, 1996, respectively, consisted of interest-bearing cash deposits.
For purposes of the statement of cash flows, the Company considers all cash and
short-term investments with original maturities of three months or less to be
cash equivalents.
During the nine months ended December 31, 1996, the Company entered into a
capital lease obligation of $810,000.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using standard costs which approximate actual cost on a first-in, first-out
basis.
F-7
<PAGE> 63
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(c) Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over the
estimated service lives of assets principally using the straight-line method.
Maintenance, repairs and minor replacements are charged to operations as
incurred; major repairs, replacements or improvements are capitalized.
(d) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(e) Revenue Recognition
During 1996, The Company changed its method for recognizing revenues on
construction contracts from the completed contract method to the
percentage-of-completion method. The change was made to better match recognition
of income on contracts to the related costs incurred as construction progresses.
The Company continues to utilize the completed contract method of revenue
recognition for tax purposes.
Under the percentage-of-completion method, revenues and profits are
recognized based on the percentage of completion throughout the performance
period of the contract. The percentage-of-completion is calculated based on the
ratio of contract costs incurred to date to total estimated contract costs after
providing for all known or anticipated costs. Costs include material, direct
labor and engineering and manufacturing overhead. Selling expenses and general
and administrative expenses are charged to operations as incurred. The effect of
changes in estimates of contract costs is recorded currently. All remaining
revenue is generally recorded when the equipment is shipped.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenues earned under the percentage-of-completion method but not yet
billable under the terms of the contract. Amounts are billable under contracts
generally upon shipment of the products or completion of the contracts. Included
in revenues and cost of goods sold for the nine months ended December 31, 1996
is $764,000 and $741,000, respectively, related to uncompleted contracts
($23,000 net) at December 31, 1996.
(f) Earnings per Common Share
Earnings per common share is based on the net income applicable to common
stock and weighted average common stock outstanding (16,360,000 shares) during
the periods and year presented.
(g) Financial Instruments and Credit Risk Concentrations
The Company invests its excess cash in financial instruments, primarily
overnight investments and money market mutual funds. These financial instruments
could potentially subject the Company to concentrations of credit risk; however,
the Company's management considers the financial stability and creditworthiness
of a financial institution before investing the Company's funds. The carrying
amounts of the financial instruments in the accompanying financial statements
(cash, accounts receivables and payables) approximate fair value because of the
short maturities of these instruments. The note payable to bank and capital
lease obligation bear interest at rates that approximate market rates and, thus
the carrying amount of debt approximates estimated fair value.
F-8
<PAGE> 64
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A substantial portion of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letters of credit or similar
arrangements.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, was issued which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and estimated future undiscounted cash flows indicate the carrying value of
those assets may not be recoverable. The Company implemented SFAS No. 121 on
April 1, 1996 and the adoption did not have a material effect on the financial
statements.
(3) CHANGE IN ACCOUNTING METHOD
As discussed in note 1(e), the Company adopted the percentage of completion
method of accounting for long-term contracts to conform its accounting policies
with industry standards. For purposes of the proposed registration statement,
the accompanying financial statements have been restated to reflect the new
accounting method for all periods presented.
(4) INVENTORIES
A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
<S> <C> <C>
Raw materials and supplies.................. $22,473 $29,163
Work in process............................. 7,237 7,645
Finished goods.............................. 1,445 1,187
------- -------
Total............................. $31,155 $37,995
======= =======
</TABLE>
F-9
<PAGE> 65
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
<S> <C> <C>
Land and land improvements................... $ -- $ 13
Buildings.................................... 203 277
Machinery and equipment...................... 642 2,276
---- ------
845 2,566
Less accumulated depreciation................ (70) (168)
---- ------
Property, plant and equipment,
net.............................. $775 $2,398
==== ======
</TABLE>
Machinery and equipment includes capitalized lease assets of $810,000 at
December 31, 1996.
(6) NOTES PAYABLE
During the year ended March 31, 1996, the Company obtained a $15,000,000
revolving credit facility with a bank available through February 1998. The
facility agreement contains provisions, among others, that restrict incurrence
of indebtedness, guarantees, acquisitions, and distributions to shareholders,
and require the Company to meet specified net worth ratios. Borrowings under the
credit facility bear interest at the prime rate (8.25% at December 31, 1996)
plus an applicable margin. As of December 31, 1996, there was $21,000
outstanding on the line of credit. The line of credit was cancelled on March 31,
1997 in connection with the acquisitions and related financing described in note
14.
At December 31, 1996 the Company had a $3 million unsecured demand note
payable to Towers Financial Services bearing interest at 14% per annum. The note
and accrued interest were paid in January 1997.
(7) SHAREHOLDER'S EQUITY
The Company's authorized capitalization consists of 100,000,000 shares of
common stock, par value $.01 per share, and 80,000 issued and outstanding shares
of preferred stock, par value $1.00 per share, cumulative $10 per annum
dividend. Cumulative unpaid preferred stock dividends at December 31, 1996 were
$9,353,000. The preferred stock has a liquidation value of $1.00 per share, plus
cumulative unpaid dividends, and is senior in liquidation preference to the
common equity of the Company.
(8) INCOME TAXES
Income tax expense (benefit) differs from the amount computed by applying
the statutory rate of 34 percent to income before income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM NINE MONTHS
APRIL 1, SEPTEMBER 20, ENDED
1994 THROUGH 1994 THROUGH YEAR ENDED DECEMBER
SEPTEMBER 19, MARCH 31, MARCH 31, 31,
1994 1995 1996 1996
------------- ------------- ---------- ------------
(PREDECESSOR)
<S> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit).......................... $(1,501) $1,301 $ 2,707 $ 2,882
Change in the valuation allowance.... 1,501 (502) (1,046) (1,504)
Amortization of negative goodwill.... -- (896) (1,825) (1,369)
Other................................ -- 360 164 89
------- ------ ------- -------
$ -- $ 263 $ -- $ 98
======= ====== ======= =======
</TABLE>
F-10
<PAGE> 66
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The income tax expense for the period from September 20, 1994 through March
31, 1994 consists of current federal alternative minimum tax.
The tax effects of temporary differences that give rise to significant
portions of the deferred federal income tax assets and liabilities as of March
31, 1996 and December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
<S> <C> <C>
Deferred income tax assets:
Basis in inventories............................... $1,587 $1,692
Basis in and depreciation of plant, property and
equipment....................................... 1,432 1,345
Employee benefits.................................. 552 509
Net operating loss carryforwards................... 3,445 1,800
Other.............................................. 395 536
------ ------
Total deferred income tax assets........... 7,411 5,882
Less valuation allowance........................... 7,173 5,669
------ ------
Net deferred income tax assets............. 238 213
Deferred income tax liabilities -- prepaid pension
cost............................................... 238 213
------ ------
Net deferred federal income tax
liability................................ $ -- $ --
====== ======
</TABLE>
Because of the uncertainty of generating future taxable income, the Company
has provided a valuation allowance for deferred tax assets of $7,173,000 and
$5,669,000 at March 31, 1996 and December 31, 1996, respectively. The valuation
allowance decreased $1,504,000 during the nine months ended December 31, 1996.
Under the Internal Revenue Code of 1986, in general, a change of more than
50% in the composition of a company's equity owners during any three years
results in a limitation on such company's ability to utilize its loss
carryforwards in subsequent years. The Company has undergone such an ownership
change as a result of the sale described in note 1; accordingly, the amount of
the Company's preacquisition net operating loss carryforwards that may be
utilized per year is limited to approximately $300,000 (aggregate $3,600,000
available at December 31, 1996) expiring from 2003 through 2009. To the extent
such carryforwards are not utilized in a year, they may be utilized in
subsequent years. In addition, the Company has $1,694,000 of net operating loss
carryforwards, without limitations, expiring from 2010 through 2011.
(9) LEASES
At December 31, 1996, minimum future annual payments required under a
capital lease together with the present value of the net minimum lease payments
and noncancelable operating leases, primarily for repair facilities and offices
and office equipment, were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1997.............................................. $ 767 $200
1998.............................................. 367 200
1999.............................................. 311 200
2000.............................................. 259 200
2001.............................................. 186 50
------ ----
Total minimum lease payments............ $1,890 850
======
Less amount representing interest................. 184
----
Present value of minimum lease payments........... $666
====
</TABLE>
F-11
<PAGE> 67
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rental expense was $289,000 for the period April 1, 1994 through
September 19, 1994 (predecessor), $196,000 for the period from September 20,
1994 through March 31, 1995, $546,000 for the year ended March 31, 1996 and
$860,000 for the nine months ended December 31, 1996.
(10) PENSION PLAN
The Company has a noncontributory defined benefit plan, which covers
substantially all employees. Employees with 10 or more years of service are
entitled to pension benefits beginning at normal retirement age (65) based on
years of service and the employees' compensation for the 60 consecutive month
period in which his compensation is the highest. The plan incorporates
provisions for early retirement, the privilege to elect a life annuity,
surviving spouse benefits, and disability benefits.
Employees of the Company who were employees of Ingersoll-Rand Oilfield
Products Company or the Ideco Division of Dresser Industries, Inc., immediately
prior to becoming employees of IRI, are entitled to uninterrupted service tenure
for purposes of retirement benefit calculations. Benefits payable under the IRI
retirement plan are offset by benefits payable under the retirement plans of
Dresser and Ingersoll-Rand Oilfield Products Company.
The Company uses the accrued benefit cost method to compute the annual
contributions to the plan, with minimum and maximum contributions determined on
a cumulative basis and the Company having the flexibility to choose which
contribution to make and which can vary from one period to the next.
The accrued benefit cost includes a normal cost which is computed as the
present value of the pro rata portion for the benefit accrual during the year
being valued and a past service cost which is the present value of that portion
of the projected benefit which has been accrued up to the valuation date. The
unfunded past-service cost may be liquidated over a period of between 10 and 30
years.
The funded status and the amounts recognized in the balance sheets as of
March 31, 1996 and December 31, 1996, the date of the latest actuarial
valuation, are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................ $(6,613) $(7,231)
Nonvested......................................... (769) (58)
------- -------
Accumulated benefit obligation...................... $(7,382) $(7,289)
======= =======
Projected benefit obligation for service rendered to
date.............................................. (7,382) (7,289)
Plan assets at fair value........................... 7,433 7,321
------- -------
Projected benefit obligation less than plan
assets............................................ 51 32
Unrecognized net gain from past experience different
from that assumed and effects of changes in
assumptions....................................... 649 595
------- -------
Prepaid pension cost................................ $ 700 $ 627
======= =======
</TABLE>
The Plan assets consist primarily of time share real estate notes and fixed
income time deposits.
F-12
<PAGE> 68
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 1, 1994 SEPTEMBER 20, NINE MONTHS
THROUGH 1994 THROUGH YEAR ENDED ENDED
SEPTEMBER 19, MARCH 31, MARCH 31, DECEMBER 31,
1994 1995 1996 1996
------------- ------------- ---------- ------------
(PREDECESSOR)
<S> <C> <C> <C> <C>
Service cost............................ $ 381 $ 50 $ 108 $ 81
Interest cost........................... 320 257 556 419
Actual return on plan assets............ (274) (274) (565) (270)
Net amortization and deferral........... 34 -- 154 (157)
----- ------ ----- -----
Total pension expense
(income).................... $ 461 $ 33 $ 253 $ 73
===== ====== ===== =====
</TABLE>
As of September 1, 1995, the pension plan was frozen insofar as future
accrual of pension benefits. Because the plan amendment to freeze the plan was
planned in conjunction with the ESI acquisition discussed in note 1, the
resulting curtailment gain was taken into consideration in remeasuring the
Company's projected benefit obligation and the date of the acquisition.
The development of the actuarial present value of the projected benefit
obligation at March 31, 1996 and December 31, 1996 was based upon a weighted
average discount rate of 7.75% and 7.90%, respectively, and an expected
long-term rate of return on assets of 8.0%.
The Pension Benefit Guaranty Corporation provides protection to plan
participants by assuring employees that the fixed commitment of the Company for
funding vested accrued benefits of the plan will be paid up to specified maximum
amounts should the Company be unable to fund the fixed commitment.
The plan is administered by the Pension Committee which is appointed by
IRI's Board of Directors.
(11) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the Company's defined benefit pension plan, the Company
sponsors a defined benefit health care plan that provides postretirement medical
benefits to retirees or full-time employees who retire after attaining age 55
with at least 10 years of service as of September 1, 1996. Current retirees
receive benefits for life while full time employees (future retirees) only
receive benefits until age 65. The plan is contributory, with retirees
contributing 20% of the health care cost. The Company's contribution is capped
at a 5% annual increase in health care costs, with the remaining increases to be
paid by the employee. The Company's policy is to fund the cost of medical
benefits in amounts determined at the discretion of management.
Summary information on the Company's plan at March 31, 1996 and December
31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Actives employees eligible to retire............... $ 572 $ 594
Retired participants............................... 1,240 1,227
Unamortized gain or loss associated with actuarial
assumption changes and plan amendment.............. (188) (323)
------ ------
Accrued postretirement benefit costs....... $1,624 $1,498
====== ======
</TABLE>
F-13
<PAGE> 69
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net period postretirement benefit cost includes the following components
(in thousands):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 1, 1994 SEPTEMBER 20, NINE MONTHS
THROUGH 1994 THROUGH YEAR ENDED ENDED
SEPTEMBER 19, MARCH 31, MARCH 31, DECEMBER 31,
1994 1995 1996 1996
------------- ------------- ---------- ------------
(PREDECESSOR)
<S> <C> <C> <C> <C>
Service cost..................... $247 $ 42 $ 30 $ --
Interest cost.................... 664 138 187 103
Net amortization and deferral.... -- -- -- 2
---- ---- ---- ----
Net periodic
postretirement
benefit cost
(income)............. $911 $180 $217 $105
==== ==== ==== ====
</TABLE>
On August 11, 1995, the plan was amended to terminate all employees from
the plan except those eligible to retire on June 30, 1995 and all current
retirees. In addition under the amended plan, active employees eligible to
retire will, after the age of 65, receive through the retirement plan, 80% of
the cost of medical insurance with a 5% cap over a base year premium of calendar
1996. Because it was expected that the plan would be terminated in conjunction
with the ESI acquisition discussed in note 1, the effects were considered in
measuring the Company's accumulated post retirement benefit obligation as of the
acquisition date.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.75% at March 31, 1996 and December 31, 1996. The
assumed health care cost trend rate was 10% in 1995 graded down to 5% after 12
years. Because health care cost increases over 5% annually are borne by the
employees, the amounts reported are not affected by increases in the assumed
health care cost trend rate.
(12) RELATED PARTY TRANSACTIONS
ESI charged the Company $450,000 during the nine months ended December 31,
1996 for certain administrative overhead functions performed from September 20,
1994 through December 31, 1996.
The Company has an account receivable from a related party of $158,000 at
December 31, 1996 for services rendered by IRI personnel. The receivable is
expected to be paid during fiscal year 1997.
(13) BUSINESS SEGMENTS
The Company operates through two business segments consisting of Oilfield
Equipment and Specialty Steel. The Oilfield Equipment segment is principally
engaged in the design and manufacture of drilling and well servicing rigs and
components for use on land and on offshore drilling platforms. The Company
specializes in providing small truck-mounted rigs to stationary land deep
drilling rigs to meet the functional requirements of customers drilling in
remote and harsh environments. The Company's Specialty Steel segment
manufactures premium carbon, alloy and specialty steel for use in commercial and
military products as well as for the manufacture of oilfield equipment products.
IRI's steel products are also used in the petroleum, aircraft and power
generation industries.
F-14
<PAGE> 70
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Financial information by industry segment is summarized below (in
thousands).
<TABLE>
<CAPTION>
OILFIELD SPECIALTY CORPORATE
EQUIPMENT STEEL AND OTHER TOTAL
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Period from April 1, 1994 through
September 19, 1994 (predecessor):
Sales to unaffiliated customers....... $12,545 $ 3,928 $ -- $ 16,473
Operating income (loss)............... (671) 232 (1,406) (1,845)
Identifiable assets................... 34,169 5,184 1,677 41,030
Depreciation.......................... 188 136 17 341
Capital expenditures.................. 24 85 -- 109
Period from September 20, 1994 through
March 31, 1995:
Sales to unaffiliated customers....... 14,399 5,807 -- 20,206
Operating income...................... 1,269 1,240 1,334 3,843
Identifiable assets................... 28,924 5,804 5,402 40,130
Depreciation.......................... 2 2 2 6
Amortization of negative goodwill..... -- -- (2,684) (2,684)
Capital expenditures.................. 23 13 92 128
Year ended March 31, 1996:
Sales to unaffiliated customers....... $40,176 $12,330 $ -- $ 52,506
Operating income...................... 4,141 2,608 890 7,639
Identifiable assets................... 30,979 6,302 9,350 46,631
Depreciation.......................... 40 12 12 64
Amortization of negative goodwill..... -- -- (5,367) (5,367)
Capital expenditures.................. 581 130 6 717
Nine months ended December 31, 1996:
Sales to unaffiliated customers....... $52,029 $10,269 $ -- $ 62,298
Operating income (loss)............... 7,399 2,879 (1,168) 9,110
Identifiable assets................... 40,169 6,956 11,546 58,671
Depreciation.......................... 79 10 9 98
Amortization of negative goodwill..... -- -- (4,026) (4,026)
Capital expenditures.................. 545 218 958 1,721
</TABLE>
Sales outside the United States accounted for 65%, 55%, 50% and 50% of
total revenues for the period from April 1, 1994 through September 19, 1994
(preacquisition), the period from September 20, 1994 through March 31, 1995, the
year ended March 31, 1996 and the nine months ended December 31, 1996,
respectively, based upon the ultimate destination in which equipment or services
were sold, shipped or provided to the customer by the Company.
During the period from April 1, 1994 through September 19, 1994
(preacquisition), one customer constituted 11% of total revenues. During the
period from September 20, 1994 through March 31, 1995, two customers each
accounted for revenues of 12%. For the year ended March 31, 1996, one customer
accounted for 36% of revenues and for the nine months ended December 31, 1996,
two customers accounted for 38% and 14% of revenues, respectively.
(14) ACQUISITIONS
On March 31, 1997, the Company acquired certain assets and assumed certain
liabilities of Bowen Tools, Inc. ("Bowen"), a wholly owned subsidiary of the
French chemical concern L'Air Liquide, for a total consideration of $73.1
million. On April 17, 1997, the Company also acquired the stock of Cardwell
F-15
<PAGE> 71
IRI INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
International Ltd. ("Cardwell"), a privately owned company, as well as certain
assets held by affiliates of Cardwell for approximately $12 million in cash at
closing and partial payment ($3 million) of a note payable to bank. In addition
the Company incurred approximately $2.4 million ($1.8 million for Bowen and $0.6
million for Cardwell) of transaction costs in connection with the acquisitions.
The acquisitions were financed through a $65 million senior secured term loan
facility and $31 million of interim senior subordinated increasing rate notes.
The term loan is payable in increasing amounts over a five-year period and
bears interest at a base rate (as defined) plus 1.5% or the Eurodollar rate plus
3.25%. The interim notes bear interest at LIBOR plus 6.5%, increasing .5% per
three month period if the notes are not repaid within eight months, to a maximum
of 18%. The interim notes mature one year from issuance and at maturity the
holders of the interim notes shall receive warrants representing 5% of the
common stock of ESI. In addition, holders are required to exchange their interim
notes for rollover notes if no event of default has occurred, the Company pays a
3% rollover fee to the holders, the rollover debt registration is declared
effective by the SEC and the shelf registration statement with respect to the
warrants and warrant shares has been declared effective by the SEC. Proceeds
from any public offering or private placement are to be used, subject to certain
agreed exceptions, to redeem the interim notes.
Bowen, headquartered in Houston, Texas, designs, manufactures and markets
fishing tools and drilling, power and wireline/pressure control equipment used
in the drilling and completion of oil and gas wells. Cardwell, headquartered in
El Dorado, Kansas, manufactures and sells drilling rigs, related oilfield
equipment and supplies predominantly to foreign customers.
The acquisitions have been recorded using the purchase method of accounting
and results of operations of the acquired companies will be included in the
statement of operations of IRI from the date of the respective acquisitions.
(15) COMMITMENTS AND CONTINGENCIES
The Company has contract commitments aggregating $14.8 million at December
31, 1996 for the manufacture and delivery of drilling rigs during fiscal year
1997.
At December 31, 1996, the Company was contingently liable for approximately
$7.3 million in letters of credit which guarantee the Company's performance for
payment to third parties in accordance with specified contractual terms and
conditions. These letters of credit are primarily secured by the Company's cash,
accounts receivable and inventory. Management does not expect any material
losses to result from these off-balance-sheet instruments as it anticipates full
performance on the related contracts.
F-16
<PAGE> 72
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 2,366
Accounts receivable, less allowance for doubtful accounts
of $228................................................ 23,073
Inventories (note 2)...................................... 84,629
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,508
Other current assets...................................... 2,042
--------
Total current assets.............................. 114,618
--------
Property, plant and equipment, net.......................... 38,354
Excess of cost over fair value of net tangible assets of
businesses acquired, net.................................. 5,842
Prepaid pension cost........................................ 578
Other assets, principally debt issuance costs, net.......... 4,799
--------
$164,191
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,162
Accrued liabilities....................................... 5,025
Customer advances and security deposits................... 7,875
Other liabilities......................................... 1,721
Current installments of long-term debt.................... 2,826
Current installments of obligation under capital lease.... 144
--------
Total current liabilities......................... 24,753
Negative goodwill, less accumulated amortization............ 12,657
Long-term debt, less current installments................... 99,813
Obligation under capital lease, less current installments... 468
Accrued postretirement benefits other than pensions......... 1,176
--------
Total liabilities................................. 138,867
--------
Shareholder's equity:
Preferred stock, $1 par value, 8,000,000 shares
authorized, 80,000 shares issued and outstanding....... 80
Common stock, $.01 par value, 100,000,000 shares
authorized, 168,000 shares issued, 163,600
outstanding............................................ 2
Additional paid-in capital................................ 5,358
Retained earnings......................................... 20,324
Less treasury stock, 4,400 common shares, at cost......... (440)
--------
Total shareholder's equity........................ 25,324
Commitments and contingencies
--------
Total liabilities and shareholder's equity.................. $164,191
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-17
<PAGE> 73
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................... $29,347 $57,785
Cost of goods sold.......................................... 21,149 44,631
------- -------
Gross profit...................................... 8,198 13,154
Administrative and selling expense.......................... 5,295 8,928
------- -------
Operating income.................................. 2,903 4,226
------- -------
Other income (expense):
Interest income........................................... 213 79
Interest expense.......................................... (207) (3,147)
Other, net................................................ -- (569)
------- -------
6 (3,637)
------- -------
Income before income taxes........................ 2,909 589
Income taxes................................................ -- 168
------- -------
Net income........................................ 2,909 421
Preferred stock dividend requirements....................... (400) (400)
------- -------
Net income attributable to outstanding common
stock............................................ $ 2,509 $ 21
======= =======
Net income per common share................................. $ 15.34 .13
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-18
<PAGE> 74
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN RETAINED TREASURY SHAREHOLDER'S
STOCK STOCK CAPITAL EARNINGS STOCK EQUITY
--------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996..... $80 2 5,358 19,903 (440) 24,903
Net income........................ -- -- -- 421 -- 421
--- --- ----- ------ ---- ------
Balances at June 30, 1997......... $80 2 5,358 20,324 (440) 25,324
=== === ===== ====== ==== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE> 75
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,909 $ 421
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization.......................... 132 1,073
Amortization of negative goodwill...................... (2,684) (2,684)
Change in accrued employee benefits.................... (278) (272)
Changes in assets and liabilities (exclusive of effects
of acquisitions):
Inventory............................................ (6,384) (6,755)
Accounts receivable.................................. 2,107 (1,770)
Other assets......................................... 862 2,054
Accounts payable and accrued expenses, customer
advances and other liabilities...................... (4,738) (244)
------- --------
Net cash used in operations....................... (8,074) (8,177)
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (336) (1,191)
Acquisition of Bowen assets, net of liabilities assumed... -- (74,978)
Acquisition of Cardwell assets, net of liabilities
assumed................................................ -- (12,565)
------- --------
Net cash used in investing activities............. (336) (88,734)
------- --------
Cash flows from financing activities:
Proceeds from notes payable............................... -- 99,503
Payments on capital lease obligation...................... (77) (54)
Debt issuance costs....................................... -- (3,807)
Payments on notes payable................................. -- (5,000)
------- --------
Net cash flows provided from financing activities......... (77) 90,642
------- --------
Decrease in cash and cash equivalents....................... (8,487) (6,269)
Cash and cash equivalents at beginning of year.............. 12,393 8,635
------- --------
Cash and cash equivalents at end of year.................... $ 3,906 $ 2,366
======= ========
Interest paid............................................... $ 17 $ 81
======= ========
Income taxes paid........................................... $ -- $ --
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE> 76
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The accompanying condensed consolidated financial statements of IRI
International Corporation and subsidiaries (the Company) as of June 30, 1997 and
for the six months ended June 30, 1996 and 1997 are unaudited; however, they
include all adjustments (consisting only of normal recurring adjustments) which,
in the opinion of management, are necessary for a fair presentation for such
periods. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.
Certain footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted herein. The interim information should be read in
conjunction with the Company's annual financial statements and notes.
(2) INVENTORIES
Inventories consist of the following at June 30, 1997 (in thousands):
<TABLE>
<S> <C>
Raw materials............................................... $39,171
Work in process............................................. 23,425
Finished goods.............................................. 22,033
-------
$84,629
=======
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
The Company has contract commitments aggregating $93.0 million at June 30,
1997 for the manufacture and delivery of drilling rigs.
At June 30, 1997, the Company was contingently liable for approximately
$9.3 million in letters of credit which guarantee the Company's performance for
payment to third parties in accordance with specified contractual terms and
conditions. These letters of credit are primarily secured by the Company's cash,
accounts receivable and inventory. Management does not expect any material
losses to result from these off-balance-sheet instruments as it anticipates full
performance on the related contracts.
The Company is subject to various claims and legal actions arising in the
ordinary course of business. Management believes that any ultimate liability
resulting from the outcome of such proceedings to the extent not otherwise
provided for in the financial statements will not have a material adverse effect
on the Company's financial condition.
(4) ACQUISITIONS
On March 31, 1997, the Company acquired certain assets and assumed certain
liabilities of Bowen Tools, Inc. ("Bowen"), a wholly owned subsidiary of the
French chemical concern L'Air Liquide, for a total consideration of $73.1
million. The Company also held an option to purchase certain real property from
Bowen for additional cash consideration of $1.575 million which it exercised in
July 1997. On April 17, 1997, the Company also acquired the stock of Cardwell
International Ltd. ("Cardwell"), a privately owned company, as well as certain
assets held by affiliates of Cardwell for approximately $12 million in cash at
closing and partial payment ($3 million) of a note payable to bank. In addition
the Company incurred approximately $2.4 million ($1.8 million for Bowen and $.6
million for Cardwell) of transaction costs in connection with the acquisitions.
The acquisitions were financed through a $65 million senior secured term loan
facility and $31 million of interim senior subordinated increasing rate notes.
The term loan is payable in increasing amounts over a five-year period and bears
interest at a base rate (as defined) plus 1.5% or the Eurodollar rate plus
3.25%. The interim notes bear interest at LIBOR plus 6.5%, increasing .5% per
three month period if the notes are not
F-21
<PAGE> 77
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repaid within eight months, to a maximum of 18%. The interim notes mature one
year from issuance and at maturity the holders of the interim notes shall
receive warrants representing 5% of the common stock of the Company. In
addition, holders are required to exchange their interim notes for rollover
notes if no event of default has occurred, the Company pays a 3% rollover fee to
the holders, the rollover debt registration is declared effective by the SEC and
the shelf registration statement with respect to the warrants and warrant shares
has been declared effective by the SEC. Proceeds from any public offering or
private placement are to be used, subject to certain agreed exceptions, to
redeem the interim notes.
Bowen, headquartered in Houston, Texas, designs, manufactures and markets
fishing tools and drilling, power and wireline/pressure control equipment used
in the drilling and completion of oil and gas wells. Cardwell, headquartered in
El Dorado, Kansas, manufactures and sells drilling rigs, related oilfield
equipment and supplies predominantly to foreign customers.
The acquisitions have been recorded using the purchase method of accounting
and results of operations of the acquired companies have been included in the
statement of operations of IRI from the date of the respective acquisitions.
Based on management's preliminary estimates, the cost of the Bowen and Cardwell
acquisitions have been allocated to the assets acquired and liabilities assumed
based on their respective fair values as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 56,143
Property, plant and equipment............................... 37,647
Excess of cost over fair value of net tangible assets of
businesses acquired, net.................................. 6,096
Other assets................................................ 976
Current liabilities......................................... (13,319)
--------
$ 87,543
========
</TABLE>
The following sets forth selected consolidated financial information for
the Company on a pro forma basis for the six months ended June 30, 1996 and 1997
assuming the Bowen and Cardwell acquisitions had occurred on January 1, 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Revenues.......................................... $83,300 $80,195
======= =======
Gross profit...................................... $23,829 $22,507
======= =======
Operating income.................................. $ 4,180 $ 5,294
======= =======
Net loss.......................................... $(1,416) $(1,231)
======= =======
Net loss attributable to outstanding common
stock............................................ $(1,816) $(1,631)
======= =======
Net loss per common share......................... $(11.10) $ (9.97)
======= =======
</TABLE>
Pro forma adjustments primarily relate to additional interest expense
resulting from debt to finance the acquisitions, additional depreciation and
amortization expense as a result of the purchase price allocations to property,
plant and equipment and excess of cost over net tangible assets purchased and
the related tax effects of these adjustments.
The pro forma information is not necessarily indicative of the results that
actually would have been achieved had such transactions been consummated as of
January 1, 1996, or that may be achieved in the future.
F-22
<PAGE> 78
IRI INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
The Company had debt outstanding at June 30, 1997 as follows (in
thousands):
<TABLE>
<S> <C>
Revolving credit note, due March 31, 2000................... $ 6,000
Senior subordinated note, due March 31, 1998................ 31,000
Senior secured term loan, due in increasing quarterly
payments
beginning June 30, 1997................................... 65,000
Other....................................................... 639
--------
102,639
Less current installments................................... (2,826)
--------
Long-term debt, less current installments................... $ 99,813
========
</TABLE>
The senior secured term loan facility contains provisions that requires the
Company to maintain certain financial ratios commencing June 30, 1997 and
achieve consolidated earnings before interest, taxes, depreciation and
amortization of $25 million by December 31, 1997. The senior secured term loan
facility also limits sales of assets, the incurrence of additional indebtedness,
and restricts payments to shareholders.
F-23
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bowen Tools, Inc.
We have audited the accompanying consolidated balance sheets of Bowen
Tools, Inc. as of December 31, 1995 and 1996 and the related consolidated
statements of operations, shareholder's equity and cash flows for each of the
years in the three-year 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 financial position of Bowen Tools, Inc. as of
December 31, 1995 and 1996 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 23, 1997
F-24
<PAGE> 80
BOWEN TOOLS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,193 1,656
Accounts receivable, less allowance for doubtful accounts
of $155 and $200 at 1995 and 1996...................... 10,597 13,035
Inventories (note 5)...................................... 20,706 27,125
Receivable from Parent (notes 4 and 7).................... 7,053 --
Other assets.............................................. 1,647 1,288
------- -------
Total current assets.............................. 41,196 43,104
------- -------
Property, plant and equipment, net.......................... 29,260 32,604
Shop inventories............................................ 4,456 3,672
Prepaid pension cost (note 9)............................... 2,971 3,333
Other assets................................................ 240 196
------- -------
Total assets...................................... $78,123 82,909
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Bank overdraft............................................ $ 622 1,812
Accounts payable.......................................... 2,882 1,514
Accrued liabilities (note 10)............................. 2,462 4,045
Deferred tax liability (note 7)........................... 3,183 2,737
Payable to Parent (notes 4 and 7)......................... -- 897
------- -------
Total current liabilities......................... 9,149 11,005
------- -------
Deferred tax liability (note 7)............................. 7,080 7,316
Other postretirement benefit obligation..................... 423 457
------- -------
Total liabilities................................. 16,652 18,778
------- -------
Shareholder's equity:
Common stock, $1 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Common stock, $2.50 par value, 10,000 shares authorized,
400 shares issued and outstanding...................... 1 1
Capital in excess of par.................................. 39,189 39,189
Retained earnings......................................... 23,015 25,819
Accumulative translation adjustment....................... (735) (879)
------- -------
Total shareholder's equity........................ 61,471 64,131
Commitments and contingencies (note 11)
------- -------
Total liabilities and shareholder's equity........ $78,123 82,909
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 81
BOWEN TOOLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Net sales................................................... $46,785 45,123 53,445
Rental tool income.......................................... 10,775 12,587 13,412
------- ------ ------
Net sales......................................... 57,560 57,710 66,857
------- ------ ------
Cost of goods sold.......................................... 32,224 32,282 36,636
------- ------ ------
Gross profit...................................... 25,336 25,428 30,221
------- ------ ------
Operating expenses:
Selling and distribution............................... 15,934 17,492 19,144
General and administrative............................. 4,088 3,476 3,748
Depreciation and amortization.......................... 2,360 1,973 2,470
------- ------ ------
Operating income.................................. 2,954 2,487 4,859
Other income (expense):
Gain (loss) on sale of property and equipment.......... (931) 1,109 40
Other.................................................. 908 177 (492)
------- ------ ------
Income before taxes............................... 2,931 3,773 4,407
------- ------ ------
Income taxes................................................ 1,113 1,352 1,603
------- ------ ------
Net income........................................ $ 1,818 2,421 2,804
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 82
BOWEN TOOLS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN ACCUMULATIVE TOTAL
COMMON EXCESS OF RETAINED TRANSLATION SHAREHOLDER'S
STOCK PAR VALUE EARNINGS ADJUSTMENT EQUITY
------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993.............. $2 39,189 61,409 90 100,690
Net income............................ -- -- 1,818 -- 1,818
Change in accumulative translation
adjustment.......................... -- -- -- (321) (321)
Dividends to Parent................... -- -- (2,633) -- (2,633)
-- ------- -------- ----- --------
Balances at December 31, 1994.............. 2 39,189 60,594 (231) 99,554
Net income............................ -- -- 2,421 -- 2,421
Change in accumulative translation
adjustment.......................... -- -- -- (504) (504)
Dividends to Parent................... -- -- (40,000) -- (40,000)
-- ------- -------- ----- --------
Balances at December 31, 1995.............. 2 39,189 23,015 (735) 61,471
Net income............................ -- -- 2,804 -- 2,804
Change in accumulative translation
adjustment.......................... -- -- -- (144) (144)
-- ------- -------- ----- --------
Balances at December 31, 1996.............. $2 39,189 25,819 (879) 64,131
== ======= ======== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 83
BOWEN TOOLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,818 2,421 2,804
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation........................................... 2,360 1,973 2,470
Deferred income taxes.................................. 42 504 (210)
(Gain) loss on sales of property and equipment......... 931 (1,109) (40)
Gain on sale of rental tools........................... (536) (833) (1,286)
Foreign currency translation........................... 1,058 (475) 72
Changes in assets and liabilities:
Accounts receivable.................................. (1,368) 793 (2,438)
Inventory............................................ 5,193 4,779 (5,635)
Receivable from Parent............................... (5,519) (4,736) 7,053
Other current assets................................. (224) (1,117) 359
Other................................................ (184) (31) 44
Prepaid pension cost................................. (330) (107) (362)
Accounts payable..................................... 449 (118) (1,368)
Other postretirement benefits........................ 26 30 34
Accrued liabilities.................................. 749 (1,180) 1,583
Payable to Parent.................................... -- -- 897
------- ------- -------
Net cash provided by operations................... 4,465 794 3,977
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (2,993) (3,580) (6,321)
Proceeds on sales of property and equipment............... 842 1,916 1,833
------- ------- -------
Net cash used in investing activities............. (2,151) (1,664) (4,488)
------- ------- -------
Cash flows from financing activities -- change in bank
overdraft................................................. 557 65 1,190
------- ------- -------
Effect of exchange rate changes on cash..................... (1,379) (30) (216)
Increase (decrease) in cash................................. 1,492 (835) 463
Cash at beginning of year................................... 536 2,028 1,193
------- ------- -------
Cash at end of year......................................... $ 2,028 1,193 1,656
======= ======= =======
Income taxes paid to Parent................................. $ 524 681 1,364
======= ======= =======
Noncash item -- dividend of receivable from Parent.......... $ 2,633 40,000 --
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 84
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(1) ORGANIZATION
(a) General
Bowen Tools, Inc. (the Company) is a wholly-owned subsidiary of Air Liquide
America Corporation (Air Liquide or Parent). The Company was acquired in 1986
and these financial statements reflect Air Liquide's purchase price allocation
to the Company's net assets.
The Company designs, manufactures, and markets fishing tools and drilling,
power, and wireline/pressure control equipment used in the drilling and
completion of oil and gas wells. The Company also rents equipment used in the
drilling and completion of oil and gas wells. The Company has four foreign
locations, which market the Company's products abroad, located in Scotland,
Holland, Singapore, and Canada.
On March 31, 1997, IRI International Corporation, a manufacturer of
drilling rigs and related equipment, acquired virtually all the assets
(excluding the pension asset, cash and cash equivalents and certain fixed
assets) and assumed certain liabilities (excluding intercompany payables and
certain pending litigation) of the Company for approximately $75,000,000.
(b) Risks Associated with the Company's Business
The Company is subject to certain risks inherent in the ownership and
operation of foreign subsidiaries including tax increases, retroactive tax
claims, expropriation, adverse changes in currency values, foreign exchange
controls, import and export regulations, environmental controls and other laws,
regulations or international development that may adversely affect the Company's
subsidiaries. The Company does not maintain political risk insurance.
The availability of a ready market and prices received for the Company's
products depend upon numerous factors beyond the control of the Company
including fluctuating market demand, the price of oil and gas commodities,
competition, governmental regulation and world and economic developments. World
oil and gas markets are highly volatile and shortage or surplus conditions could
substantially affect prices the Company receives for its products.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its allocable portion of sales from Air
Liquide's Foreign Sales Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for all inventories.
(c) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
principally provided on the straightline method over the estimated useful lives
of the assets (20 years for buildings and improvements; 5-12 years for machinery
and equipment; and 7-12 years for rental tools). Repairs and maintenance,
including rental tool rework costs, are expensed as incurred while betterments
are capitalized.
F-29
<PAGE> 85
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. Revenue is recognized from rentals under operating leases in the month
in which they accrue. The sale of rental tools is considered part of the
Company's normal operations and, accordingly, are included in net sales in the
accompanying consolidated statements of operations.
(e) Shop Inventories
Shop inventories of approximately $4,456,000 (net of an allowance of
$5,342,000) and $3,672,000 (net of an allowance of $4,456,000) at December 31,
1995 and 1996, respectively, represent replacement parts for customers and are
stated at estimated net realizable value.
(f) Currency Translation
The assets and liabilities of the Company's Canadian subsidiary are
translated at current exchange rates. The assets and liabilities of the other
foreign subsidiaries where the functional currency is the U.S. dollar are
translated at current exchange rates for monetary assets and liabilities and
historical exchange rates for nonmonetary assets and liabilities. Revenue and
expense accounts are translated using an average rate for the period.
Translation gains and losses are not included in determining net income but are
reflected as a separate component of shareholder's equity.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company is included in the Air Liquide consolidated income
tax return. Income taxes are provided as though the Company files a separate
income tax return. Income taxes payable are included in the payable to Parent in
the accompanying financial statements.
(h) Long-Lived Assets
In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, was issued which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and estimated future undiscounted cash
flows indicate the carrying value of those assets may not be recoverable. The
Company implemented SFAS No. 121 on January 1, 1994 and the adoption did not
have a material effect on the financial statements.
(i) Research and Development, and Advertising
Research and development, and advertising costs are expensed in the year in
which such costs are incurred. Research and development costs amounted to
approximately $142,000, $143,000 and $159,000 in 1994, 1995 and 1996
respectively. Advertising costs amounted to approximately $234,000, $323,000 and
$356,000 in 1994, 1995 and 1996, respectively.
(j) Fair Value of Financial Instruments
The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments in the accompany-
F-30
<PAGE> 86
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ing financial statements include cash, accounts receivable and accounts payable.
The carrying value of financial instruments is considered to approximate fair
value due to the short maturity and characteristics of those instruments.
(k) Earnings Per Share
Earnings per share is not presented for each of the three years ended
December 31, 1996 because it is not meaningful due to the sole ownership of the
Company's stock by Air Liquide.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) GEOGRAPHIC AREA INFORMATION
The Company is engaged in the business of manufacturing and distributing
fishing and drilling equipment for the oil and gas industry in the United
States, Scotland, Canada, Singapore, Amsterdam and Mexico. Summarized
information regarding the Company's significant operations in different
geographic areas, including domestic and export operations, as of and for the
years ended December 31, 1994, 1995 and 1996 follows:
<TABLE>
<CAPTION>
UNITED UNITED OTHER ADJUSTMENTS
STATES STATES FOREIGN AND
DOMESTIC EXPORT SCOTLAND CANADA OPERATIONS ELIMINATIONS CONSOLIDATED
-------- ------ -------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
- -----------------------------
Net sales and rental tools... $27,118 19,176 4,659 3,592 5,040 (2,025) 57,560
======= ====== ====== ====== ====== ======= ========
Gross profit................. $18,244 3,095 1,805 2,089 2,128 (2,025) 25,336
======= ====== ====== ====== ====== ======= ========
Depreciation and
amortization............... $ 2,185 -- 79 41 55 -- 2,360
======= ====== ====== ====== ====== ======= ========
Selling and distribution..... $12,494 1,661 495 472 812 -- 15,934
======= ====== ====== ====== ====== ======= ========
G & A expense................ $ 888 938 973 176 1,113 -- 4,088
======= ====== ====== ====== ====== ======= ========
Net income................... $ 2,257 323 258 928 77 (2,025) 1,818
======= ====== ====== ====== ====== ======= ========
Identifiable assets.......... $92,498 3,855 5,105 5,991 8,862 595 116,906
======= ====== ====== ====== ====== ======= ========
</TABLE>
F-31
<PAGE> 87
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED UNITED OTHER ADJUSTMENTS
STATES STATES FOREIGN AND
DOMESTIC EXPORT SCOTLAND CANADA OPERATIONS ELIMINATIONS CONSOLIDATED
-------- ------ -------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995
- -----------------------------
Net sales and rental tools... $30,069 17,526 4,052 3,223 4,794 (1,954) 57,710
======= ====== ====== ====== ====== ======= ========
Gross profit................. $18,482 3,835 1,047 1,529 2,489 (1,954) 25,428
======= ====== ====== ====== ====== ======= ========
Depreciation and
amortization............... $ 1,801 -- 74 45 53 -- 1,973
======= ====== ====== ====== ====== ======= ========
Selling and distribution..... $13,731 1,736 604 467 954 -- 17,492
======= ====== ====== ====== ====== ======= ========
G & A expense................ $ 229 1,026 874 174 1,173 -- 3,476
======= ====== ====== ====== ====== ======= ========
Net income................... $ 1,555 698 (506) 362 312 -- 2,421
======= ====== ====== ====== ====== ======= ========
Identifiable assets.......... $58,867 3,238 4,386 2,577 7,810 1,245 78,123
======= ====== ====== ====== ====== ======= ========
1996
- -----------------------------
Net sales and rental tools... $32,832 23,275 4,714 4,228 4,413 (2,605) 66,857
======= ====== ====== ====== ====== ======= ========
Gross profit................. $23,053 4,173 1,864 1,437 2,299 (2,605) 30,221
======= ====== ====== ====== ====== ======= ========
Depreciation and
amortization............... $ 2,077 -- 121 45 227 -- 2,470
======= ====== ====== ====== ====== ======= ========
Selling and distribution..... $15,469 1,643 594 556 882 -- 19,144
======= ====== ====== ====== ====== ======= ========
G & A expense................ $ 298 1,093 1,077 186 1,094 -- 3,748
======= ====== ====== ====== ====== ======= ========
Net income................... $ 3,937 934 72 370 95 (2,605) 2,803
======= ====== ====== ====== ====== ======= ========
Identifiable assets.......... $68,028 4,907 3,475 3,488 4,957 (1,946) 82,909
======= ====== ====== ====== ====== ======= ========
</TABLE>
For the years ending December 31, 1994, 1995 and 1996, three, two and two
customers, respectively, individually accounted for more than 10% of
consolidated sales. Sales to these customers were approximately $19,346,000,
$21,856,000 and $23,011,000 in 1994, 1995, and 1996, respectively. No account
receivable from one customer exceeded 10% of consolidated stockholder's equity
at December 31, 1994, 1995 or 1996.
(4) RELATED PARTY TRANSACTIONS
The Company has a receivable from and a payable to Air Liquide of
approximately $7,053,000 and $897,000 at December 31, 1995 and 1996,
respectively. The amount bears no interest and includes allocations by Air
Liquide for such items as taxes and insurance. Air Liquide does not incur any
general and administrative overhead on behalf of the Company other than certain
insurance which was allocated to the Company.
F-32
<PAGE> 88
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INVENTORIES
Inventories consist of the following at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Raw materials............................................. $ 3,074 3,321
Work-in-progress.......................................... 3,374 5,415
Finished goods............................................ 14,258 18,389
------- ------
$20,706 27,125
======= ======
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31,
1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land and land improvements............................... $ 3,615 3,571
Building and improvements................................ 15,454 15,349
Machinery and equipment.................................. 6,696 8,843
Rental tools............................................. 12,446 14,772
Construction in progress................................. 1,671 2,256
------- -------
39,882 44,791
Less accumulated depreciation............................ (10,622) (12,187)
------- -------
Net property, plant and equipment.............. $29,260 32,604
======= =======
</TABLE>
(7) INCOME TAXES
The components of income tax expense for the years ended December 31, 1994,
1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- -----
<S> <C> <C> <C>
Current:
Federal........................................ $ 868 459 1,418
State.......................................... 29 13 50
Foreign........................................ 174 376 345
Deferred......................................... 42 504 (210)
------ ----- -----
$1,113.. 1,352 1,603
====== ===== =====
</TABLE>
Income tax expense for the years ended December 31, 1994, 1995 and 1996
differed from the amounts computed by applying the U.S. federal income tax rate
of 35 percent to pretax income from continuing operations as a result of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- -----
<S> <C> <C> <C>
Computed "expected" tax expense.................. $1,026 1,321 1,542
State taxes, net of federal benefit.............. 10 4 18
Unrealized exchange gain or loss................. 62 13 1
Nondeductible meals and entertainment expenses... 22 24 37
Other............................................ (7) (10) 5
------ ----- -----
$1,113 1,352 1,603
====== ===== =====
</TABLE>
F-33
<PAGE> 89
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996 are presented below (in thousands).
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Deferred income tax assets:
Current:
Accounts receivable and other assets principally due to
allowance for doubtful accounts....................... $ 76 105
Other.................................................. 190 190
------- ------
Total deferred income tax assets.................. 266 295
------- ------
Deferred income tax liabilities:
Current:
Inventories, principally due to LIFO cost method used
for tax purposes and reserve for excess and
obsolete.............................................. 3,449 3,032
Noncurrent:
Property, plant and equipment, principally due to
differences in depreciation and capitalized
interest.............................................. 6,040 6,149
Pension asset.......................................... 1,040 1,167
------- ------
Total deferred income tax liabilities............. 10,529 10,348
------- ------
Net deferred income tax liability........................... $10,263 10,053
======= ======
</TABLE>
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences. There are no deferred taxes provided on the Company's
foreign investments due to their permanent nature and the determination of the
deferred tax attributable to such foreign investments is not practicable. IRI
International Corporation expects to convert to the FIFO (first-in, first-out
cost method) inventory method upon the closing of the sale transaction.
(8) LEASES
The Company has several noncancelable operating leases for certain office,
shop and warehouse facilities; automobile; and equipment, that expire over the
next three years. These leases generally contain renewal options for periods
ranging from three to five years and require the Company to pay all executory
costs such as maintenance and insurance. Rental expense for leases during 1994,
1995 and 1996 were approximately $529,000, $594,000 and $628,000, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $763
1998........................................................ 765
1999........................................................ 721
2000........................................................ 706
2001........................................................ 707
</TABLE>
F-34
<PAGE> 90
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) BENEFIT PLANS
The Company participates in a defined benefit pension plan which covers all
domestic full-time employees of the Company who have completed one year of
service and are at least age 21. The defined benefit plan provides for benefits
based primarily on years of service and the employee's compensation near the
time of retirement. It is the policy of the Company to fund the plan currently
based upon actuarial determination and applicable regulations. The Company made
no contributions during 1994, 1995 and 1996, respectively.
The following table presents the defined benefit pension plan's funded
status as of December 31, 1995 and 1996, reconciled with amounts recognized in
the Company's consolidated balance sheets at December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefit obligation................................. $10,515 11,015
======= =======
Accumulated benefit obligation............................ $11,118 11,709
======= =======
Actuarial present value of projected benefit obligation..... (13,343) (14,189)
Plan assets at fair value................................... 20,447 21,669
------- -------
Projected benefit obligation less than plan assets.......... 7,104 7,480
Unrecognized net gain....................................... (3,389) (3,589)
Prior service cost not yet recognized in net periodic
pension cost.............................................. 316 237
Unrecognized net transition asset........................... (1,060) (795)
------- -------
Prepaid pension cost included in the balance sheet.......... $ 2,971 3,333
======= =======
</TABLE>
Net pension cost for 1994, 1995 and 1996 included the following components
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Service cost -- benefits earned during the period....... $ 368 386 428
Interest cost on projected benefit obligation........... 920 966 1,044
Actual return on plan assets............................ (1,377) (1,270) (1,511)
Net amortization and deferral........................... (328) (186) (323)
------- ------ ------
Net pension cost........................................ $ (417) (104) (362)
======= ====== ======
</TABLE>
Assumptions used in accounting for the pension plan as of December 31,
1994, 1995 and 1996 were (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Discount rates.............................................. 8.5% 7.0 7.5
Rates of increase in compensation levels.................... 6.6 6.6 6.6
Expected long-term rate of return on assets................. 7.5 7.5 7.5
</TABLE>
The assumed rates used above have a significant effect on the amounts
reported. For example, increasing the assumed discount rates by one percentage
point in each year would decrease the projected benefit obligation as of
December 31, 1996 by approximately $2,000,000 and the unrecognized net gain for
the year ended December 31, 1996 by approximately $2,000,000. Increasing the
assumed rate of increase in compensation levels by one percentage point in each
year would increase the projected benefit obligation as of December 31, 1996 by
approximately $1,400,000 and would decrease the unrecognized net gain for the
year ended December 31, 1996 by approximately $1,400,000. Increasing the
expected long-term rate of return on
F-35
<PAGE> 91
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets by one percentage point in each year would decrease the unrecognized net
gain for the year ended December 31, 1996 by $200,000.
The Company also has a defined contribution plan which covers most of their
employees. Participants can contribute a percentage of their annual compensation
and receive a 50% matching employer contribution on up to 6% of their annual
compensation. The Company contributed approximately $382,000 and $452,000 for
the year ended December 31, 1995 and 1996, respectively.
(10) OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plan and defined
contribution plan, the Company sponsors a defined benefit health care plan that
provides postretirement medical benefits to full-time employees who meet minimum
age and service requirements. The plan is contributory, with retiree
contributions adjusted annually, and contains other cost-sharing features such
as deductibles and coinsurance. The accounting for the plan anticipates future
cost-sharing changes to the written plan that are consistent with the Company's
expressed intent to increase the retiree contribution rate annually for the
expected general inflation rate for that year. The Company's policy is to fund
the cost of medical benefits in amounts determined at the discretion of
management.
The following table presents the plans' funded status reconciled with
amounts recognized in the Company's consolidated balance sheets at December 31,
1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.................................................. $ 52 56
Fully eligible active plan participants................... 87 94
Other active plan participants............................ 284 307
---- ----
423 457
Plan assets at fair value................................... -- --
---- ----
Accumulated postretirement benefit obligation in excess of
plan assets............................................... $423 457
==== ====
</TABLE>
Net postretirement benefit cost for 1994, 1995 and 1996 include the
following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $22 24 26
Interest cost............................................... 29 32 35
--- -- --
Net periodic postretirement benefit cost.................... $51 56 61
=== == ==
</TABLE>
For measurement purposes, 10.5% and 8.0% annual rates of increase in the
per capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 1996 for pre-65 and post-65 employees, respectively; the rate was
assumed to decrease gradually to 5.25% by the year 2003 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 by $65,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1996 by $12,000. A
discount rate of 8.0% was used in accounting for the pension plan as of December
31, 1994, 1995 and 1996.
F-36
<PAGE> 92
BOWEN TOOLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Net sales................................................... $10,400 12,349
Rental tool income.......................................... 3,862 4,243
------- -------
Net sales......................................... 14,262 16,592
------- -------
Cost of goods sold.......................................... 6,930 8,141
------- -------
Gross profit...................................... 7,332 8,451
------- -------
Operating expenses:
Selling and distribution.................................. 4,747 5,319
General and administrative................................ 1,102 1,158
Depreciation and amortization............................. 537 780
------- -------
Operating income.................................. 946 1,194
Other income (expense):
Gain (loss) on sale of property and equipment............. 37 (32)
Other..................................................... (199) 156
------- -------
Income before taxes............................... 784 1,318
------- -------
Income taxes................................................ 301 493
------- -------
Net income........................................ $ 483 825
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 93
BOWEN TOOLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 483 $ 825
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation........................................... 537 780
Deferred income taxes.................................. (50) 157
(Gain) loss on sales of property and equipment......... 37 (32)
Foreign currency translation........................... 27 1,750
Changes in assets and liabilities:
Accounts receivable.................................. (2,981) 1,056
Inventory............................................ (3,395) (3,619)
Other current assets................................. 1,118 539
Other................................................ 46 --
Accounts payable..................................... (1,499) 667
Accrued liabilities.................................. 592 (475)
Payable to Parent.................................... 3,938 1,292
------- -------
Net cash provided by (used in) operations......... (1,147) 2,940
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (966) (2,748)
Proceeds on sales of property and equipment............... 1,427 1,521
------- -------
Net cash provided by (used in) investing
activities....................................... 461 (1,227)
------- -------
Cash flows from financing activities -- change in bank
overdraft................................................. 605 (855)
------- -------
Effect of exchange rate changes on cash..................... (17) (1,658)
Decrease in cash............................................ $ (98) $ (800)
------- -------
Cash at beginning of year................................... 1,193 1,656
------- -------
Cash at end of period....................................... $ 1,095 $ 856
------- -------
Income taxes paid to Parent................................. $ 122 $ --
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 94
BOWEN TOOLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
Bowen Tools, Inc. (the Company) is a wholly-owned subsidiary of Air Liquide
America Corporation (Air Liquide or Parent). The Company was acquired in 1986
and these financial statements reflect Air Liquide's purchase price allocation
to the Company's net assets.
The Company designs, manufactures, and markets fishing tools and drilling,
power, and wireline/pressure control equipment used in the drilling and
completion of oil and gas wells. The Company also rents equipment used in the
drilling and completion of oil and gas wells. The Company has four foreign
locations, which market the Company's products abroad, located in Scotland,
Holland, Singapore, and Canada.
The accompanying condensed consolidated financial statements of the Company
as of March 31, 1997 and the three months ended March 31, 1996 and 1997 are
unaudited; however, they include all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation for such periods. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessary indicative of
the results to be expected for the entire year.
Certain footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted herein. The interim information should be read in
conjunction with the Company's annual consolidated financial statements and
notes.
(2) COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and legal actions arising in the
ordinary course of business, inclusive of various claims pertaining to the
Company's inactive Sanstorm operations, which previously marketed a line of
blast cleaning equipment and related accessories unrelated to the Company's core
oilfield tool product lines. In the opinion of management, the amount of
liability with respect to these actions and claims is either not material to the
Company's financial statements or, in the case of such claims relating to the
inactive Sanstorm operations, are reasonably provided for by Air Liquide, who
assumed these liabilities upon its acquisition of Bowen and is also a defendant
in such litigation.
(3) ACQUISITION
On March 31, 1997, IRI International Corporation, a manufacturer of
drilling rigs and related equipment, acquired virtually all the assets
(excluding the pension asset, cash and cash equivalents and certain fixed
assets) and assumed certain liabilities (excluding intercompany payables and
certain pending litigation) of the Company for approximately $73,100,000. The
acquisition of the Company by IRI was recorded as a purchase transaction
effective for accounting purposes as of March 31, 1997.
F-39
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cardwell International Ltd.:
We have audited the accompanying consolidated balance sheet of Cardwell
International Ltd. and subsidiaries as of October 31, 1996, and the related
consolidated statements of operations and shareholder's equity and cash flows
for the ten months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cardwell
International Ltd. and subsidiaries as of October 31, 1996, and the results of
their operations and their cash flows for the ten-months then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
December 6, 1996, except as to note 10,
which is as of April 17, 1997
F-40
<PAGE> 96
CARDWELL INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 432
Letter of credit deposits................................. 1,915
Accounts receivable, less allowance for doubtful accounts
of $21................................................. 574
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,109
Inventories............................................... 12,743
Other current assets...................................... 315
Deferred income taxes..................................... 77
-------
Total current assets.............................. 18,165
Property, plant and equipment, net.......................... 1,108
Letter of credit deposits................................... 2,097
Other noncurrent assets..................................... 57
-------
$21,427
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 4,974
Commissions payable....................................... 1,194
Customer advances......................................... 3,047
Income taxes payable...................................... 468
Notes payable to bank..................................... 5,935
Current installments of long-term debt.................... 146
Demand notes payable to related parties................... 1,230
-------
Total current liabilities......................... 16,994
Long-term debt, less current installments................... 340
Deferred income taxes....................................... 51
-------
Total liabilities................................. 17,385
-------
Shareholder's equity:
Class A common stock -- $1 par value; 30,000 shares,
authorized; 3,000 shares issued and outstanding........ 3
Retained earnings......................................... 4,083
-------
4,086
Less treasury stock, 2,000 shares, at cost................ 44
-------
Total shareholder's equity........................ 4,042
-------
Commitments and contingencies
-------
$21,427
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE> 97
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues.................................................... $40,598
Cost of goods sold.......................................... 31,615
-------
Gross profit...................................... 8,983
Administrative and selling expense.......................... 6,836
-------
Operating income (loss)........................... 2,147
-------
Other income (expense):
Interest income........................................... 95
Interest expense.......................................... (532)
Other, net................................................ 76
-------
(361)
-------
Income before income taxes........................ 1,786
Income taxes................................................ 512
-------
Net income........................................ $ 1,274
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE> 98
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE TEN MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDER'S
STOCK EARNINGS STOCK EQUITY
------ -------- -------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995............................ $3 2,809 (44) 2,768
Net income............................................... -- 1,274 -- 1,274
-- ----- --- -----
Balances at October 31, 1996............................. $3 4,083 (44) 4,042
== ===== === =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 99
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 1,274
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 149
Deferred income taxes.................................. (12)
Loss on sale of property and equipment................. 50
Changes in assets and liabilities:
Deposits............................................. (2,052)
Accounts receivable.................................. 2
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... (306)
Inventories.......................................... (8,377)
Other current assets................................. (45)
Accounts payable and accrued liabilities............. 1,488
Commissions payable.................................. 1,037
Customer advances.................................... 2,909
Income taxes payable................................. 536
Other................................................ (96)
--------
Net cash used in operating activities............. (3,443)
--------
Cash flows from investing activities -- purchases of
property, plant and equipment............................. (368)
--------
Cash flows from financing activities:
Payments on long-term debt................................ (20)
Proceeds from notes payable to bank....................... 16,559
Payments on notes payable to bank......................... (13,568)
Proceeds from demand notes payable to related parties..... 4,541
Payments on demand notes payable to related parties....... (3,311)
--------
Net cash provided by financing activities......... 4,201
--------
Increase in cash and cash equivalents....................... 390
Cash and cash equivalents at beginning of year.............. 42
--------
Cash and cash equivalents at end of year.................... $ 432
========
Interest paid............................................... $ 485
========
Income taxes paid........................................... $ 98
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 100
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
Cardwell International, Ltd. and subsidiaries (the Company), incorporated
in 1980, manufactures and sells drilling rigs and related oilfield equipment and
supplies to predominately foreign customers. Raw materials are readily available
and the Company is not dependent upon a single or a few suppliers.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The Company consolidates the accounts of its wholly-owned subsidiaries,
Cardwell Manufacturing Co., Ltd., a Canadian company, and Cardwell Exports,
Ltd., a foreign sales corporation. All significant intercompany transactions are
eliminated.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of short-term, highly liquid investments
with original maturities of three months or less. Cash equivalents consist of
money market accounts at October 31, 1996.
(c) Letter of Credit Deposits
Letter of credit deposits consist of certificates of deposit and other
investments placed with financial institutions as collateral to secure letters
of credit on contract performance guarantees and bid bonds. The Company
classifies deposits between current and long-term based on the investment
maturity date. All investments with a maturity date of less than one year are
classified as current. Deposits are to be returned to the Company upon the
expiration of the performance guarantee or bid bond.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements........................................... 15 years
Buildings................................................... 27-39 years
Machinery and equipment..................................... 7 years
Computer equipment.......................................... 3-7 years
Automotive equipment........................................ 5 years
Furniture, fixtures and other............................... 5-7 years
</TABLE>
Maintenance, repairs and renewals which neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are included
in operations.
(f) Revenues
Significant contracts (generally valued at $50,000 or greater) are
accounted for by the Company using the percentage-of-completion revenue
recognition method, whereby revenues and profits are recognized throughout the
performance period of the contract. The percentage-of-completion is calculated
based on the
F-45
<PAGE> 101
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ratio of contract costs incurred to date to total estimated contract costs after
providing for all known or anticipated costs. Costs include material, direct
labor and engineering and manufacturing overhead. Selling expenses and general
and administrative expenses are charged to operations as incurred. The effect of
changes in estimates of contract costs is recorded currently. All remaining
revenues are generally recorded when the equipment is shipped.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenues earned under the percentage of completion revenue recognition
method but not yet billable under the terms of the contract. These amounts are
billable based on the terms of the contract which include shipment of the
products or completion of the contracts. Included in revenues and cost of goods
sold for the ten months ended October 31, 1996 is $9,803,000 and $7,694,000,
respectively, related to uncompleted contracts ($2,109,000, net).
For the ten months ended October 31, 1996, approximately 91% of the
Company's revenues were provided by sales to Russian customers. Additionally, 3
customers, each accounting for more than 10% of total revenues, aggregated 79%
of the Company's gross revenues for the ten months ended October 31, 1996.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to operating losses and tax credit carryforwards and
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Financial Instruments
The carrying amounts of the financial instruments in the accompanying
financial statements (cash and cash equivalents, deposits, accounts receivable
and payable) approximate fair value because of the short maturity of these
instruments. Letter of credit deposits approximate fair value because they earn
interest at current market rates. Outstanding borrowings (notes payable to bank,
long-term debt and demand notes payable to related parties) bear interest at
current market rates and thus the carrying amount of debt approximates estimated
fair value.
All of the Company's customers are engaged in the energy industry. This
concentration of customers may impact the Company's overall exposure to credit
risk, either positively or negatively, in that customers may be similarly
affected by changes in economic and industry conditions. The Company performs
ongoing credit evaluations of its customers. The Company maintains reserves for
potential credit losses, and actual losses have historically been within the
Company's expectations. Foreign sales also present various risks, including
risks of war, civil disturbances and governmental activities that may limit or
disrupt markets, restrict the movement of funds or result in the deprivation of
contract rights or the taking of property without fair consideration. Most of
the Company's foreign sales, however, are to larger international companies or
are secured by letters of credit or similar arrangements.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-46
<PAGE> 102
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(j) Commissions Payable
The Company accrues commissions payable as related revenues are recognized.
(k) Customer Advances
The Company requires customers to make prepayments on certain contracts.
The amount of prepayment varies from contract to contract, but is typically
based on a percentage of the contract price. These prepayments are recorded as
customer advances until the contract has been completed and billed, at which
time the customer advance is offset against accounts receivable.
(3) INVENTORIES
Inventories consist of the following at October 31, 1996 (in thousands):
<TABLE>
<S> <C>
Raw materials............................................... $ 783
Work in process............................................. 7,786
Parts....................................................... 3,791
Used equipment.............................................. 383
-------
$12,743
=======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at October 31, 1996
(in thousands):
<TABLE>
<S> <C>
Land and improvements....................................... $ 70
Buildings................................................... 569
Machinery and equipment..................................... 696
Computer equipment.......................................... 166
Automotive equipment........................................ 129
Furniture, fixtures and other............................... 48
------
1,678
Less accumulated depreciation............................... 570
------
$1,108
======
</TABLE>
(5) NOTE PAYABLE TO BANKS
The Company has a $10,000,000 revolving line of credit with a bank
available for working capital purposes subject to borrowing base limitations.
The net borrowing base was $6,799,000 at October 31, 1996. Notes payable
outstanding under the line of credit as of October 31, 1996 aggregated
$5,935,000. The note is secured by accounts receivable, inventories, property
and equipment and guarantees of the sole stockholder of the Company and a
company wholly-owned by the sole stockholder. The note bears interest at .75%
above prime rate (8.25% at October 31, 1996). Interest is payable monthly and
all unpaid principal and interest are due on October 31, 1997.
F-47
<PAGE> 103
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The note agreement contains covenants which, among other things, restrict
additional borrowings and payment of dividends, and require that the Company
maintain minimum tangible net worth and other minimum financial ratios.
(6) LONG-TERM DEBT
Long-term debt consists of the following at October 31, 1996 (dollars in
thousands):
<TABLE>
<S> <C>
7.75% (interest rate changes to 1.75% over prime on June 3,
1999 and is adjusted each April 1 thereafter) note payable
to bank, payable in monthly installments of $12, including
interest, to June 2, 2004; collateralized by certain real
property and guarantees of the (1) sole stockholder of the
Company, (2) a company wholly-owned by the sole
stockholder of the Company and (3) 75% by the Small
Business Administration................................... $405
10.55% note payable in monthly installments of $1, including
interest, to August 1999; secured by lien on an
automobile................................................ 24
7% note payable, payable in monthly installments of $2,
including interest, to July 1998 -- July 2000............. 57
----
486
Less current installments................................... 146
----
$340
====
</TABLE>
Aggregate installments of long-term debt at October 31, 1996 follow (in
thousands):
<TABLE>
<S> <C>
October 31:
1997...................................................... $146
1998...................................................... 153
1999...................................................... 160
2000...................................................... 27
</TABLE>
(7) INCOME TAXES
Income taxes consist of the following components for the ten-month period
ended October 31, 1996 (in thousands):
<TABLE>
<S> <C>
Current..................................................... $524
Deferred.................................................... (12)
----
$512
====
</TABLE>
Income tax expense for the ten-month period ended October 31, 1996 differs
from the amount computed by applying the U.S. federal tax rate of 34% to income
before income taxes as a result of the following (in thousands):
<TABLE>
<S> <C>
Computed "expected" tax expense............................. $ 607
Nondeductible expenses...................................... 10
Foreign sales corporation exclusion......................... (160)
States taxes, net of federal benefit........................ 54
Other....................................................... 1
-----
$ 512
=====
</TABLE>
F-48
<PAGE> 104
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect (federal and state) of temporary differences that give rise
to significant portions of the deferred tax assets and deferred tax liabilities
at October 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Current deferred tax assets:
Allowance for doubtful accounts........................... $ 8
Vacation accrual.......................................... 49
Warranty accrual.......................................... 20
---
$77
===
Noncurrent deferred tax liability -- plant and equipment
depreciation.............................................. $51
===
</TABLE>
No valuation allowance related to the deferred tax asset was necessary for
any of the periods presented as management believes it is more likely than not
that such deferred tax assets will be realized within the next fiscal year.
(8) LEASES
The Company has operating leases for office facilities, machinery and
equipment and certain automotive equipment. Rental expense on operating leases
was $410,000 for the ten-month period ended October 31, 1996. The following is a
yearly schedule of future minimum rental payments under operating leases as of
October 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997........................................................ $200
1998........................................................ 142
1999........................................................ 62
2000........................................................ 62
2002........................................................ 49
Thereafter.................................................. 140
</TABLE>
(9) RELATED PARTY TRANSACTIONS
The Company leases certain buildings, equipment and automotive equipment
from related parties including management of the Company, members of their
families and companies related by common ownership. Related party rental expense
was $206,000 for the ten months ended October 31, 1996 and is included in
general and administrative expense in the accompanying consolidated statement of
operations.
The Company has license agreements with certain businesses owned by the
President of the Company. The agreements provide for payments of $11,000 and
$2,000 per month plus 4.5% of spare parts sales for the use of trademarks,
patterns and prints used by the Company. Payments under the license agreements
totaled $430,000 for the ten months ended October 31, 1996 and are included in
general and administrative expense in the accompanying consolidated statement of
operations.
Demand notes payable to related parties are unsecured and bear interest at
8% to 15%. Interest expense on these notes aggregated $83,000 for the ten months
ended October 31, 1996.
On certain of the demand notes payable to related parties, the Company pays
a fee in excess of stated interest for the use of the related party's funds. On
contracts awarded to the Company and for which the related party funded the
related bid bond, the Company is required to pay the related lending party a fee
of approximately .5% of the contract price. No fee is required if the contract
is not awarded to the Company. For the ten months ended October 31, 1996 the
Company paid fees of approximately $151,000. Such fees are included in general
and administrative expense in the accompanying consolidated statement of
operations.
F-49
<PAGE> 105
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) CONTINGENCIES
The Company has contract commitments aggregating $8,670,706 at October 31,
1996 for the manufacture and delivery of drilling rigs during fiscal 1997.
At October 31, 1996, the company had outstanding letters of credit for bid
and performance bonds totaling $6,313,000 of which $2,256,000 is secured by the
Company's bank revolving line of credit (see note 10).
(11) SUBSEQUENT EVENT
On April 17, 1997, all of the outstanding common stock of the Company and
certain assets held by affiliates of the Company were purchased by IRI
International Corporation (IRI) for $12,000,000 in cash. In addition, IRI
partially paid ($3,000,000) of Cardwell's notes payable to bank, and Cardwell
liquidated outstanding letters of credit deposits to pay off the remaining notes
payable to bank ($2,119,000) outstanding prior to the close of the purchase. IRI
assumed the underlying obligations on the bid and performance bonds.
F-50
<PAGE> 106
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIVE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................... $21,794 11,091
Cost of goods sold.......................................... 16,999 9,005
------- -------
Gross profit...................................... 4,795 2,086
Administrative and selling expense.......................... 3,303 2,206
------- -------
Operating income (loss)........................... 1,492 (120)
Other income (expense):
Interest income........................................... 5 62
Interest expense.......................................... (222) (246)
Other, net................................................ 14 70
------- -------
(203) (114)
------- -------
Income (loss) before taxes........................ 1,289 (234)
Income tax expense (benefit)................................ 299 (73)
------- -------
Net income (loss)................................. $ 990 (161)
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-51
<PAGE> 107
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE FIVE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY SHAREHOLDER'S
STOCK EARNINGS STOCK EQUITY
------ -------- -------- -------------
<S> <C> <C> <C> <C>
Balances at October 31, 1996............................. $3 4,083 (44) 4,042
Net loss................................................. -- (161) -- (161)
-- ----- --- -----
Balances at March 31, 1997............................... $3 3,922 (44) 3,881
== ===== === =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-52
<PAGE> 108
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 990 (161)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 62 70
Deferred income taxes.................................. 51 (111)
Loss on disposal of property and equipment............. -- 5
Changes in assets and liabilities:
Letter of credit deposits............................ 550 997
Accounts receivable.................................. 3,812 (911)
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... (5,748) 1,593
Inventories.......................................... (2,247) 6,510
Other current assets................................. 95 22
Accounts payable and accrued liabilities............. 1,063 (1,776)
Commissions payable.................................. (39) (995)
Customer advances.................................... 2,157 (2,729)
Income taxes payable................................. 180 (407)
Other................................................ 72 13
------- --------
Net cash provided by operating activities......... 998 2,120
------- --------
Cash flows from investing activities -- purchases of
property, plant and equipment............................. (162) (18)
------- --------
Cash flows from financing activities:
Payments on long-term debt................................ (48) (57)
Proceeds from notes payable to bank....................... 7,868 10,665
Payments on notes payable................................. (8,265) (11,910)
Proceeds from demand notes payable to related parties..... 300 86
Payments on demand notes payable to related parties....... (469) (1,135)
------- --------
Net cash used in financing activities............. (614) (2,351)
------- --------
Increase in cash and cash equivalents....................... 222 (249)
Cash and cash equivalents at beginning of period............ 34 432
------- --------
Cash and cash equivalents at end of period.................. $ 256 183
======= ========
Interest paid............................................... $ 262 270
======= ========
Income taxes paid........................................... $ 87 320
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-53
<PAGE> 109
CARDWELL INTERNATIONAL LTD.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The accompanying condensed consolidated financial statements of Cardwell
International, Ltd. and subsidiaries (the Company), as of March 31, 1997 and for
the five months ended March 31, 1996 and 1997 are unaudited; however, they
include all adjustments (consisting only of normal recurring adjustments) which,
in the opinion of management, are necessary for a fair presentation for such
periods. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.
Certain footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted herein. The interim information should be read in
conjunction with the Company's annual consolidated financial statements and
notes included elsewhere herein.
Summarized results from operations for the three months ended March 31,
1996 and 1997 follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Revenues.................................................... $12,948 5,818
======= ======
Gross profit................................................ $ 3,196 1,082
======= ======
Net income (loss)........................................... $ 928 (35)
======= ======
</TABLE>
(2) INVENTORIES
Inventories consist of the following at March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Raw materials............................................... $ 752
Work in process............................................. 2,614
Parts....................................................... 2,517
Used equipment.............................................. 350
------
$6,233
======
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
The Company had contract commitments aggregating $17.9 million at March 31,
1997 for the manufacture and delivery of drilling rigs during the remainder of
fiscal 1997.
At March 31, 1997, the Company had outstanding letters of credit for bid
and performance bonds totaling $3,597,000 of which $3,020,747 is secured by the
Company's bank revolving line of credit (see note 3).
(4) SUBSEQUENT EVENT
On April 17, 1997, all of the outstanding common stock of the Company and
certain assets held by affiliates of the Company were purchased by IRI
International Corporation (IRI) for $12,000,000 in cash. In addition, IRI
partially paid ($3,000,000) of Cardwell's notes payable to bank, and Cardwell
liquidated outstanding letters of credit deposits to pay off the remaining notes
payable to bank ($2,119,000) outstanding prior to the close of the purchase. IRI
assumed the underlying obligations on the bid and performance bonds secured by
the letters of credit.
F-54
<PAGE> 110
============================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY U.S. UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSONS IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
The Company................................ 10
Use of Proceeds............................ 10
Dividend Policy............................ 11
Capitalization............................. 12
Dilution................................... 13
Pro Forma Financial Data................... 14
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 21
Business................................... 26
Management................................. 37
Security Ownership of Certain Beneficial
Owners and Management.................... 44
Selling Stockholders....................... 44
Certain Relationships and Related
Transactions............................. 45
Description of Capital Stock............... 46
Shares Eligible for Future Sale............ 46
Underwriting............................... 48
Legal Matters.............................. 52
Experts.................................... 52
Additional Information..................... 52
Index to Financial Statements.............. F-1
</TABLE>
---------------------------
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.
============================================================
============================================================
12,000,000 SHARES
[LOGO]
IRI INTERNATIONAL
CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
, 1997
------------------------
LEHMAN BROTHERS
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
CREDIT LYONNAIS
SECURITIES (USA) INC.
============================================================
<PAGE> 111
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[Alternate page for International Prospectus]
Subject to Completion, dated September, 1997
PROSPECTUS
12,000,000 SHARES
[LOGO]
IRI INTERNATIONAL CORPORATION
COMMON STOCK
---------------------------
Of the 12,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of IRI International Corporation (the "Company") offered
hereby, 9,000,000 shares are being issued and sold by the Company and 3,000,000
shares are being offered for the account of certain stockholders of the Company
(the "Selling Stockholders"). Of the shares being offered hereby, 2,400,000
shares are being offered initially outside the United States and Canada by the
International Managers (the "International Offering"), and 9,600,000 shares are
being offered initially in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering" and, together with the U.S. Offering, the "Offering"). The
initial public offering price and underwriting discounts and commissions will be
identical for both offerings. See "Underwriting." The Company will not receive
any of the proceeds from the sale of the shares by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Common Stock will be between $14.00 and $17.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Company intends to apply to have the Common Stock
listed for trading on the New York Stock Exchange (the "NYSE") under the symbol
"IIL".
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS 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
International Managers and the U.S. Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated to be
$ .
(3) Each of the Company and the Selling Stockholders have granted the
International Managers a 30-day option to purchase up to 180,000 additional
shares of Common Stock on the same terms and conditions as set forth above
to cover over-allotments, if any. Each of the Company and the Selling
Stockholders have granted to the U.S. Underwriters a similar option to
purchase up to 720,000 additional shares of Common Stock to cover
over-allotments, if any. If such options (the "Underwriters' Over-Allotment
Options") are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered severally
by the International Managers subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery to and acceptance by
the International Managers and to certain further conditions. It is expected
that delivery of the shares of Common Stock will be made at the offices of
Lehman Brothers Inc., New York, New York on or about , 1997.
---------------------------
LEHMAN BROTHERS
CREDIT LYONNAIS SECURITIES
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PRUDENTIAL-BACHE SECURITIES
, 1997
<PAGE> 112
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
============================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY INTERNATIONAL
MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSONS IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
The Company................................ 10
Use of Proceeds............................ 10
Dividend Policy............................ 11
Capitalization............................. 12
Dilution................................... 13
Pro Forma Financial Data................... 14
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 21
Business................................... 26
Management................................. 37
Security Ownership of Certain Beneficial
Owners and Management.................... 44
Selling Stockholders....................... 44
Certain Relationships and Related
Transactions............................. 45
Description of Capital Stock............... 46
Shares Eligible for Future Sale............ 46
Underwriting............................... 48
Legal Matters.............................. 52
Experts.................................... 52
Additional Information..................... 52
Index to Financial Statements.............. F-1
</TABLE>
---------------------------
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.
============================================================
============================================================
12,000,000 SHARES
[LOGO]
IRI INTERNATIONAL
CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
, 1997
------------------------
LEHMAN BROTHERS
CREDIT LYONNAIS SECURITIES
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PRUDENTIAL-BACHE SECURITIES
============================================================
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, paid or payable in connection with the issuance and
distribution of the Common Stock being registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $
National Association of Securities Dealers, Inc. Filing
Fee.......................................................
New York Stock Exchange Listing Fee.........................
Printing and Engraving Expenses.............................
Legal Fees and Expenses.....................................
Accounting Fees and Expenses................................
Blue Sky Fees and Expenses..................................
Transfer Agent and Registrar Fees...........................
Miscellaneous Fees and Expenses.............................
-------
Total.............................................
=======
</TABLE>
All amounts are estimated except the Securities and Exchange Commission
Registration Fee, the National Association of Securities Dealers, Inc. Filing
Fee and the New York Stock Exchange Listing Fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that the personal
liability of directors of the Company to the Company is eliminated to the
maximum extent permitted by Delaware law. Under Delaware law, absent these
provisions, directors could be held liable for gross negligence in the
performance of their duty of care, but not for simple negligence. The Company's
Certificate of Incorporation absolves directors of liability for negligence in
the performance of their duties, including gross negligence. However, the
Company's directors remain liable for breaches of their duty of loyalty to the
Company and its stockholders, as well as for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law and
transactions from which a director derives improper personal benefit. The
Company's Certificate of Incorporation also does not absolve directors of
liability under Section 174 of the Delaware General Corporation Law, which makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions in certain circumstances and expressly sets forth a negligence
standard with respect to such liability.
Under Delaware law, directors, officers, employees, and other individuals
may be indemnified against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement in connection with specified actions,
suits or proceedings, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation -- a "derivative
action") if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard of care is applicable in the case of a
derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such an action and Delaware law requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to the Company.
The Company entered into indemnification agreements with each of its
directors and executive officers. These indemnification agreements provide for,
among other things, (i) the indemnification by the Company of the indemnities
thereunder to the extent described above and (ii) the advancement of attorneys'
fees and other expenses.
II-1
<PAGE> 114
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 20, 1994 (the date of the Company Acquisition), the Company
has made the following sales of unregistered securities, all of which were
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof:
On March 31, 1997 the Company issued (i) $31 million aggregate principal
amount of promissory notes pursuant to the Senior Notes Agreement and (ii) a $65
million principal amount promissory note pursuant to the Term Loan.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company dated July 30,
1985.
3.2 Certificate of Amendment of Certificate of Incorporation
dated September 1, 1996.
*3.3 Certificate of Merger of ESI with the Company dated
, 1997.
3.4 Form of Certificate of Amendment of Certificate of
Incorporation of the Company.
3.5 Form of Amended and Restated By-Laws of the Company.
*4.1 Specimen Common Stock Certificate.
4.2 Form of Registration Rights Agreement between the Company
and its current stockholders.
*5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality
of issuance of the Common Stock being registered.
10.1 Form of Indemnification Agreement among the Company and its
officers and directors.
10.2 Employment Agreement, dated as of April 17, 1997, between
Cardwell and A.C. Teichgraeber and joined by the Company.
10.3 Credit Agreement, dated as of March 31, 1997, among ESI, the
Company, the several lenders from time to time parties
thereto, Credit Lyonnais New York Branch and Lehman
Commercial Paper Inc. (the "Credit Agreement").
*10.3A Amendment No. 1 to the Credit Agreement.
10.4 Senior Subordinated Increasing Rate Note Purchase Agreement,
dated as of March 31, 1997, the Company, Energy Services
International Limited and Strategic Resource Partners Fund.
10.5 Asset Purchase Agreement, dated as of January 20, 1997, by
and among Bowen Tools, Inc.-Delaware, Bowen, Air Liquide and
the Company.
*10.6 Acquisition Agreement, dated as of March 20, 1997, by and
among A.C. Teichgraeber, Teichgraeber Family Limited
Partnership, L.P., Arthur C. Teichgraeber Charitable
Remainder Trust, Greenwood Pipe and Threading Company, EDCO
Drilling Company Inc. and the Company.
10.7 Equity Incentive Plan of the Company.
10.8 Form of Nonqualified Stock Option Agreement.
21 List of Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
</TABLE>
- ---------------
* To be filed by amendment.
II-2
<PAGE> 115
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable or the information is contained in the
Financial Statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") 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 the securities registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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-3
<PAGE> 116
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, in the State of
Texas, on September 8, 1997.
IRI INTERNATIONAL CORPORATION
By: /s/ HUSHANG ANSARY
------------------------------------
Hushang Ansary
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below does hereby constitute and appoint Daniel G. Moriarty, Munawar H.
Hidayatallah and William F. Henze II, and each of them, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them, to do any and all acts and things in such
person's respective name and on such person's respective behalf in any and all
capacities that they or any of them may deem necessary or advisable to enable
IRI International Corporation to comply with the Securities Act of 1933, as
amended (the "Securities Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission, in connection with a Registration
Statement on Form S-1 to be filed by IRI International Corporation, including
specifically, but not limited to, power and authority to sign for such
respective person any and all amendments (including post-effective amendments
and filings under Rule 462(b) under the Securities Act) thereto and to file the
same, with all exhibits thereto and other documents therewith, with the
Securities and Exchange Commission; and each such person does hereby ratify and
confirm all that they, or any of them, shall do or cause by virtue hereof. This
power of attorney may be signed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated as of September 8, 1997:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ HUSHANG ANSARY Chairman of the Board and
- ----------------------------------------------------- Chief Executive Officer
Hushang Ansary
/s/ DANIEL G. MORIARTY Vice Chairman of the Board
- -----------------------------------------------------
Daniel G. Moriarty
/s/ MUNAWAR H. HIDAYATALLAH Chief Financial and Accounting Officer
- ----------------------------------------------------- and Director
Munawar H. Hidayatallah
/s/ ABDALLAH ANDRAWOS Secretary and Director
- -----------------------------------------------------
Abdallah Andrawos
/s/ GARY W. STRATULATE President and Chief Operating Officer
- ----------------------------------------------------- of the IRI Division and Director
Gary W. Stratulate
</TABLE>
II-4
<PAGE> 117
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
/s/ RICHARD D. HIGGINBOTHAM President and Chief Operating Officer
- ----------------------------------------------------- of the Bowen Tools Division and Director
Richard D. Higginbotham
/s/ ARTHUR C. TEICHGRAEBER President and Chief Operating Officer
- ----------------------------------------------------- of Cardwell International, Ltd. and Director
Arthur C. Teichgraeber
/s/ NINA ANSARY Director
- -----------------------------------------------------
Nina Ansary
/s/ FRANK C. CARLUCCI Director
- -----------------------------------------------------
Frank C. Carlucci
/s/ PHILIP DAVID Director
- -----------------------------------------------------
Philip David
/s/ JOHN D. MACOMBER Director
- -----------------------------------------------------
John D. Macomber
/s/ EDWARD L. PALMER Director
- -----------------------------------------------------
Edward L. Palmer
/s/ STEPHEN J. SOLARZ Director
- -----------------------------------------------------
Stephen J. Solarz
/s/ ALEXANDER B. TROWBRIDGE Director
- -----------------------------------------------------
Alexander B. Trowbridge
/s/ J. ROBINSON WEST Director
- -----------------------------------------------------
J. Robinson West
</TABLE>
II-5
<PAGE> 118
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company dated July 30,
1985.
3.2 Certificate of Amendment of Certificate of Incorporation
dated September 1, 1996.
*3.3 Certificate of Merger of ESI with the Company dated
, 1997.
3.4 Form of Certificate of Amendment of Certificate of
Incorporation of the Company.
3.5 Form of Amended and Restated By-Laws of the Company.
*4.1 Specimen Common Stock Certificate.
4.2 Form of Registration Rights Agreement between the Company
and its current stockholders.
*5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality
of issuance of the Common Stock being registered.
10.1 Form of Indemnification Agreement among the Company and its
officers and directors.
10.2 Employment Agreement, dated as of April 17, 1997, between
Cardwell and A.C. Teichgraeber and joined by the Company.
10.3 Credit Agreement, dated as of March 31, 1997, among ESI, the
Company, the several lenders from time to time parties
thereto, Credit Lyonnais New York Branch and Lehman
Commercial Paper Inc. (the "Credit Agreement").
*10.3A Amendment No. 1 to the Credit Agreement.
10.4 Senior Subordinated Increasing Rate Note Purchase Agreement,
dated as of March 31, 1997, the Company, Energy Services
International Limited and Strategic Resource Partners Fund.
10.5 Asset Purchase Agreement, dated as of January 20, 1997, by
and among Bowen Tools, Inc.-Delaware, Bowen, Air Liquide and
the Company.
*10.6 Acquisition Agreement, dated as of March 20, 1997, by and
among A.C. Teichgraeber, Teichgraeber Family Limited
Partnership, L.P., Arthur C. Teichgraeber Charitable
Remainder Trust, Greenwood Pipe and Threading Company, EDCO
Drilling Company Inc. and the Company.
10.7 Equity Incentive Plan of the Company
10.8 Form of Nonqualified Stock Option Agreement
21 List of Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
IRI INTERNATIONAL CORPORATION
The undersigned, in order to form a corporation for the purpose
hereinafter stated, under and pursuant to the provisions of the Delaware General
Corporation Law, hereby certifies that:
FIRST: The name of the Corporation is IRI International Corporation
(hereinafter referred to as the "Corporation").
SECOND: The registered office and registered agent of the Corporation
is The Prentice-Hall Corporation System, Inc., 229 South Street, Dover, Kent
County, Delaware.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock that the
Corporation is authorized to issue is 1,080,000 shares, consisting of 1,000,000
shares of Common Stock, par value $1.00 each (hereinafter referred to as the
"Common Stock"), and 80,000 shares of Preferred Stock, par value $1.00 each
(herein after referred to as the "Preferred Stock").
I. Preferred Stock
1. Dividends
1.A. General Dividend Obligation. When and as declared by the Board of
Directors of the Corporation, the Corporation shall pay to the holders of
Preferred Stock, out of the assets of the Corporation available for the payment
of dividends, cumulative, preferential cash dividends at the rates and times
provided for in this Paragraph 1.
1.B. Payment of Dividends. Dividends shall be payable on each
outstanding share of Preferred Stock at the rate of $10 per annum, payable
quarterly on each Dividend Payment Date to the holders of record on the
respective dates fixed for such purposes by the Board of Directors in advance of
each Dividend Payment Date, provided, however, that the holder of record of
shares of Preferred Stock on the date such Preferred Stock is transferred to the
Corporation in payment of the exercise price of Warrants in accordance with the
Warrant Certificate (as defined in Section 6 of Article II of this Certificate
of Incorporation), shall be
<PAGE> 2
entitled to any accrued and unpaid dividends on such shares of Preferred Stock
to the date of such transfer, when such dividends are declared and paid. The
initial dividend on the outstanding shares of Preferred Stock shall be prorated
from the date of issuance to the first Dividend Payment Date. Such dividends
shall be cumulative, whether or not such dividends shall have been declared and
whether or not there shall be (at the time such dividend shall become payable or
at any other time) surplus, net profits or other assets of the Corporation
legally available for the payment of dividends.
1.C. Dividend Preference. So long as any shares of Preferred Stock
shall remain outstanding, no Junior Securities shall be acquired or redeemed by
the Corporation or any Subsidiary, except, in the case of the Corporation, for
shares of Common Stock pursuant to Section 4 or Section 6 of a Stock Transfer
and Repurchase Agreement dated as of July 31, 1985 among the Corporation and the
certain stockholders named therein, nor shall any dividend be declared or paid
upon, nor shall any distribution be made upon, any Junior Securities by the
Corporation, if at any time any dividend which shall have become payable on any
share of Preferred Stock shall remain unpaid. A conversion of a convertible
security, or the exercise of a right to acquire a security, by the holder
thereof shall not for this purpose be deemed an acquisition or redemption of the
security so converted.
2. Liquidation Preference. Upon any liquidation, dissolution or
winding up of the Corporation, or any similar distribution of its assets to its
stockholders which results in a return of capital, whether voluntary or
involuntary, the holders of the Preferred Stock shall be entitled, before any
distribution or payment is made upon any Junior Securities, to be paid out of
the assets of the Corporation available for distribution to its stockholders
(whether from capital, surplus or earnings) $100 in cash for each share of
Preferred Stock outstanding, plus full accrued, unpaid, cumulative dividends
(whether or not earned or declared) to the date of payment. If, upon any
liquidation, dissolution or winding up of the Corporation, or any similar
distribution of assets to its stockholders which results in a return of capital,
whether voluntary or involuntary, the amounts payable with respect to Preferred
Stock and any other shares of capital stock of the Corporation ranking as to
such distribution on a parity with Preferred Stock are not paid in full, holders
of Preferred Stock and of such other capital stock will share ratably in any
such distribution of assets of the Corporation in accordance with the sums which
would be payable in respect of such shares if all sums payable were discharged
in full. After payment to the holders of the Preferred Stock of the full
preferential amounts to which they are entitled, the holders of Preferred Stock
will not be entitled to any further participation in and distribution of assets
of the Corporation. Neither the
-2-
<PAGE> 3
consolidation or merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all or any part of
its assets, nor the reduction of the capital stock of the Corporation, shall be
deemed to be a liquidation, dissolution, winding up or similar distribution of
the Corporation within the meaning of any of the provisions of this Paragraph 2,
provided that such transaction does not effect a return of capital to the
Corporation's stockholders.
3. Voting Rights. Except as otherwise provided by law, holders of
shares of Preferred Stock shall not be entitled to vote on any matter relating
to the business or affairs of the Corporation or for any other purpose.
4. Redemption.
4.A. Optional Redemptions. The Corporation may, at its option, purchase
or redeem shares of Preferred Stock in the manner, upon the notice and with the
effect specified in paragraph 4A hereof from time to time after July 31, 1990,
either in whole or in such portions as from time to time the Board of Directors
of the Corporation may determine in accordance with the By-laws of the
Corporation.
4.B. Redemption Price. For each share of Preferred Stock which is to be
redeemed by the Corporation at any time in a redemption pursuant to this
Paragraph 4, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such share of Preferred Stock duly
endorsed in blank or accompanied by an appropriate form of assignment) an amount
(the "Redemption Price") equal to $100 per share, plus the sum of money
equivalent to all accrued and unpaid dividends (whether or not earned or
declared) thereon to and including the Redemption Date.
4.C. Redeemed or Otherwise Acquired Shares to be Cancelled. Any shares
of Preferred Stock redeemed pursuant to this Paragraph 4 or otherwise acquired
by the Corporation in any manner whatsoever shall be cancelled and shall not
under any circumstances be reissued, sold or transferred; and the Corporation
shall from time to time take such appropriate action as may be necessary to
reduce the authorized number of shares of Preferred Stock accordingly.
4.D. Determination of Number of Each Holder's Shares to be Redeemed.
The number of shares of Preferred Stock to be redeemed from each holder thereof
in redemptions under this Paragraph 4 shall be determined by the Board of
Directors in accordance with the By-laws of the Corporation. In case less than
all the shares represented by any share certificate are
-3-
<PAGE> 4
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
4.E. Notice of Redemption. Notice of any redemption of Preferred Stock,
specifying the time and place of redemption an the Redemption Price shall be
mailed by certified or registered mail, return receipt requested, to each holder
of record of the shares of Preferred Stock to be redeemed, at the address for
such holder shown on the Corporation's records, not more than sixty (60) nor
less than twenty (20) days prior to the date on which such redemption is to be
made; if less than all the shares of the Preferred Stock owned by such holder
are then to be redeemed, the notice shall also specify the number of shares and
the certificate numbers thereof which are to be redeemed. Upon mailing any such
notice of redemption, the Corporation shall become obligated to redeem at the
time of redemption specified therein all of the shares of Preferred Stock
therein specified.
4.F. Dividends After Redemption Date. No share of Preferred Stock shall
be entitled to any dividend payable after its Redemption Date, and no such
Redemption Date all rights of the holder of such share, as a shareholder of the
Corporation by reason of the ownership of such share, shall cases, except the
right to receive the Redemption Price of such share upon presentation and
surrender of the certificate representing such share, and such share shall not
be deemed to be outstanding after such Redemption Date. The occurrence of such
Redemption Date shall not, however, affect the obligation of the Corporation to
pay dividends theretofore payable on such share but not paid prior to such
Redemption Date, as provided in paragraph 4B.
4.G. Limitations. The Corporation shall not redeem any shares of
Preferred Stock at any time outstanding unless all dividends theretofore payable
on the Preferred Stock through the Dividend Payment Date next preceding or
coinciding with the Redemption Date shall have been paid.
5. Conversion. Shares of Preferred Stock shall not be convertible into
shares of any other class of stock of the Corporation.
6. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for registration shares of Preferred Stock. Upon the surrender of any
certificate representing Preferred Stock at such place, the Corporation shall,
at the request of the registered holder of such certificate, execute and deliver
(at the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares represented by the
surrendered certificate, subject to the requirements of applicable securities
laws. Each such new certificate shall be
-4-
<PAGE> 5
registered in such name and shall represent such number of shares as shall be
requested by the holder of the surrendered certificate, shall be substantially
identical in form to be surrendered certificate, and the holders of the shares
represented by such new certificate shall be entitled to receive all theretofore
payable but unpaid dividend payments on the shares represented by the
surrendered certificate.
7. Replacement.
(i) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of the Preferred Stock and, in the case of any
such loss, theft, destruction or mutilation, upon receipt of indemnity
reasonably satisfactory to the Corporation or, in the case of any such
mutilation, upon surrender of such certificate, the Corporation shall (at its
expenses) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares represented by such lost, stolen,
destroyed or mutilated certificate, and the holders of the shares represented by
such new certificate shall be entitled to receive all theretofore payable but
unpaid dividend payments on the shares represented by the lost, stolen,
destroyed or mutilated certificate.
(ii) The term "outstanding" when used in this Certificate of
Incorporation with reference to shares of Preferred Stock as of any particular
time shall not include any shares represented by any certificate in lieu of
which is new certificate has been executed and delivered by the Corporation in
accordance with Paragraph 6 or this Paragraph 7, but shall include only those
shares represented such new certificate.
8. Definitions. The following terms shall have the following meanings,
which meanings shall be equally applicable to the singular and plural forms of
such terms:
(i) "Dividend Payment Date" means each February 1, May 1, August 1
and November 1 in each year, commencing with November 1, 1985.
(ii) "Junior Security" means the Common Stock, and any other equity
security of any kind which the Corporation or any Subsidiary shall at any time
issue or be authorized to issue as to which the Preferred Stock has preference
over with respect to the payment of dividends or rights upon the dissolution,
liquidation or winding up of the Corporation or the distribution of assets to
its stockholders by way of return of capital.
-5-
<PAGE> 6
(iii) "Person" means and includes an individual, a partnership, a
corporation, a trust, a joint Venture, an unincorporated organization and a
government or any department or agency thereof.
(iv) "Redemption Date" means as to any share of Preferred Stock
redeemed pursuant to Paragraph 4 hereof the date specified in the notice of
redemption, provided that for purposes of Paragraph 4F, no such date shall be a
Redemption Date unless the applicable Redemption Price is actually paid or
tendered on such date.
(v) "Subsidiary" means any corporation at least 50% of the voting
stock of every class of which shall, at the time as of which any determination
is being made, be owned by the Corporation either directly or through one or
more Subsidiaries.
II. Common Stock
1. Dividends. Holders of Common Stock shall be paid dividends when and
as declared by the Board of Directors of the Corporation out of the assets of
the Corporation available for the payment of dividends.
2. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of Common Stock at such place, the
Corporation shall, at the request of the registered holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate, subject to the
requirements of applicable securities laws. Each such new certificate shall be
registered in such name and shall represent such number of shares of such class
as shall be requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
3. Replacement.
(i) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction, or mutilation of any certificate
evidencing one or more shares of Common Stock and, in the case of any loss,
theft, destruction or mutilation, upon receipt of indemnity reasonably
satisfactory to the Corporation or, in the case of any such mutilation, upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such
-6-
<PAGE> 7
certificate a new certificate of like kind representing the number of shares of
such class represented by such lost, stolen, destroyed, or mutilated certificate
and dated the date of such lost, stolen, destroyed, or mutilated certificate,
and the holders of the shares represented by such new certificate shall be
entitled to receive all theretofore payable but unpaid dividend payments on the
shares represented by the lost, stolen, destroyed, or mutilated certificate.
(ii) The term "outstanding" when used in this subdivision with
reference to the shares of Common Stock as of any particular time shall not
include any such shares represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Corporation in accordance
with Paragraph 2 or this Paragraph 3, but shall include only those shares
represented by such new certificate.
4. Voting Rights. Except as otherwise provided by law, holders of
Common Stock shall be entitled to one vote per share on all matters to be voted
on by the stockholders of the Corporation.
5. Preemption. Holders of shares of Common Stock shall not, as such,
have preemptive or other right to subscribe for or purchase any shares of
capital stock of the Corporation of any class now or hereafter authorized or
issued by the Corporation.
6. Warrants.
6.A. General. Except as expressly provided otherwise in the Warrant
Certificate (as defined below), each certificate representing a share of Common
Stock issued pursuant to the Stockholder Agreement dated as of July 30, 1985
among Ingersoll- Rand Company, Ingersoll-Rand Oilfield Products Company and
Dresser Industries, Inc. (the "Stockholder Agreement") shall have attached
thereto a warrant certificate (a "Warrant Certificate") substantially in the
form of Exhibit 2.1 to the Stockholder Agreement certificating that the holder
thereof is the registered holder of warrants ("Warrants") to purchase, on the
terms and subject to the conditions contained therein, Common Stock. The number
of Warrants represented by a Warrant Certificate initially shall equal four
times the number of shares of Common Stock represented by the Common Stock
certificate to which such Warrant Certificate is attached No Warrant Certificate
may be detached from its Common Stock certificate, and Warrants shall not be
transferrable except by and in connection with the transfer of the shares of
Common Stock represented by the Common Stock certificate to which the Warrant
Certificate evidencing such Warrants is attached. The Warrants, on the terms and
subject to the conditions contained in the Warrant Certificate evidencing such
Warrants, shall entitle the holders thereof to purchase
-7-
<PAGE> 8
fully paid and non-assessable whole shares of Common Stock. Such right to
purchase Common Stock, as to any particular Warrant, shall not be exercisable on
or before July 31, 990 and shall terminate at 5:00 P.M., Pampa, Texas time, on
July 31, 1995.
6.B. Reservation and Availability of Common Stock. The Corporation will
at all times reserve and keep available out of its authorized and unissued
shares of Common Stock, free from preemptive rights, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon exercise of all Warrants then outstanding. The Corporation
covenants that all shares of Common Stock issued upon due exercise of Warrants
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens, charges and security interests with respect to the
issues thereof. The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock, issuable upon exercise of
all of the Warrants then outstanding, together with the total number of shares
of Common Stock reserved for any purpose other than issuance upon due exercise
of Warrants, would exceed the total number of shares of Common Stock then
authorized by this Certificate of Incorporation. If any shares of Common Stock
required hereby to be reserved for the purpose of issue upon due exercise of
Warrants require registration with, or approval of, any governmental authority
under any federal or state law (other than any registration under the Securities
Act of 1933 or any state securities law) before such shares may be issued upon
such exercise, the Corporation will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered.
6.C. Stock Transfer Books. The Corporation will not close its books
against the transfer of any share of Common Stock in any manner which interferes
with the timely exercise of a Warrant.
FIFTH: The name and address of the incorporator are R.G. Dickerson
229 South State Street, Dover, Delaware 19901
SIXTH: The Board of Directors of the Corporation, acting by the
affirmative vote of not less than all of the Directors of the Corporation, and
the stockholders of the Corporation, acting by the affirmative vote (by written
consent or otherwise) of (a) holders of record of not less than 90% of the
issued and outstanding shares of Common Stock are held by Unaffiliated
Stockholders as of the applicable date for the determination of stockholders
entitled to vote thereon or consent thereto, Unaffiliated Stockholders who or
which are holders of record of not less than a majority of the total number of
issued and outstanding shares of Common Stock held by all Unaffiliated
Stockholders, each may alter, amend or repeal any provision of
-8-
<PAGE> 9
the By-Laws of the Corporation. For purpose of this Article SIXTH, an
"Unaffiliated Stockholder" shall mean any individual, partnership, corporation
or other entity (a "person") who or which, as of the date on which such
determination is made; (a) is not the beneficial owner, directly or indirectly,
of more than 35% of the issued and outstanding shares of Common Stock; or (b)
does not directly or indirectly, control such a beneficial owner of Common Stock
or is not, directly or indirectly, controlled by, or under common control with,
such a beneficial owner of Common Stock.
SEVENTH: This Certificate of Incorporation may be amended, and a
provision hereof may be modified or repealed, only by the stockholders of the
Corporation, acting by the affirmative vote (by written consent or otherwise) of
(a) holders of record of not less than 90% of the issued and outstanding shares
of Common Stock and (b) if 4% or more of the total number of issued and
outstanding shares of Common Stock are held by Unaffiliated Stockholders as of
the applicable date for the determination of stockholders entitled to vote
thereon or consent thereto, Unaffiliated Stockholders who or which are holders
of record of not less than a majority of the total number of issued and
outstanding shares of Common Stock held by all Unaffiliated Stockholders. For
purpose of this Article SEVENTH, the term "Unaffiliated Stockholder" shall have
the meaning ascribed to it in Article SIXTH.
EIGHTH: Except as otherwise provided by law or by Article SIXTH or
SEVENTH of this Certificate of Incorporation, all matters submitted to a meeting
of stockholders shall be decided by vote of holders of record, present in person
or by proxy, of not less than 90% of the issued and outstanding shares of Common
Stock. At any meeting of stockholders, the holders of record, present in person
or by proxy, of not less than 80% of the issued and outstanding shares of Common
Stock shall constitute a quorum for the transaction of business.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation on July 30, 1985.
/s/R.G. Dickerson
------------------------------------
R.G. Dickerson
Sole Incorporator
-9-
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IRI INTERNATIONAL CORPORATION
IRI International Corporation, a corporation duly organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. The amendments to the Certificate of Incorporation set forth below
have been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
2. Article Fourth of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock that
the Corporation is authorized to issue is 108,000,000 shares,
consisting of 100,000,000 shares of Common Stock, par value $.01 each
(hereinafter referred to as the "Common Stock"), and 8,000,000 shares
of Preferred Stock, par value $1.00 each (herein after referred to as
the "Preferred Stock").
I. PREFERRED STOCK
1. Dividends
1A. General Dividend Obligation. When and as declared by the Board
of Directors of the Corporation, the Corporation shall pay to the
holders of Preferred Stock, out of the assets of the Corporation
available for the payment of dividends, cumulative, preferential cash
dividends at the rates and times provided for in this Paragraph 1.
1B. Payment of Dividends. Dividends shall be payable on each
outstanding share of Preferred Stock at the rate of $10 per annum,
payable quarterly on each Dividend Payment Date to the holders of
record on the respective dates fixed for such purposes by the Board of
Directors in advance of each Dividend Payment Date. The initial
dividend on the outstanding shares of Preferred Stock shall be prorated
from the date of issuance to the first Dividend Payment Date. Such
dividends shall accrue from the date of issuance and, if not paid,
shall be cumulative, whether or not such
<PAGE> 2
dividends shall have been declared and whether or not there shall be
(at the time such dividend shall become payable or at any other time)
surplus, net profits or other assets of the Corporation legally
available for the payment of dividends.
1C. Dividend Preference. So long as any shares of Preferred Stock
shall remain outstanding, no Junior Securities shall be acquired or
redeemed by the Corporation or any Subsidiary, nor shall any dividend
be declared or paid upon, nor shall any distribution be made upon, any
Junior Securities by the Corporation, if at any time any dividend which
shall have unpaid. A conversion of a convertible security, or the
exercise of a right to acquire a security, or the exercise of a right
to acquire a security, by the holder thereof shall not for this purpose
be deemed an acquisition or redemption of the security so converted.
2. Liquidation Preference. Upon any liquidation, dissolution or
winding up of the Corporation, or any similar distribution of its
assets to its stockholders which results in a return of capital,
whether voluntary or involuntary, the holders of the Preferred Stock
shall be entitled, before any distribution or payment is made upon any
Junior Securities, to be paid out of the assets of the Corporation
available for distribution to its stockholders (whether from capital,
surplus or earnings) $100 in cash for each share of Preferred Stock
outstanding, plus full accrued, unpaid, cumulative dividends (whether
or not earned or declared) to the date of payment. If, upon any
liquidation, dissolution or winding up of the Corporation, or any
similar distribution of assets to its stockholders which results in a
return of capital, whether voluntary or involuntary, the amounts
payable with respect to Preferred Stock and any other shares of capital
stock of the Corporation ranking as to such distribution on a parity
with Preferred Stock are not paid in full, holders of Preferred Stock
and of such other capital stock will share ratably in any such
distribution of assets of the Corporation in accordance with the sums
which would be payable in respect of such shares if all sums payable
were discharged in full. After payment to the holders of Preferred
Stock of the full preferential amounts to which they are entitled, the
holders of Preferred Stock will not be entitled to any further
participation in and distribution of assets of the corporation. Neither
the consolidation or merger of the Corporation into or with any other
corporation or corporations, nor the sale assets, nor the reduction of
the capital stock of the Corporation, shall be deemed to be a
liquidation, dissolution, winding up or similar distribution of the
Corporation within the meaning of any of the provisions of this
Paragraph 2, provided that such transaction does not effect a return of
capital to the Corporation's stockholders.
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<PAGE> 3
3. Voting Rights. Except as otherwise provided by law, holders
of shares of Preferred Stock shall not be entitled to vote on any
matter relating to the business or affairs of the Corporation or for
any other purpose.
4. Redemption.
4A. Optional redemptions. The Corporation may, at its option,
purchase or redeem shares of Preferred Stock in the manner, upon the
notice and with the effect specified in paragraph 4E hereof from time
to time after July 31, 1990, either in whole or in such portions as
from time to time the Board of Directors of the Corporation may
determine in accordance with the By-laws of the Corporation.
4B. Redemption Price. For each share of Preferred Stock which is
to be redeemed by the Corporation at any time in a redemption pursuant
to this Paragraph 4, the Corporation shall be obligated on the
Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate
representing such share of Preferred Stock duly endorsed in blank or
accompanies by an appropriate form of assignment) an amount (the
"Redemption Price") equal to $100 per share, plus the sum of money
equivalent to all accrued and unpaid dividends (whether or not earned
or declared) thereon to and including the Redemption Date.
4C. Determination of Number of Each Holder's Shares to be
Redeemed. The number of shares of Preferred Stock to be redeemed from
each holder thereof in redemptions under this Paragraph 4 shall be
determined by the Board of Directors in accordance with the By-laws of
the Corporation. In case less than all the shares represented by any
share certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
4D. Notice of Redemption. Notice of any redemption of Preferred
Stock, specifying the time and place of redemption and the Redemption
Price shall be mailed by certified or registered mail, return receipt
requested, to each holder of record of the shares of Preferred Stock to
be redeemed, at the address for such holder shown on the Corporation's
records, not more than sixty (60) nor less than twenty (20) days prior
to the date on which such redemption is to be made; if less than all
the shares of the Preferred Stock owned by such holder are then to be
redeemed, the notice shall also specify the number of shares and the
certificate numbers thereof which are to be redeemed. Upon mailing any
such notice of redemption, the Corporation shall become obligated to
redeem at the time of redemption specified therein all of the shares of
Preferred Stock therein specified.
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<PAGE> 4
4E. Dividends After Redemption Date. No share of Preferred Stock
shall be entitled to any dividend payable after its Redemption Date,
and on such Redemption Date all rights of the holder of such share, as
a shareholder of the Corporation by reason of the ownership of such
share, shall cease, except the right to receive the Redemption Price of
such share upon presentation and surrender of the certificate
representing such share, and such share shall not be deemed to be
outstanding after such Redemption Date. The occurrence of such
Redemption Date shall not, however, affect the obligation of the
Corporation to pay dividends theretofore payable on such share but not
paid prior to such Redemption Date, as provided in paragraph 4B.
4F. Limitations. The Corporation shall not redeem any shares of
Preferred Stock at any time outstanding unless all dividends
theretofore payable on the Preferred Stock through the Dividend Payment
Date next proceeding or coinciding with the Redemption Date shall have
been paid.
5. Conversion. Shares of Preferred Stock shall not be
convertible into shares of any other class of stock of the Corporation.
6. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably
designates) a register for registration of shares of Preferred Stock.
Upon the surrender of any certificate representing Preferred Stock at
such place, the Corporation shall, at the request of the registered
holder of such certificate, execute and deliver (at the Corporation's
expense) a new certificate of certificates in exchange therefor
representing in the aggregate the number of shares represented by the
surrendered certificate, subject to the requirements of applicable
securities laws. Each such new certificate shall be registered in such
name and shall represent such number of shares as shall be requested by
the holder of the surrendered certificate, shall be substantially
identical in form to the surrendered certificate, and the holders of
the shares represented by such new certificate shall be entitled to
receive all theretofore payable but unpaid dividend payments on the
shares represented by the surrendered certificate.
7. Replacement.
(i) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of the
Preferred Stock and, in the case of any such loss, theft, destruction
or mutilation, upon receipt of indemnity reasonably satisfactory to the
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<PAGE> 5
Corporation or, in the case of any such mutilation, upon surrender of
such certificate, the Corporation shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind
representing the number of shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate, and the holders of the
shares represented by such new certificate shall be entitled to receive
all theretofore payable but unpaid dividend payments on the shares
represented by the lost, stolen, destroyed or mutilated certificate.
(ii) The term "outstanding" when used in this Certificate of
Incorporation with reference to shares of Preferred Stock as of any
particular time shall not include any shares represented by any
certificate in lieu of which a new certificate has been executed and
delivered by the Corporation in accordance with Paragraph 6 or this
Paragraph 7, but shall include only those shares represented such new
certificate.
8. Definitions. The following terms shall have the following
meanings, which meanings shall be equally applicable to the singular
and plural forms of such terms:
(i) "Dividend Payment Date" means each February 1, May 1, August
1 and November 1 in each year, commencing with November 1, 1985.
(ii) "Junior Security" means the Common Stock, and any other
equity security of any kind which the Corporation or any Subsidiary
shall at any time issue or be authorized to issue as to which the
Preferred Stock has preference over with respect to the payment of
dividends or rights upon the dissolution, liquidation or winding up of
the Corporation or the distribution of assets to its stockholders by
way of return of capital.
(iii) "Person" means and includes an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization
and a government or any department or agency thereof.
(iv) "Redemption Date" means as to any share of Preferred Stock
redeemed pursuant to Paragraph 4 hereof the date specified in the
notice of redemption, provided that for purposes of Paragraph 4E, no
such date shall be a Redemption Date unless the applicable Redemption
Price is actually paid or tendered on such date.
(v) "Subsidiary" means any corporation at least 50% of the
voting stock of every class of which shall, at the time as of which any
determination is being made, be owned by the
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<PAGE> 6
Corporation either directly or through one or more Subsidiaries.
II. COMMON STOCK
1. Dividends. Holders of Common Stock shall be paid dividends
when and as declared by the Board of Directors of the Corporation out
of the assets of the Corporation available for the payment of
dividends.
2. Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably
designates) a register for the registration of shares of Common Stock.
Upon the surrender of any certificate representing shares of Common
Stock at such place, the Corporation shall, at the request of the
registered holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate of certificates in exchange
therefor representing in the aggregate the number of shares of such
class represented by the surrendered certificate, subject to the
requirements of applicable securities laws. Each such new certificate
shall be registered in such name and shall represent such number of
shares of such class as shall be requested by the holder of the
surrendered certificate and shall be substantially identical in form to
the surrendered certificate.
3. Replacement.
(i) Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be
satisfactory) of the Ownership and the loss, theft, destruction or
mutilation of any certificate evidencing one or more shares of Common
Stock and, in the case of any such loss, theft, destruction or
mutilation, upon receipt of indemnity reasonably satisfactory to the
Corporation or, in the case of any such mutilation, upon surrender of
such certificate, the Corporation shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of
such lost, stolen, destroyed or mutilated certificate, and the holders
of the shares represented by such new certificate shall be entitled to
receive all theretofore payable but unpaid dividend payments on the
shares represented by the lost, stolen, destroyed or mutilated
certificate.
(ii) The term "outstanding" when used in this subdivision with
reference to the shares of Common Stock as of any particular time shall
not include any such shares represented by any certificate in lieu of
which a new certificate has been executed and delivered by the
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<PAGE> 7
Corporation in accordance with Paragraph 2 or this Paragraph 3, but
shall include only those shares represented by such new certificate.
4. Voting Rights. Except as otherwise provided by law, holders
of Common Stock shall be entitled to one vote per share on all matters
to be voted on by the stockholders of the Corporation.
5. Preemption. Holders of shares of Common Stock shall not, as
such, have any preemptive or other right to subscribe for or purchase
any shares of capital stock of the Corporation of any class now or
hereafter authorized or issued by the Corporation.
3. Article Sixth of the Corporation's Certificate of Incorporation is
deleted and replaced with the following:
SIXTH: The Board of Directors of the Corporation, acting by the
affirmative vote of not less than all of the Directors of the
Corporation, and the stockholders of the Corporation, acting by the
affirmative vote (by written consent or otherwise) of holders of not
less than 90% of the issued and outstanding shares of Common Stock each
may alter, amend or repeal any provision of the By-Laws of the
Corporation.
4. Article Seventh of the Corporation's Certificate of Incorporation
is deleted and replaced with the following:
SEVENTH: This Certificate of Incorporation may be amended, and
a provision hereof may be modified or repealed, only by stockholders of
the Corporation, acting by the affirmative vote (by written consent or
otherwise) of holders of not less than 90% of the issued and
outstanding shares of Common Stock.
5. Article Eighth of the Corporation's Certificate of Incorporation is
deleted and replaced with the following:
EIGHTH: Except as otherwise provided by law or this Certificate
of Incorporation, all matters submitted to a meeting of stockholders
shall be decided by vote of holders of record, present in person or by
proxy, of not less than 80% of the issued and outstanding shares of
stock. At any meeting of stockholders, the holders of record, present
in person or by proxy, of not less than 80% of the issued and
outstanding shares of Common Stock shall constitute a quorum for the
transaction of business.
6. The Corporation's Certificate of Incorporation is further amended
to include a new Article Ninth which reads in its entirety as follows:
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<PAGE> 8
NINTH: Each person who is or was or had agreed to become a
director or officer of the Corporation, or each such person who is or
was serving or who had agreed to serve at the request of the Board of
Directors or an officer of the Corporation as an employee or agent of
the Corporation or as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
(including the heirs, executors, administrators or estate of such
person), shall be indemnified by the Corporation to the full extent
permitted by the General Corporation Law of the State of Delaware or
any other applicable laws as presently or hereafter in effect. Without
limiting the generality or the effect of the foregoing, the Corporation
may enter into one or more agreements with any person which provide for
indemnification greater or different than that provided in this
Article. Any repeal or modification of this Article Ninth shall not
adversely affect any right or protection existing hereunder immediately
prior to such repeal or modification.
7. The Corporation's Certificate of Incorporation is further amended
to include a new Article Tenth which reads in its entirety as follows:
TENTH: To the full extent permitted by the General Corporation
Law of the State of Delaware or any other applicable laws presently or
hereafter in effect, no Director of the Corporation shall be personally
liable to the Corporation or its stockholders for or with respect to
any acts or omissions in the performance of his or her duties as a
Director of the Corporation. Any repeal or modification of this Article
Tenth will not adversely affect any right or protection of a Director
of the Corporation existing prior to such repeal or modification.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment this 19th day of September, 1996.
By: /s/ Hushang Ansary
--------------------------------
Name: Hushang Ansary
Title: Chairman
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<PAGE> 1
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
IRI INTERNATIONAL CORPORATION
IRI International Corporation, a corporation duly organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. The amendments to the Certificate of Incorporation set forth
below have been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
2. Article Fourth of the Corporation's Certificate of
Incorporation is amended and restated to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock
that the Corporation is authorized to issue is 125,000,000 shares,
consisting of 100,000,000 shares of Common Stock, par value $.01 each
(hereinafter referred to as the "Common Stock"), and 25,000,000 shares
of Preferred Stock, par value $1.00 each (hereinafter referred to as
the "Preferred Stock").
I. PREFERRED STOCK
The Preferred Stock may be issued in one or more series. The
Board of Directors of the Company (the "Board"), with the approval of
the holders of a majority of the outstanding shares of the Company's
Common Stock, is hereby authorized to authorize the issuance of shares
of Preferred Stock in such series and to fix from time to time before
issuance the number of shares to be included in any such series and
the designation, relative powers, preferences, and rights and
qualifications, limitations, or restrictions of all shares of such
series. The authority of the Board with respect to each such series
will include, without limiting the generality of the foregoing, the
determination of any or all of the following:
<PAGE> 2
(a) the number of shares of any series and the designation
to distinguish the shares of such series from the shares of all other
series;
(b) the voting powers, if any, and whether such voting
powers are full or limited in such series;
(c) the redemption provisions, if any, applicable to such
series, including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of such series, and the dates and
preferences of dividends on such series;
(e) the rights of such series upon the voluntary or
involuntary dissolution of, or upon any distribution of the assets of,
the Company;
(f) the provisions, if any, pursuant to which the shares
of such series are convertible into, or exchangeable for, shares of
any other class or classes or of any other series of the same or any
other class or classes of stock, or any other security, of the Company
or any other corporation or other entity, and the price or prices or
the rates of exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any
securities of the Company or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable
to such series; and
(i) any other relative, participating, optional, or other
special powers, preferences, rights, qualifications, limitations, or
restrictions thereof;
all as may be determined from time to time by the Board and stated in
the resolution or resolutions providing for the issuance of such
Preferred Stock (collectively, a "Preferred Stock Designation").
II. COMMON STOCK
Except as may otherwise be provided in a Preferred Stock
Designation, the holders of Common Stock will be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders for
each share of Common Stock held of record by such holder as of the
record date for such meeting.
3. Article Sixth of the Corporation's Certificate of Incorporation is
deleted in its entirety.
4. Article Seventh of the Corporation's Certificate of Incorporation
is deleted in its entirety.
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<PAGE> 3
5. Article Eighth of the Corporation's Certificate of Incorporation is
deleted in its entirety.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Amendment this __ day of __________, 1997.
By:
-------------------------------
Name:
Title:
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<PAGE> 1
IRI INTERNATIONAL CORPORATION
AMENDED AND RESTATED
BYLAWS
As Adopted and in Effect
as of June 17, 1997
<PAGE> 2
IRI INTERNATIONAL CORPORATION
AMENDED AND RESTATED
BYLAWS
TABLE OF CONTENTS
Page
MEETING OF STOCKHOLDERS................................................... 1
1. Place of Meeting................................................ 1
2. Annual Meetings................................................. 1
3. Special Meetings................................................ 1
4. Notice.......................................................... 1
5. Inspectors...................................................... 2
6. Quorum.......................................................... 2
7. Voting.......................................................... 2
8. Order of Business............................................... 2
9. Written Action.................................................. 3
DIRECTORS................................................................. 3
10. Function........................................................ 3
11. Number, Election and Removal of Directors....................... 3
12. Vacancies and New Directorships................................. 3
13. Resignation..................................................... 4
14. Regular Meetings................................................ 4
15. Special Meetings................................................ 4
16. Quorum.......................................................... 4
17. Written Action.................................................. 4
18. Participation in Meetings by Telephone Conference............... 4
19. Committees...................................................... 4
20. Compensation.................................................... 5
21. Rules........................................................... 5
NOTICES................................................................... 6
22. Generally....................................................... 6
23. Waivers......................................................... 6
OFFICERS.................................................................. 6
24. Generally....................................................... 6
25. Compensation.................................................... 6
26. Succession...................................................... 6
27. Authority and Duties............................................ 6
STOCK..................................................................... 6
28. Certificates.................................................... 6
29. Classes of Stock................................................ 7
30. Transfers....................................................... 7
<PAGE> 3
30. Lost, Stolen, or Destroyed Certificates......................... 7
31. Record Dates.................................................... 7
INDEMNIFICATION........................................................... 8
32. Damages and Expenses............................................ 8
33. Insurance, Contracts, and Funding............................... 11
GENERAL................................................................... 12
34. Fiscal Year..................................................... 12
35. Seal............................................................ 12
36. Reliance upon Books, Reports, and Records....................... 12
37. Time Periods.................................................... 12
38. Amendments...................................................... 12
39. Certain Defined Terms........................................... 12
<PAGE> 4
MEETING OF STOCKHOLDERS
1. Place of Meeting. Meetings of the stockholders of the Corporation
shall be held in Houston, Texas, or at such place either within or without the
State of Delaware as the Board (the "Board") may determine.
2. Annual Meetings. Annual meetings of stockholders, commencing with
year 1998, shall be held on the fourth Tuesday in May if not a legal holiday,
and if a legal holiday, then on the next business day following, at 10:00 a.m.,
or at such other date and time as shall be designated from time to time by the
Board, to elect a Board by plurality vote and to transact such other business as
may properly come before the meeting.
3. Special Meetings. (a) Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by law or by the Certificate of
Incorporation, may be called only by (i) the Chairman of the Board or, if there
shall then be no elected and acting Chairman of the Board, the Chief Executive
Officer, (ii) the holders of a majority of the outstanding shares of the
Company's Common Stock, or (iii) the Secretary within 10 calendar days after
receipt of the written request of a majority of the Board. Any such request by a
majority of the Board must be sent to the Chairman and the Secretary and must
state the purpose or purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock, if any, may be called in the manner
and for the purposes provided in the applicable Preferred Stock Designation.
(b) Upon the receipt by the Company of a written request executed by
the holders of not less than a majority of the outstanding Common Stock (a
"Meeting Request"), the Board will (i) call a special meeting of the
stockholders for any lawful purpose (which may not, however, include the
election of Directors) and (ii) fix a record date for the determination of
stockholders entitled to notice of and to vote at such meeting, which record
date will not be later than 60 calendar days after the date of receipt by the
Company of the Meeting Notice; provided, however, that no separate special
meeting of stockholders requested pursuant to a Meeting Request will be required
to be convened if (A) the Board calls an annual or special meeting of
stockholders to be held not later than 90 calendar days after receipt of such
Meeting Request and (B) the purposes of such annual or special meeting include
(among any other matters properly brought before the meeting) the purposes
specified in such Meeting Request. Notwithstanding any provision of the
Certificate of Incorporation or these Bylaws to the contrary, this Bylaw 3(b)
may not be amended or repealed by the Board, and no provision inconsistent
therewith may be adopted by the Board, without the affirmative vote of the
holders of a majority of the Common Stock present or represented by proxy and
entitled to vote at any annual or special meeting of stockholders at which such
vote is to be taken.
4. Notice. Written notice of every meeting of the stockholders,
stating the place, date, and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, will be given
not less than 10 nor more than 60 calendar days before the date of the meeting
to each stockholder of record entitled to vote at such meeting, except as
otherwise provided herein or by law. When a meeting is adjourned to another
place, date, or time, written notice need not be given of the adjourned meeting
if the place, date, and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the adjournment is for more
than 30 calendar days, or if after the adjournment a new record date is fixed
for the adjourned meeting, written notice of the place, date, and time of the
adjourned meeting must be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
1
<PAGE> 5
5. Inspectors. The Board may appoint one or more inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the stockholders, or any adjournment thereof, in advance of
such meeting. The Board may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the presiding officer of
the meeting may appoint one or more substitute inspectors.
6. Quorum. Except as otherwise provided by law or in a Preferred Stock
Designation, the holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, will
constitute a quorum at all meetings of the stockholders for the transaction of
business thereat. If, however, such quorum is not present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, will have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present or represented. At any meeting of the stockholders that has
been adjourned three times, the holders of stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, will
constitute a quorum for the transaction of business at such third adjourned
meeting.
7. Voting. Except as otherwise provided by law or in a Preferred Stock
Designation, each stockholder will be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing in
the name of such stockholder on the books of the Company on the record date for
the meeting and such votes may be cast either in person or by written proxy.
Every proxy must be duly executed and filed with the Secretary. A stockholder
may revoke any proxy that is not irrevocable by attending the meeting and voting
in person or by filing an instrument in writing revoking the proxy or another
duly executed proxy bearing a later date with the Secretary. The vote upon any
question brought before a meeting of the stockholders may be by voice vote,
unless otherwise required by these Bylaws or unless the Chairman or the holders
of a majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at such meeting otherwise determine. Every
vote taken by written ballot will be counted by the inspectors of election. When
a quorum is present at any meeting, the vote of the holders of a majority of the
stock which has voting power present in person or represented by proxy and which
has actually voted will decide any question properly brought before such
meeting, unless the question is one upon which by express provision of law, the
Certificate of Incorporation, a Preferred Stock Designation, or these Bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question.
8. Order of Business. (a) The Chairman, or if there shall then be no
elected and acting Chairman, the Chief Executive Officer, will call meetings of
the stockholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board prior to the meeting, the presiding officer of
the meeting of the stockholders will also determine the order of business and
have the authority in his sole discretion to regulate the conduct of any such
meeting, including without limitation by imposing restrictions on the persons
(other than stockholders of the Company or their duly appointed proxies) who may
attend any such stockholders' meeting, by ascertaining whether any stockholder
or his proxy may be excluded from any meeting of the stockholders based upon any
determination by the presiding officer, in his sole discretion, that any such
person has unduly disrupted or is likely to disrupt the proceedings thereat, and
by determining the circumstances in which any person may make a statement or ask
questions at any meeting of the stockholders.
(b) At an annual meeting of the stockholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an
2
<PAGE> 6
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board in accordance with
Bylaw 4, (ii) otherwise properly brought before the meeting by the presiding
officer, or (iii) otherwise properly requested to be brought before the meeting
by a stockholder of the Company.
(c) At a special meeting of stockholders, only such business may be
conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given in accordance with Bylaw
4 or (ii) otherwise properly brought before the meeting by the presiding
officer.
(d) The determination of whether any business sought to be brought
before any annual or special meeting of the stockholders is properly brought
before such meeting in accordance with this Bylaw 8 will be made by the
presiding officer of such meeting. If the presiding officer determines that any
business is not properly brought before such meeting, he will so declare to the
meeting and any such business will not be conducted or considered.
9. Written Action. Any Action required or permitted to be taken at any
meeting of stockholders may be taken without a meeting if the holders of the
required number of outstanding shares of Common Stock consent thereto in
writing, such writing or writings are delivered to the Secretary by hand or
registered mail, return receipt requested and, in the case of the taking of
corporate action without a meeting by less than unanimous written consent,
notice of such action is delivered promptly to those stockholders who did not
consent in writing and who, if the action had been taken at a meeting would have
been entitled to notice of the meeting if the record date for such meeting had
been the date that written consents were delivered to the Corporation.
DIRECTORS
10. Function. The business and affairs of the Company will be managed
under the direction of the Board. The Directors may, but need not, elect from
among themselves a Chairman and one or more Vice-Chairmen.
11. Number, Election and Removal of Directors. Subject to the rights,
if any, of the holders of any series of Preferred Stock to elect additional
Directors under circumstances specified in a Preferred Stock Designation, the
number of the Directors of the Company that shall constitute the Board will not
be less than three nor more than seventeen and will be fixed from time to time
in the manner described in the By-Laws of the Company. At each annual meeting of
the stockholders of the Company, Directors will be elected by plurality vote of
all votes cast at such meeting to hold office for a term expiring at the next
annual meeting of stockholders, or if later until their successors are elected
and qualified. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect additional Directors under circumstances specified in a
Preferred Stock Designation, Directors may be elected by the stockholders only
at an annual meeting of stockholders. Election of Directors of the Company need
not be by written ballot unless requested by the presiding officer or by the
holders of a majority of the stock which has voting power present in person or
represented by proxy at a meeting of the stockholders at which Directors are to
be elected.
12. Vacancies and New Directorships. Subject to the rights, if any, of
the holders of any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation, additional
directorships may be created, the number of Directors may be
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<PAGE> 7
decreased, and vacancies and newly created directorships resulting from any
increase in the number of Directors may be filled by the affirmative vote of
holders of records of a majority of the Corporation's issued and outstanding
Common Stock. Any Director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the Directors then
elected and acting, or until such Director's successor has been elected and
qualified. Subject to the rights, if any, of the holders of any series of
Preferred Stock in respect of the election additional Directors under
circumstances specified in a Preferred Stock Designation, any Director may be
removed with or without cause by the affirmative vote of holders of a majority
of the Corporation's issued and outstanding shares of Common Stock.
13. Resignation. Any Director may resign at any time by giving written
notice of his resignation to the Chairman or the Secretary. Any resignation will
be effective upon actual receipt by any such person or, if later, as of the date
and time specified in such written notice.
14. Regular Meetings. Regular meetings of the Board shall be held
immediately after the annual meeting of the stockholders, at least quarterly,
unless the Board shall otherwise determine, and at such other times and places
as may from time to time be determined by the Board. Notice of regular meetings
of the Board need not be given.
15. Special Meetings. Special meetings of the Board may be called by
the Chairman or if there shall then be no elected and acting Chairman, the Chief
Executive Officer, on one day's notice to each Director by whom such notice is
not waived, given either personally or by mail, telephone, telegram, telex,
facsimile, or similar medium of communication, and will be called by the
Chairman or the Chief Executive Officer in like manner and on like notice on the
written request of two or more Directors. Special meetings of the Board may be
held at such time and place either within or without the State of Delaware as is
determined by the Board or specified in the notice of any such meeting.
16. Quorum. At all meetings of the Board, a majority of the total
number of Directors then in office will constitute a quorum for the transaction
of business. Except for the designation of committees as hereinafter provided
and except for actions required by these Bylaws or the Certificate of
Incorporation to be taken by a different vote of the Board, the act of a
majority of the Directors present at any meeting at which there is a quorum will
be the act of the Board. If a quorum is not present at any meeting of the Board,
the Directors present thereat may adjourn the meeting from time to time to
another place, time, or date, without notice other than announcement at the
meeting, until a quorum is present.
17. Written Action. Any action required or permitted to be taken at any
meeting of the Board or of any committee thereof may be taken without a meeting
if the required members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes or
proceedings of the Board or committee.
18. Participation in Meetings by Telephone Conference. Members of the
Board, or any committee designated by the Board, may participate in a meeting of
the Board, or any such committee, by means of telephone conference or similar
means by which all persons participating in the meeting can hear each other, and
such participation in a meeting will constitute presence in person at the
meeting.
19. Committees. (a) The Board, by resolution passed by a majority of
the Board, including the affirmative vote of the Chairman, will designate an
executive committee (the "Executive
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<PAGE> 8
Committee") of not less than three and not more than five members of the Board.
The Executive Committee will have and may exercise the powers of the Board,
except as otherwise provided by law. Unless otherwise provided in the resolution
designating the Executive Committee, sixty percent (60%) of the members of the
Executive Committee will constitute a quorum for the transaction of business,
and the act of sixty percent (60%) of the members of the Executive Committee
will constitute the act of such committee.
(b) The Board, by resolution passed by a majority of the Board,
including the affirmative vote of the Chairman, may designate one or more
additional committees, each such committee to consist of one or more Directors
and each to have such lawfully delegable powers and duties as the Board may
confer.
(c) The Executive Committee and each other committee of the Board will
serve at the pleasure of the Board or as may be specified in any resolution from
time to time adopted by the Board. The Board may designate one or more Directors
as alternate members of any such committee, who may replace any absent or
disqualified member at any meeting of such committee.
(d) Except as otherwise provided in these Bylaws or by law, any
committee of the Board, to the extent provided in Paragraph (a) of this Bylaw
or, if applicable, in the resolution of the Board designating such committee,
will have and may exercise all the powers and authority of the Board in the
direction of the management of the business and affairs of the Company. Any such
committee designated by the Board will have such name as may be determined from
time to time by resolution adopted by the Board. Except as provided in Paragraph
(a) of this Bylaw 18 or in the resolution of the Board designating such
committee, a majority of the members of any committee of the Board will
constitute a quorum for the transaction of business, and the act of a majority
of the members will be the act of such committee. Each committee of the Board
may prescribe its own rules for calling and holding meetings and its method of
procedure, subject to any rules prescribed by the Board, and will keep a written
record of all actions taken by it.
(e) All of the members of any committee the primary responsibilities
of which include reviewing the professional services to be provided by the
Company's independent auditors and the independence of such firm from the
Company's management, reviewing financial statements with management or
independent auditors, and/or reviewing internal accounting controls, will be
directors who are not employees of the Company, or any affiliate thereof.
Notwithstanding any provision of the Certificate of Incorporation or these
Bylaws to the contrary, this Bylaw 18(e) may not be amended or repealed by the
Board, and no provision inconsistent therewith may be adopted by the Board,
without the affirmative vote of the holders of a majority of the stock which has
voting power present or represented by proxy and entitled to vote at any annual
or special meeting of stockholders at which such vote is to be taken.
20. Compensation. The Board, with the approval of the holders of a
majority of the shares of Common Stock issued and outstanding, may establish
such compensation for, and reimbursement of the expenses of, Directors for
membership on the Board and on committees of the Board, attendance at meetings
of the Board or committees of the Board, or for other services by Directors to
the Company or any of its majority-owned subsidiaries, as the Board may
determine.
21. Rules. The Board may adopt rules and regulations for the conduct of
its meetings and the management of the affairs of the Company.
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NOTICES
22. Generally. Whenever by law or under the provisions of the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any Director or stockholder, such notice may be given in writing, by mail,
addressed to such Director or stockholder, at his, her, or its address as it
appears on the records of the Company, with postage thereon prepaid, and such
notice will be deemed to be given three business days after the same is
deposited in the United States mail. Notice to Directors may also be given by
telephone, telegram, telex, facsimile, or similar medium of communication or as
may otherwise be permitted by these Bylaws, and shall be effective upon actual
receipt thereof.
23. Waivers. Whenever any notice is required to be given by law or
under the provisions of the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
given, will be deemed equivalent to such notice. Attendance of a person at a
meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
OFFICERS
24. Generally. The officers of the Company will be elected by the Board
and will consist of a Chief Executive Officer, and such other officers as the
Board may from time to time deem necessary and appropriate, including but not
limited to, a President, a Secretary, a Treasurer, one or more Vice Presidents
and such other officers as the Board may from time to time determine. Any number
of offices may be held by the same person. Any of the offices may be left vacant
from time to time as the Board may determine. In the case of the absence or
disability of any officer of the Company or for any other reason deemed
sufficient by a majority of the Board, the Board may delegate the absent or
disabled officer's powers or duties to any other officer or to any Director.
25. Compensation. The compensation of all officers and agents of the
Company who are also Directors of the Company will be fixed by the Board or by a
committee of the Board. The Board may fix, or delegate the power to fix, the
compensation of other officers and agents of the Company to an officer of the
Company.
26. Succession. The officers of the Company will hold office until
their successors are elected and qualified. Any officer may be removed at any
time by the affirmative vote of a majority of the Board. Any vacancy occurring
in any office of the Company may be filled by the Board as provided in Bylaw 23.
27. Authority and Duties. Each of the officers of the Company will have
such authority and will perform such duties as are customarily incident to their
respective offices or as may be specified from time to time by the Chief
Executive Officer.
STOCK
28. Certificates. Certificates representing shares of stock of the
Company will be in such form as is determined by the Board or an authorized
committee thereof, subject to applicable
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legal requirements. Each such certificate will be numbered and its issuance
recorded in the books of the Company, and such certificate will exhibit the
holder's name and the number of shares and will be signed by, or in the name of,
the Company by the Chairman or a Vice Chairman or the Chief Executive Officer
and the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and will also be signed by, or bear the facsimile signature of, any
properly designated transfer agent of the Company. Any or all of the signatures
and the seal of the Company, if any, upon such certificates may be facsimiles,
engraved, or printed. Such certificates may be issued and delivered
notwithstanding that the person whose facsimile signature appears thereon may
have ceased to be such officer at the time certificates are issued and
delivered.
29. Classes of Stock. The designations, preferences, and relative
participating, optional, or other special rights of the various classes of stock
or series thereof, and the qualifications, limitations, or restrictions thereof,
will be set forth in full or summarized on the face or back of the certificates
which the Company issues to represent its stock or, in lieu thereof, such
certificates will set forth the office of the Company from which the holders of
certificates may obtain a copy of such information.
30. Transfers. Upon surrender to the Company or the transfer agent of
the Company of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it will be the
duty of the Company to issue, or cause its transfer agent to issue, a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
31. Lost, Stolen, or Destroyed Certificates. The Secretary may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen, or destroyed upon the making of an affidavit of that fact, satisfactory
to the Secretary, by the person claiming the certificate of stock to be lost,
stolen, or destroyed. As a condition precedent to the issuance of a new
certificate or certificates, the Secretary may require the owners of such lost,
stolen, or destroyed certificate or certificates to give the Company a bond in
such sum and with such surety or sureties as the Secretary may direct as
indemnity against any claims that may be made against the Company with respect
to the certificate alleged to have been lost, stolen, or destroyed or the
issuance of the new certificate.
32. Record Dates. (a) In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, the Board may fix a record date, which will not be more
than 60 nor less than 10 calendar days before the date of such meeting. If no
record date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders will be at the
close of business on the calendar day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the calendar next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of the stockholders will
apply to any adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
(b) In order that the Company may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date will not be more than
60 calendar days prior to such action. If no record date is fixed, the record
date for determining
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<PAGE> 11
stockholders for any such purpose will be at the close of business on the
calendar day on which the Board adopts the resolution relating thereto.
(c) The Company will be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes, and will
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Company has notice
thereof, except as expressly provided by applicable law.
INDEMNIFICATION
33. Damages and Expenses. (a) Without limiting the generality or effect
of any provision of the Certificate of Incorporation, the Company will to the
fullest extent permitted by applicable law as then in effect indemnify any
person (an "Indemnitee") who is or was involved in any manner (including without
limitation as a party or a witness) or is threatened to be made so involved in
any threatened, pending, or completed investigation, claim, action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (including
without limitation any action, suit, or proceeding by or in the right of the
Company to procure a judgment in its favor) (a "Proceeding") by reason of the
fact that such person is or was or had agreed to be a Director, officer,
employee, or agent of the Company, or is or was serving at the request of the
Board or an officer of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other entity, whether
or not for profit (including the heirs, executors, administrators, or estate of
such person), or anything done or not done by such person in any such capacity,
against all expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such Proceeding. Such indemnification will be a contract right and will
include the right to receive payment in advance of any expenses incurred by an
Indemnitee in connection with such Proceeding, consistent with the provisions of
applicable law as then in effect.
(b) The right of indemnification provided in this Bylaw 32 will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to Proceedings commenced or
continuing after the adoption of this Bylaw 32, whether arising from acts or
omissions occurring before or after such adoption.
(c) In furtherance, but not in limitation of the foregoing provisions,
the following procedures, presumptions, and remedies will apply with respect to
advancement of expenses and the right to indemnification under this Bylaw 32:
(i) All reasonable expenses incurred by or on behalf of an Indemnitee
in connection with any Proceeding will be advanced to the Indemnitee by the
Company within 30 calendar days after the receipt by the Company of a
statement or statements from the Indemnitee requesting such advance or
advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements will reasonably evidence the
expenses incurred by the Indemnitee and, if and to the extent required by law
at the time of such advance, will include or be accompanied by an undertaking
by or on behalf of the Indemnitee to repay such amounts advanced as to which
it may ultimately be determined that the Indemnitee is not entitled. If such
an undertaking is required by law at the time of an advance, no security will
be required for such undertaking and such undertaking will be accepted
without reference to the recipient's financial ability to make repayment.
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(ii) To obtain indemnification under this Bylaw 32, the Indemnitee will
submit to the Secretary a written request, including such documentation
supporting the claim as is reasonably available to the Indemnitee and is
reasonably necessary to determine whether and to what extent the Indemnitee
is entitled to indemnification (the "Supporting Documentation"). The
determination of the Indemnitee's entitlement to indemnification will be made
not less than 60 calendar days after receipt by the Company of the written
request for indemnification together with the Supporting Documentation. The
Secretary will promptly upon receipt of such a request for indemnification
advise the Board in writing that the Indemnitee has requested
indemnification. The Indemnitee's entitlement to indemnification under this
Bylaw 32 will be determined in one of the following ways: (A) by a majority
vote of the Disinterested Directors (as hereinafter defined), if they
constitute a quorum of the Board, or, in the case of an Indemnitee that is
not a present or former officer of the Company, by any committee of the Board
or committee of officers or agents of the Company designated for such purpose
by a majority of the Board; (B) by a written opinion of Independent Counsel
(as hereinafter defined) if (1) a Change of Control (as hereinafter defined)
has occurred and the Indemnitee so requests or (2) in the case of an
Indemnitee that is a present or former officer of the Company, a quorum of
the Board consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (C) by the
stockholders (but only if a majority of the Disinterested Directors, if they
constitute a quorum of the Board, presents the issue of entitlement to
indemnification to the stockholders for their determination); or (D) as
provided in subparagraph (iii) below. In the event the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant
to clause (B) above, a majority of the Disinterested Directors will select
the Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a Change of
Control has occurred, the Indemnitee will select such Independent Counsel,
but only an Independent Counsel to which the Board does not reasonably
object.
(iii) Except as otherwise expressly provided in this Bylaw 32, the
Indemnitee will be presumed to be entitled to indemnification under this
Bylaw 32 upon submission of a request for indemnification together with the
Supporting Documentation in accordance with subparagraph (c)(ii) above, and
thereafter the Company will have the burden of proof to overcome that
presumption in reaching a contrary determination. In any event, if the person
or persons empowered under subparagraph (c)(ii) to determine entitlement to
indemnification has not been appointed or has not made a determination within
60 calendar days after receipt by the Company of the request therefor
together with the Supporting Documentation, the Indemnitee will be deemed to
be entitled to indemnification and the Indemnitee will be entitled to such
indemnification unless (A) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for indemnification or in the
Supporting Documentation or (B) such indemnification is prohibited by law.
The termination of any Proceeding described in paragraph (a) of this Bylaw
32, or of any claim, issue, or matter therein, by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, will not, in and of itself, adversely affect the right of the
Indemnitee to indemnification or create a presumption that the Indemnitee did
not act in good faith and in a manner which the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company or,
with respect to any criminal Proceeding, that the Indemnitee had reasonable
cause to believe that his or her conduct was unlawful.
(iv) (A) In the event that a determination is made pursuant to
subparagraph (c)(ii) that the Indemnitee is not entitled to indemnification
under this Bylaw 32, (1) the Indemnitee will be entitled to seek an
adjudication of his entitlement to such indemnification either, at the
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Indemnitee's sole option, in (x) an appropriate court of the State of
Delaware or any other court of competent jurisdiction or (y) an arbitration
to be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, (2) any such judicial proceeding or arbitration will
be de novo and the Indemnitee will not be prejudiced by reason of such
adverse determination, and (3) in any such judicial proceeding or arbitration
the Company will have the burden of proving that the Indemnitee is not
entitled to indemnification under this Bylaw 32.
(B) If a determination is made or deemed to have been made, pursuant to
subparagraph (c)(ii) or (iii) of this Bylaw 32 that the Indemnitee is
entitled to indemnification, the Company will be obligated to pay the amounts
constituting such indemnification within five business days after such
determination has been made or deemed to have been made and will be
conclusively bound by such determination unless (1) the Indemnitee
misrepresented or failed to disclose a material fact in making the request
for indemnification or in the Supporting Documentation or (2) such
indemnification is prohibited by law. In the event that advancement of
expenses is not timely made pursuant to subparagraph (c)(i) of this Bylaw 32
or payment of indemnification is not made within five business days after a
determination of entitlement to indemnification has been made or deemed to
have been made pursuant to subparagraph (c)(ii) or (iii) of this Bylaw 32,
the Indemnitee will be entitled to seek judicial enforcement of the Company's
obligation to pay to the Indemnitee such advancement of expenses or
indemnification. Notwithstanding the foregoing, the Company may bring an
action, in an appropriate court in the State of Delaware or any other court
of competent jurisdiction, contesting the right of the Indemnitee to receive
indemnification hereunder due to the occurrence of any event described in
subclause (1) or (2) of this clause (C) (a "Disqualifying Event"); provided,
however, that in any such action the Company will have the burden of proving
the occurrence of such Disqualifying Event.
(C) The Company will be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to the provisions of this
subparagraph (c)(iv) that the procedures and presumptions of this Bylaw 32
are not valid, binding, and enforceable and will stipulate in any such court
or before any such arbitrator that the Company is bound by all the provisions
of this Bylaw 32.
(D) In the event that the Indemnitee, pursuant to the provisions of
this subparagraph (c)(iv), seeks a judicial adjudication of, or an award in
arbitration to, enforce his or her rights under, or to recover damages for
breach of, this Bylaw 32, the Indemnitee will be entitled to recover from the
Company, and will be indemnified by the Company against, any expenses
actually and reasonably incurred by the Indemnitee if the Indemnitee prevails
in such judicial adjudication or arbitration. If it is determined in such
judicial adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration will be prorated accordingly.
(iv) For purposes of this paragraph (c):
(A) "Change in Control" means the occurrence of any of the
following events:
(1) The Company is merged, consolidated, or reorganized
into or with another corporation or other legal entity, and as a
result of such merger, consolidation, or reorganization less than
a majority of the combined voting power of the then-outstanding
securities of such corporation or entity
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immediately after such transaction are held in the aggregate by
the holders of the then-outstanding securities entitled to vote
generally in the election of directors ("Voting Stock") of the
Company immediately prior to such transaction;
(2) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other
legal entity and, as a result of such sale or transfer, less than
a majority of the combined voting power of the then-outstanding
securities of such other corporation or entity immediately after
such sale or transfer is held in the aggregate by the holders of
Voting Stock of the Company immediately prior to such sale or
transfer;
(3) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Directors cease for any reason to constitute at least a majority
thereof; provided, however, that for purposes of this clause (3)
each Director who is first elected as provided in Bylaw 10 or
Bylaw 11, then still in office who were Directors at the beginning
of any such period will be deemed to have been a Director at the
beginning of such period.
(B) "Disinterested Director" means a Director of the Company who
is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(C) "Independent Counsel" means a law firm or a member of a law
firm that neither presently is, nor in the past five years has been,
retained to represent (1) the Company or the Indemnitee in any matter
material to either such party or (2) any other party to the Proceeding
giving rise to a claim for indemnification under this Bylaw 32.
Notwithstanding the foregoing, the term "Independent Counsel" will not
include any person who, under the applicable standards of professional
conduct then prevailing under the law of the State of Delaware, would
be precluded from representing either the Company or the Indemnitee in
an action to determine the Indemnitee's rights under this Bylaw 32.
(d) If any provision or provisions of this Bylaw 32 are held to be
invalid, illegal, or unenforceable for any reason whatsoever: (i) the validity,
legality, and enforceability of the remaining provisions of this Bylaw 32
(including without limitation all portions of any paragraph of this Bylaw 32
containing any such provision held to be invalid, illegal, or unenforceable,
that are not themselves invalid, illegal, or unenforceable) will not in any way
be affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Bylaw 32 (including without limitation all portions of any
paragraph of this Bylaw 32 containing any such provision held to be invalid,
illegal, or unenforceable, that are not themselves invalid, illegal, or
unenforceable) will be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
34. Insurance, Contracts, and Funding. The Company may purchase
and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines, and amounts paid in settlement or incurred by any
Indemnitee in connection with any Proceeding referred to in Bylaw 32 or
otherwise, to the fullest extent permitted by applicable law as then in effect.
The Company may enter into contracts with any person entitled to indemnification
under Bylaw 32 or otherwise, and may create a trust fund, grant a security
interest, or use other means (including without limitation a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in Bylaw 32. Notwithstanding anything to the
contrary contained in Bylaw 32, in the event that the Company enters into a
contract with any person providing for
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indemnification of such person, the provisions of such contract will exclusively
govern the Company's obligations in respect of indemnification for or
advancement of fees or disbursements of such person's counsel or any other
professional engaged by such person.
GENERAL
35. Fiscal Year. The fiscal year of the Company will be fixed from
time to time by the Board.
36. Seal. The Board may adopt a corporate seal and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
37. Reliance upon Books, Reports, and Records. Each Director, each
member of a committee designated by the Board, and each officer of the Company
will, in the performance of his or her duties, be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's officers
or employees, or committees of the Board, or by any other person or entity as to
matters the Director, committee member, or officer believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company.
38. Time Periods. In applying any provision of these Bylaws that
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days will be used unless otherwise specified, the
day of the doing of the act will be excluded and the day of the event will be
included.
39. Amendments. These Bylaws or any of them may be amended in any
respect or repealed at any time, only at a meeting of stockholders or by written
consent in lieu thereof, provided that any amendment or supplement proposed to
be acted upon at any such meeting or any other such action has been described or
referred to in the notice of such meeting.
40. Certain Defined Terms. Terms used herein with initial capital
letters that are defined in the Certificate of Incorporation are used herein as
so defined.
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====================================
REGISTRATION RIGHTS AGREEMENT
between
IRI International Corporation
and
Energy Services International Ltd.
====================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
Recitals.................................................................. 1
Article 1. Definitions and Incorporations by Reference.................. 1
Section 1.1 Definitions.......................................... 1
Section 1.2 Rules of Construction................................ 3
Article 2. Registrations................................................ 4
Section 2.1 Piggy-Back Registration.............................. 4
Section 2.2 Demand Registration.................................. 5
Article 3. Indemnification.............................................. 6
Section 3.1 Indemnification by the Company....................... 6
Section 3.2 Indemnification by Participating Holders............. 7
Section 3.3 Indemnity from Underwriters, etc..................... 8
Section 3.4 Contribution......................................... 8
Section 3.5 Notices of Claims, Etc............................... 8
Article 4. Holdback Agreements.......................................... 9
Section 4.1 Obligations of Holders............................... 9
Section 4.2 Obligations of the Company........................... 9
Article 5. Rule 144 Reporting; Rule 144A................................ 9
Section 5.1 Rule 144 Reporting, Rule 144A........................ 9
Article 6. Registration Procedures...................................... 10
Section 6.1 Procedures........................................... 10
Section 6.2 Obligations of Participating Holders................. 13
Section 6.3 Conditions on Registration........................... 13
Article 7. Miscellaneous................................................ 14
Section 7.1 Acknowledgment and Consent of Significant Holders.... 14
Section 7.2 Remedies............................................. 15
Section 7.3 Amendments and Waivers............................... 15
Section 7.4 Notices.............................................. 15
Section 7.5 Headings............................................. 16
Section 7.6 Governing Law........................................ 16
Section 7.7 Severability......................................... 16
Section 7.8 Entire Agreement..................................... 16
Section 7.9 Transfers............................................ 16
Section 7.10 Counterparts......................................... 16
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (together with all amendments and
supplements hereto, this "Agreement") dated as of ______________, 1997, is by
and among IRI INTERNATIONAL CORPORATION, a corporation incorporated under the
laws of Delaware (together with its successors and assigns, the "Company"), and
Energy Services International Ltd., a corporation incorporated under the laws of
Delaware (the "Initial Significant Holder").
RECITALS
In order to facilitate an initial public offering by the Company of its
Shares, the Company has agreed to provide registration rights to the Initial
Significant Holder and each other Significant Holder with respect to its Shares
as set forth in this Agreement.
NOW THEREFORE, in consideration of the premises, intending to be
legally bound hereby, the Company agrees as follows:
ARTICLE 1.
DEFINITIONS AND INCORPORATIONS BY REFERENCE
Section 1.1 Definitions. For all purposes of this Agreement, the
following definitions shall apply:
"Affiliate" means with respect to any Person, any other Person directly
or indirectly controlling or controlled by or under common control with such
Person. For purposes of this definition the term "control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"Agreement" has the meaning set forth in the preamble hereof.
"Company" has the meaning set forth in the preamble hereof.
"Designated Transferee" means, with respect to the Initial Significant
Holder, any Person who receives Registrable Securities in a transfer from the
Initial Significant Holder pursuant to which the Initial Significant Holder
transfers to such Person all of its rights to require the Company to file a
registration statement hereunder in respect of such Registrable Securities, or
as a result of a merger or consolidation of the Company and the Initial
Significant Holder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Indemnified Party" has the meaning set forth in Section 3.4 hereof.
"Indemnifying Party" has the meaning set forth in Section 3.5 hereof.
<PAGE> 4
"Initial Significant Holder" has the meaning set forth in the preamble
hereof.
"Inspectors" has the meaning set forth in Section 6.1(xi) hereof.
"Participating Holder" means any Significant Holder which has
Registrable Securities registered for sale pursuant to a Registration Statement.
"Person" means any individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or any agency or political subdivision thereof)
or other entity of any kind.
"Prospectus" means the prospectus included in a Registration Statement,
including any and all post-effective amendments and material incorporated by
reference.
"Public Securities" means Securities of the Company which (a) have been
sold pursuant to an effective Registration Statement, or (b) due to the passage
of time, method of transfer (including transfers pursuant to Rule 144) or other
circumstances can be sold publicly without registration under the Securities
Act.
"Records" has the meaning set forth in Section 6.1(xi) hereof.
"Registrable Securities" means Securities of the Company owned by a
Significant Holder which are not Public Securities.
"Registration Expenses" means, all expenses of the Company or the
Participating Holders, as the case may be, incident to the performance of or
compliance with Sections 2.1 and 2.2, respectively, including, without
limitation all SEC and any registration and filing fees and expenses; fees and
expenses of compliance with securities and blue sky laws (including reasonable
fees and disbursements of counsel for the underwriters, if any, in connection
with Blue Sky qualifications of the Registrable Securities and the preparation
of legal investment surveys, if any) and listing on any national securities
exchange or exchanges on which listing may be sought; document and security
certificate preparation and printing expenses, messenger and delivery expenses;
fees and expenses of any escrow agent, trustee or custodian; any fees charged by
securities rating services for rating Registrable Securities; internal expenses
of the Company (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties); fees
and disbursements of counsel and independent certified public accountants of the
Company (including the expenses of any special audit or "cold comfort" letters
required by or incident to such performance and compliance); and fees and
expenses of any other persons, including special experts, retained by the
Company.
"Registration Period" has the meaning set forth in Section 6.1(i)
hereof.
"Registration Statement" means any registration statement of the
Company provided for in this Agreement, including the Prospectus and any and all
post-effective amendments and material incorporated by reference.
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"SEC" means the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
"Securities" means (i) any Shares and (ii) any securities issued or
issuable in respect of or in exchange for Shares by way of split, dividend or
other distribution, or any securities issued pursuant to any pro rata
distribution with respect to the Shares in connection with a combination of
Shares, recapitalization, reclassification, merger, consolidation or exchange
offer or other, similar transaction.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Shares" means shares of common stock of the Company, par value $.01
per share.
"Significant Holder" means each Person owning Securities of record if
such Person executes and delivers to the Company a completed counterpart
signature page of this Agreement and is (a) an Affiliate of the Company or (b)
owns Securities possessing ten (10) percent or more of the total voting power of
an outstanding class of Securities.
Section 1.2 Rules of Construction. Unless the context otherwise
requires:
(a) whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms;
(b) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";
(c) all terms used in Article 9 of the Uniform Commercial Code as in
effect in the State of New York that are used but not defined herein shall have
the meaning assigned to such terms therein;
(d) references to documents, contracts or agreements shall include any
and all supplements and amendments thereto;
(e) references to a specific Person shall include the successors and
assigns of such Person;
(f) references to "applicable laws" shall include statutes,
ordinances, rules, regulations, court and administrative decisions and
conditions, restrictions and limitations in licenses, permits, approvals and
authorizations issued or granted by federal, state or local United States or
foreign governmental bodies and agencies;
(g) unless otherwise specified in the computation of a period of time
from a specified date to a later specified date, the word "from" means "from and
including," and the words "to" and "until" each mean "to but excluding";
(h) words in the singular include the plural, and words in the plural
include the singular;
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<PAGE> 6
(i) provisions apply to successive events and transactions; and
(j) "herein," "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or other
subsection.
ARTICLE 2.
REGISTRATIONS
Section 2.1 Piggy-Back Registration. (a) If at any time the Company
determines to register any Securities for its own account or for the account of
any other Person, the Company shall:
(i) give each Significant Holder thirty (30) days' written
notice thereof (which notice shall include, to the extent available, a
list of the jurisdictions in which the Company intends to attempt to
qualify such Securities under applicable blue sky or other state
securities laws); and
(ii) use its reasonable efforts to include in any such
registration all Registrable Securities which the Significant Holders,
within twenty (20) days of receipt of such notice, request in writing
to be registered.
The Company shall not be required to comply with any of the provisions of this
Section 2.1, however, if a registration will be (i) made pursuant to a
registration statement on either Form S-4 or Form S-8 (or any successor forms
then in effect), (ii) filed in connection with an exchange offer or a
transaction pursuant to Rule 145 of the Securities Act, or (iii) filed after the
tenth (10th) anniversary of the date hereof.
(b) If the registration of which the Company gives notice is for a
public offering involving an underwriting, the Company shall so advise the
Significant Holders as a part of the written notice given pursuant to Section
2.1(a) hereof. In such event, any Significant Holder desiring to exercise its
right to registration pursuant to this Section 2.1 shall include within its
registration request a statement as to whether such Significant Holder desires
to (i) participate in such underwriting. All Significant Holders proposing to
distribute their Registrable Securities through such underwriting shall
(together with the Company and the other Persons distributing their Securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company.
(c) Notwithstanding any other provision of this Section 2.1, if the
managing underwriter or underwriters determine that marketing factors require a
limitation on the amount of Securities to be underwritten and so advise the
Company in writing, the amount of Securities included in the underwriting shall
be that amount, if any, which such underwriters determine can be sold, allocated
as follows: (i) first, all of the Securities the Company proposed to sell for
its own account, and second, the Securities requested to be registered by
Significant Holders and other Persons, which shall be ratably reduced to the
extent required by the underwriter's marketing limitation. If any Significant
Holder disapproves of the terms
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<PAGE> 7
of any such underwriting, it may elect to withdraw therefrom by written notice
to the Company and the managing underwriter or underwriters.
(d) The Company shall pay all Registration Expenses in connection with
each registration pursuant to this Section 2.1; provided, however, that the
Participating Holders who include Registrable Securities in a registration
pursuant to this Section 2.1 shall bear the cost of any underwriters' discount
or commission relating to such Registrable Securities which are sold.
(e) The Company shall not be required by this Section 2.1 to file a
registration statement at any time or to prosecute a filing to effectiveness.
Section 2.2 Demand Registration. (a) At any time after an initial
public offering of Securities by the Company, any one or more Significant
Holders may request in writing that the Company effect a registration of
Registrable Securities held by such Significant Holder or Significant Holders,
so long as at least ten (10) percent of the number of shares of Registrable
Securities or aggregate principal amount of Registrable Securities outstanding
at such time is requested to be registered by the Significant Holder or
Significant Holders. Upon receipt of any such written request, the Company
shall:
(i) promptly give written notice of the proposed registration to
all other Significant Holders; and
(ii) use its reasonable efforts to effect as soon as practicable
the registration of the Registrable Securities which (x) the
Significant Holder or Significant Holders have requested to be
registered and (y) the other Significant Holders have, within twenty
(20) days of such notice, requested in writing to be registered. The
Company may include Securities for its own account or Securities for
the account of other Persons having rights to participate in the
Company's registrations in any registration and underwriting pursuant
to this Section 2.2.
(b) Notwithstanding Section 2.2(a) hereof, the Company shall not be
required to file a Registration Statement thereunder unless the request is made
more than six (6) months after the most recent date on which there was an
effective Registration Statement in which Significant Holders were permitted to
include Registrable Securities. The Company also shall not be required to file a
Registration Statement under Section 2.2(a) if the request is made after the
tenth (10th) anniversary of the date of the initial public offering by
Securities. In addition, the Company shall not be required to effect more than a
total of ten registrations of Securities at the request of a Significant Holder
or Significant Holders pursuant to this Section 2.2; provided that in the event
a registration requested pursuant to this Section 2.2 fails to become effective
(other than as a result of revocation by the Significant Holder or Significant
Holders), the request for registration shall be deemed not to have been made for
purposes of this Section 2.2.
(c) If the registration of which the Significant Holder or Significant
Holders give notice is for a public offering involving an underwriting, the
Company shall so advise the other Significant Holders as a part of the written
notice given pursuant to Section 2.2(a) hereof. In such event, any Significant
Holder desiring to exercise its right to registration
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<PAGE> 8
pursuant to this Section 2.2 shall include within its registration request a
statement as to whether such Significant Holder desires to participate in such
underwriting. All Significant Holders proposing to distribute their Registrable
Securities through such underwriting shall (together with the Company and any
other Persons distributing their Securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. If the Company will include
Securities in such underwriting, the underwriter shall be selected by the
Company. If the Company will not include Securities in such underwriting, the
underwriter shall be selected by the Significant Holders of a majority of the
number of shares of Registrable Securities or aggregate principal amount of
Registrable Securities with the consent of the Company, which consent shall not
be unreasonably withheld.
(d) Notwithstanding any other provision of this Section 2.2, if the
managing underwriter or underwriters determine that marketing factors require a
limitation on the amount of Securities to be underwritten and so advise the
Company in writing, the amount of Securities included in the underwriting shall
be that number, if any, which such underwriters determine can be sold, allocated
in proportion to the amount of Securities the Significant Holders, the other
Persons and the Company requested to be registered.
(e) The Company shall pay all Registration Expenses in connection with
any registration pursuant to this Section 2.2; provided, however, that the
Significant Holders who include Registrable Securities in a registration
pursuant to this Section 2.2 shall bear the cost of any underwriters' discount
or commission relating to such Registrable Securities which are sold.
ARTICLE 3.
INDEMNIFICATION
Section 3.1 Indemnification by the Company. The Company will indemnify
each Participating Holder with respect to whose shares registration has been
effected pursuant to Article 2, its agents, each of their respective directors,
officers and partners, each underwriter, if any, of the Company's Securities
covered by such a registration statement and each Person who controls such
Participating Holder or such underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on (i) any untrue statement (or alleged untrue statement) of a material fact
contained in any Registration Statement, Prospectus (including without
limitation preliminary and supplemental Prospectuses), offering circular or
other similar document, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
are made, or (ii) any violation by the Company of any federal, state or common
law rule or regulation applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration, and
will reimburse (an "Expense Reimbursement") each such Participating Holder, its
agents, each of their respective directors, officers and partners, and each
Person controlling such Participating Holder, each such underwriter, and each
Person who controls any such underwriter, for any legal and any
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<PAGE> 9
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission made in a Registration Statement, Prospectus, offering
circular or other document in reliance upon and in conformity with information
furnished to the Company in writing by such Participating Holder or underwriter
specifically for use therein; and provided, further, that, with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary Prospectus, the Company will not be liable to any Participating
Holder to the extent that any loss, claim, damage, liability or expense results
from the fact that a current copy of the Prospectus was not sent or given to the
Person asserting any such loss, claim, damage, liability or expense at or prior
to the written confirmation of the sale of the Securities concerned to such
Person if it is determined that it was the responsibility of such Participating
Holder to provide such Person with a current copy of the Prospectus and such
current copy of the Prospectus would have cured the defect giving rise to such
loss, claim, damage, liability or expense. The Company shall make such Expense
Reimbursements as are periodically requested by a Participating Holder; provided
that the Company shall not be required to make such Expense Reimbursements more
frequently than once every month; and provided, further, that by accepting such
Expense Reimbursements, such Participating Holder agrees to repay the amount of
such Expense Reimbursements to the Company if it is finally determined that such
Participating Holder is not entitled to indemnification hereunder.
Section 3.2 Indemnification by Participating Holders. Each
Participating Holder will, if Securities held by such Participating Holder are
included in the Securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, its agents, each of its
directors and officers, each underwriter, if any, of the Company's Securities
covered by such a registration statement, each Person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and each other such Participating Holder, each
of its directors, officers and partners and each Person who controls such other
Participating Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such Registration
Statement, Prospectus (including without limitation preliminary and supplemental
Prospectuses), offering circular or other similar document, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they are made, and will reimburse the
Company, each such other Participating Holder, its agents, each of their
respective directors, officers and partners, and each Person controlling such
Participating Holder, each such underwriter, and each Person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, Prospectus, offering circular
or other document in reliance upon and in conformity with information furnished
to the Company in writing by such Participating Holder specifically for use
therein; provided, however, that, with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
Prospectus, the indemnity agreement contained in this Section 3.2 shall not
apply to the extent that any loss, claim, damage, liability or expense
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<PAGE> 10
results from the fact that a current copy of the Prospectus was not sent or
given to the Person asserting any such loss, claim, damage, liability or expense
at or prior to the written confirmation of the sale of the Securities concerned
to such Person if it is determined that it was the responsibility of the Company
or other Participating Holder, its agents, any of its directors, officers or
partners, or any underwriter to provide such Person with a current copy of the
Prospectus and such current copy of the Prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense.
Section 3.3 Indemnity from Underwriters, etc. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above with respect to information
so furnished in writing by such Persons specifically for inclusion in any
prospectus or registration statement or any amendment or supplement thereto, or
any preliminary prospectus.
Section 3.4 Contribution. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in Sections 3.1 and 3.2 hereof may be
unenforceable because it is violative of any law or public policy, each party
that would have been required to provide the indemnity shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all indemnified liabilities incurred by each
party entitled to indemnification under this Article 3 (the "Indemnified Party")
or any of them; provided that in no event shall a Participating Holder be
required to contribute an amount greater than the dollar amount of net proceeds
received by such Participating Holder with respect to the sale of any
Registrable Securities.
Section 3.5 Notices of Claims, Etc. Each Indemnified Party shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided, further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Article 3 unless
such failure to give notice shall materially adversely affect the Indemnifying
Party in the defense of any such claim or any such litigation. With respect to
any claim or litigation being conducted by the Indemnifying Party, no
Indemnified Party shall, except with the consent of such Indemnifying Party,
consent to entry of any judgment or enter into any settlement of any claim as to
which indemnity may be sought. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
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ARTICLE 4.
HOLDBACK AGREEMENTS
Section 4.1 Obligations of Holders. If any registration of Registrable
Securities shall be in connection with an underwritten public offering, each
Participating Holder of Registrable Securities agrees not to effect any public
sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any Registrable Securities (other than as part of such
underwritten public offering), during the fifteen (15) days prior to, and during
the ninety (90) day period (or such other period as each Participating Holder
agrees with the underwriter of such offering) beginning on, the effective date
of such Registration Statement (except as part of such registration), provided
that each Participating Holder of Registrable Securities has received written
notice of such registration at least fifteen (15) days prior to such effective
date.
Section 4.2 Obligations of the Company. If any registration of
Registrable Securities shall be in connection with an underwritten public
offering, the Company agrees (i) not to effect any public sale or distribution
of any of its Securities (other than any such sale or distribution of such
Securities in connection with any merger or consolidation by the Company or any
subsidiary of the Company or the acquisition by the Company or a subsidiary of
the Company of the capital stock or substantially all the assets of any other
Person or in connection with an employee stock option or other benefit plan)
during the fifteen (15) days prior to, and during the ninety (90) day period (or
such other period as the underwriters retained by the Company may reasonably
request) beginning on, the effective date of such Registration Statement (except
as part of such registration) and (ii) that any agreement entered into after the
date of this Agreement pursuant to which the Company issues or agrees to issue
any privately placed Securities shall contain a provision under which holders of
such Securities agree not to effect any public sale or distribution of any such
Securities during the period referred to in the foregoing clause (i), including
any sale pursuant to Rule 144 under the Securities Act (except as part of such
registration, if permitted).
ARTICLE 5.
RULE 144 REPORTING; RULE 144A
Section 5.1 Rule 144 Reporting, Rule 144A. (a) Commencing the date on
which and for so long as the Company is subject to the reporting requirements
under the Exchange Act and with a view to making available to the Significant
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of Securities to the public without registration, the Company
agrees, as follows:
(i) The Company will make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities
Act;
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(ii) The Company will file with the SEC in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) The Company will furnish to the Significant Holders
forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 under the
Securities Act, and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Company filed with
the SEC, if any, and such other reports and documents of the Company
and other information in the possession of or reasonably obtainable by
the Company as the Significant Holders, or any of them, may reasonably
request in availing themselves of any rule or regulation of the SEC
allowing the Significant Holders to sell Securities without
registration.
(b) Commencing the date on which and for so long as the Company is
subject to the reporting requirements under the Exchange Act, the Company shall
make available to the Significant Holders, from time to time as reasonably
requested in order to qualify for the safe harbor exemption of Rule 144A and if
not previously made public, such information as is required for such holders to
qualify a disposition of Shares for the exemption from registration provided by
Rule 144A under the Securities Act.
ARTICLE 6.
REGISTRATION PROCEDURES
Section 6.1 Procedures. If and whenever the Company is required to use
its reasonable efforts to effect or cause the registration of any Registrable
Securities under Article 2, the Company will as promptly as practicable:
(i) With respect to any registration requested pursuant to
Section 2.2 hereof, prepare and file with the SEC within a period (the
"Registration Period") which, except as provided in Section 6.3 hereof,
shall be a ninety (90) day period, after receipt of a request for
registration pursuant to Section 2.2 hereof, a Registration Statement
on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate, and which form shall be available
for the sale of Registrable Securities in accordance with the intended
methods of distribution thereof, and use its reasonable efforts to
cause such Registration Statement to become and remain effective;
(ii) Before filing with the SEC a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company will
(a) furnish to each Significant Holder of Registrable Securities
covered by such Registration Statement copies of all such documents
proposed to be filed, and (b) notify each Significant Holder holding
Registrable Securities covered by such Registration Statement of any
stop order issued or threatened by the SEC and take all reasonable
actions required to prevent the entry of such stop order or to remove
it if entered;
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(iii) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such Registration Statement during the applicable period in
accordance with the intended methods of disposition by the
Participating Holders thereof set forth in such Registration Statement,
but, with respect to registrations effected pursuant to Section 2.2
hereof, in no event for a period of more than five months after such
Registration Statement becomes effective;
(iv) Furnish to each Significant Holder of Registrable Securities
covered by such Registration Statement such reasonable number of copies
of such Registration Statement and of each such amendment and
supplement thereto (in each case including all exhibits), such
reasonable number of copies of the Prospectus included in such
Registration Statement (including each preliminary prospectus), in
conformity with the requirements of the Securities Act and such other
documents, as such Significant Holder may reasonably request in order
to facilitate the deposition of the Registrable Securities owned by
such Significant Holder;
(v) Use its reasonable efforts to register or qualify such
Registrable Securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions within the
United States (including territories and commonwealths thereof) as each
Significant Holder of Registrable Securities covered by such
Registration Statement shall reasonably request, and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Significant Holder or Significant Holders to consummate the
disposition in such jurisdictions of the Securities owned by such
Significant Holder or Significant Holders, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not
so qualified, to subject itself to taxation in any such jurisdiction,
or to consent to general service of process in any such jurisdiction;
(vi) Notify each Significant Holder of Registrable Securities
covered by such Registration Statement, at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act,
of the happening of any event as a result of which the Prospectus
included in such Registration Statement (including any documents
incorporated by reference) as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and
at the request of any such Significant Holder prepare and furnish to
such Significant Holder a reasonable number of copies of a supplement
to or an amendment of such Prospectus as may be necessary;
(vii) Advise each Significant Holder of Registrable Securities
covered by such Registration Statement, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of such Registration Statement
or the initiation or threatening of any proceeding for that purpose;
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<PAGE> 14
(viii) Otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make generally
available to the Significant Holders of any Registrable Securities
covered by such Registration Statement, earnings statements satisfying
the provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve (12) month period (or
ninety (90) days, if such period is a fiscal year) (a) commencing at
the end of any fiscal quarter in which Securities are sold to
underwriters in an underwritten offering, or (b) if not sold to
underwriters in such an offering, beginning with the first day of the
month of the Company's first fiscal quarter commencing after the
effective date of a Registration Statement;
(ix) Permit any Significant Holder holding Registrable
Securities covered by such Registration Statement or Prospectus to
withdraw their Securities from such Registration Statement or
Prospectus if such Significant Holder has informed the Company that it
believes that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the
rules and regulations thereunder, after having been furnished with a
copy thereof at least five (5) business days prior to the filing
thereof;
(x) Enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other
actions as Significant Holders of a majority in number of shares of
Registrable Securities or aggregate principal amount of Registrable
Securities being sold or the underwriters retained by such Significant
Holders, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities, including customary
opinions and indemnification;
(xi) Make available for inspection by any Significant Holder of
any Registrable Securities covered by such Registration Statement, any
underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by any such Significant Holder or underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries
(collectively, the "Records"), if any, as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and
cause the Company's and its subsidiaries' directors, officers and
employees to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such
Registration Statement. Significant Holders of Registrable Securities
agree that Records and other information which the Company determines
in good faith to be confidential, and of which determination the
Inspectors and Significant Holders are so notified, shall not be
disclosed by the Inspectors or the Significant Holders unless (a) the
disclosure of such Records is necessary to avoid or correct a
misstatement or omission in the Registration Statement or (b) the
release of such Records is required pursuant to a subpoena or court
order. Significant Holders of Registrable Securities agree that they
will, upon learning that disclosure of the Records is being sought in a
court of competent jurisdiction or by a government agency, give prompt
notice to the Company and allow the Company to undertake appropriate
action to prevent disclosure of the Records deemed confidential;
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<PAGE> 15
(xii) If requested by the managing underwriters or a Significant
Holder of Registrable Securities being sold in connection with an
underwritten offering, promptly incorporate in a Prospectus supplement
or post-effective amendment such information as the managing
underwriters and the Significant Holders of a majority in number of
shares of Registrable Securities or aggregate principal amount of
Registrable Securities being sold agree should be included therein
relating to the plan of distribution with respect to such Registrable
Securities including, without limitation, information with respect to
the Securities being sold to such underwriters, the purchase price
being paid therefor by such underwriters and with respect to any other
terms of the underwritten offering of the Registrable Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment.
Section 6.2 Obligations of Participating Holders. The Company may
require and each Participating Holder of any Securities as to which any
registration is being effected agrees to:
(i) (a) Furnish promptly to the Company such information
regarding such seller and its ownership of Registrable Securities and
the distribution of such Securities as the Company may from time to
time reasonably request or as shall be required by law in connection
therewith and (b) otherwise cooperate with the Company as necessary to
enable the Company to comply with the provisions of this Agreement;
(ii) Upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 6.1(vi) hereof, forthwith
discontinue disposition of Securities pursuant to the Registration
Statement covering such Securities until such Significant Holder's
receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6.1(vi) hereof, and, if so directed by the
Company, such Significant Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then
in such Significant Holder's possession, of the Prospectus covering
such Securities current at the time of receipt of such notice; and
(iii) (a) Sell such Person's securities on the basis provided in
any underwriting arrangements approved by the underwriters and other
Persons entitled hereunder to approve such arrangements and (b)
complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under
the terms of such underwriting arrangements.
Section 6.3 Conditions on Registration. The provisions of Section
6.1(i) hereof shall be subject to the following additional conditions,
qualifications and limitations:
(i) Financial Statement Requirements. If the Company would be
required under the Securities Act to include in an applicable form of
Registration Statement being filed pursuant to Section 2.2 hereof
audited financial statements, other than the Company's fiscal year-end
financial statements for its three full fiscal years (or such other
number of fiscal years as may then be ordinarily required under SEC
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<PAGE> 16
regulations for registration statements on Form S-1 or its equivalent)
immediately preceding the date of such filing (or, if fewer, the number
of fiscal years that have elapsed from the date of the Company's
inception through the date of such filing), together with any schedules
with respect to such financial statements as may be required to be
included in the registration statement, the Registration Period shall
be a period not to exceed one hundred and fifty (150) days.
(ii) Year End Filing. If the Registration Period (as defined in
Section 6.1(i)) would otherwise expire within one hundred and twenty
(120) days after the beginning of any fiscal year, then the Company
may, at its option, defer the filing of a Registration Statement
pursuant to Section 6.1(i) hereof to the closest subsequent date which
is not less than one hundred and twenty (120) days after the beginning
of a fiscal year.
(iii) Adverse Impact on the Company. If the Board of Directors of
the Company determines that the filing of a Registration Statement
pursuant to Section 2.2 would adversely affect the Company, the Company
may defer preparing and filing a Registration Statement with the SEC
for a period of up to one hundred and twenty (120) days after the date
filing would otherwise be required hereunder.
(iv) Notice of Deferral; Limitation. In the event of any deferral
of registration or other increase in the length of the Registration
Period pursuant to this Section 6.3, the Company will promptly give
written notice of such deferral, specifying the basis therefor and the
anticipated duration thereof, to each Significant Holder whose
Securities are covered by or included in such Registration Statement.
Notwithstanding the occurrence of any one or more of the events
described in this Section 6.3, and notwithstanding anything herein to
the contrary, the Registration Period shall not under any circumstances
exceed two hundred and ten (210) days.
ARTICLE 7.
MISCELLANEOUS
Section 7.1 Acknowledgment and Consent of Significant Holders. (a) Each
Significant Holder hereby acknowledges (i) its Registrable Securities have not
been registered under the Securities Act and (ii) its Registrable Securities may
not be disposed of unless such disposition is either registered under the
Securities Act or is exempt from registration under the Securities Act and other
applicable securities laws.
(b) Until registered under the Securities Act, all certificates
evidencing Shares shall bear a legend in the form substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES
THAT MAY BE ISSUED IN RESPECT OF OR IN EXCHANGE FOR SUCH
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES LAWS.
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<PAGE> 17
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A SHAREHOLDERS' AGREEMENT DATED AS OF ____________
__, 1997 AND MAY NOT BE TRANSFERRED, SOLD, HYPOTHECATED, PLEDGED,
ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED
UNLESS THE SAME IS REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT
THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION
REASONABLY SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG
OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY)."
Section 7.2 Remedies. Each Significant Holder of Registrable
Securities, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by the
Company of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
Section 7.3 Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of
Significant Holders of at least a majority of the Registrable Securities then
outstanding affected by such amendment, modification, supplement, waiver or
departure.
Section 7.4 Notices. All notices and other communications provided for
or permitted hereunder shall be made by hand-delivery or registered first-class
mail:
(i) if to a Significant Holder of Registrable Securities, at the most
current address, and with a copy to be sent to each additional address given by
such holder to the Company and the transfer agent for the Registrable
Securities; and
(ii) if to the Company, at:
IRI International Corporation
_____________________________
_____________________________
Attention: __________________
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<PAGE> 18
With a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: William F. Henze II
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered, or two business days
after being deposited in the mail, postage prepaid, if mailed.
Section 7.5 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 7.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 7.7 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Significant Holders shall be enforceable to the fullest extent permitted by law.
Section 7.8 Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
Section 7.9 Transfers. If an Initial Significant Holder transfers any
Registrable Securities to a Designated Transferee, such transferee receiving
Registrable Securities in such transfer shall be entitled to execute this
Agreement, and upon such execution, shall become, and thereafter shall have the
rights and obligations of, a Significant Holder hereunder.
Section 7.10 Counterparts. The Registration Rights Agreement may be
executed in counterparts, each of which shall be deemed an original but all of
which together shall be deemed to constitute one and the same agreement.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
IRI INTERNATIONAL
CORPORATION
By: _______________________________
Its:
ENERGY SERVICES
INTERNATIONAL LTD.
By: _______________________________
Name: _________________________
Title: ________________________
17
<PAGE> 1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of the ___ day
of ______________,199_, by and between IRI International Corporation, a
Delaware corporation (the "Company"), and _________________, a director and/or
officer of the Company (the "Indemnitee").
In consideration of the mutual agreements herein set forth, the Company
and the Indemnitee agree as follows:
1. Certain Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Change in Control" means the occurrence of any of the following
events:
(i) The Company is merged, consolidated or reorganized into or
with another corporation or other entity, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or entity immediately after such transaction are held in
the aggregate by the holders of Voting Stock immediately prior to such
transaction;
(ii) The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or other entity
and, as a result of such sale or transfer, less than a majority of the
combined voting power of the then-outstanding securities of such other
corporation or entity immediately after such sale or transfer is held
in the aggregate by the holders of Voting Stock immediately prior to
such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report or item therein), each as
promulgated pursuant to the Exchange Act, disclosing that any Person,
other than an Existing Shareholder, has become the beneficial owner (as
the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of
securities representing 15% or more of the combined voting power of the
Voting Stock; or
(iv) If, during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Board cease for
any reason to constitute at least a majority thereof; provided,
however, that for purposes of this clause (iv) each Director of the
Company who is first elected, or first nominated for election by the
Company's stockholders, by a vote of at least majority of the Directors
of the Company (or a committee of the Board) then still in office who
were Directors of the
<PAGE> 2
Company at the beginning of any such period shall be deemed to have
been a Director of the Company at the beginning of such period;
notwithstanding the provisions of clauses (iii) or (iv) above, unless otherwise
determined in a specific case by majority vote of the Board, a Change in Control
shall not be deemed to have occurred for purposes of such clauses (iii) or (iv)
solely because the Company, any Subsidiary or any employee stock ownership plan
or any other employee benefit plan of the Company or any Subsidiary either files
or becomes obligated to file a report or a proxy statement under or in response
to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act disclosing
beneficial ownership by it of shares of Voting Stock, whether in excess of 15%
or otherwise, or because the Company reports that a change in control of the
Company has occurred or will occur in the future by reason of such beneficial
ownership.
(c) "DGCL" means the General Corporation Law of the State of Delaware.
(d) "Disinterested Director" means a Director of the Company who is
not or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(f) "Existing Shareholder" shall mean any Person who is the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of securities
representing 15% or more of the combined voting power of the Voting Stock as of
the date hereof.
(g) "Expense Request" shall have the meaning ascribed thereto in
Section 4(e) hereof.
(h) "Indemnification Statement" means a sworn statement of request for
indemnification substantially in the form of Exhibit 1 attached hereto and made
a part hereof.
(i) "Independent Counsel" means a law firm or a member of a law firm
that neither at the time in question, nor in the five years immediately
preceding such time has been, retained to represent (i) the Company or the
Indemnitee in any matter material to either such party or (ii) any other party
to the Proceeding giving rise to a claim for indemnification under this
Agreement. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing under the law of the State of ___________, would be
precluded from representing either the Company or the Indemnitee in an action
to determine the Indemnitee's rights under this Agreement.
(j) "Person" means any "person" as used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act).
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<PAGE> 3
(k) "Proceeding" means any pending, threatened or completed
investigation, claim, action, suit or proceeding, whether civil, administrative,
investigative or criminal, and any appeals therefrom.
(l) "Subsidiary" means any entity in which the Company, directly or
indirectly, beneficially owns 50% or more of the voting securities.
(m) "Supporting Documentation" shall have the meaning ascribed thereto
in Section 4(a) hereof.
(n) "Undertaking" means a sworn statement of request for advancement
of expenses substantially in the form of Exhibit 2 attached hereto and made a
part hereof.
(o) "Voting Stock" means stock of the Company of any class or series
entitled to vote generally in the election of Directors.
2. Initial Indemnity. (a) The Company shall indemnify the Indemnitee
when he or she was or is involved in any manner (including without limitation as
a party or as a deponent or witness) or is threatened to be made so involved in
any Proceeding (other than a Proceeding by or in the name of the Company), by
reason of the fact that he or she is or was or had agreed to become a director
or officer of the Company, or is or was serving or had agreed to serve at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise or entity, or
by reason of any action alleged to have been taken or omitted in such capacity,
against any and all costs, charges and expenses, including without limitation
attorneys' and others' fees and expenses, actually incurred by the Indemnitee in
connection with the defense or settlement thereof or appeal therefrom if the
Indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or Proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent shall
not, of itself, adversely affect the right of the Indemnitee to indemnification
or create a presumption that the Indemnitee did not satisfy the foregoing
standard of conduct to the extent applicable thereto.
(b) The Company shall indemnify the Indemnitee when he or she was or
is involved in any manner (including without limitation as a party or as a
witness) or is threatened to be made so involved in any Proceeding by or in the
name of the Company to procure a judgment in its favor by reason of the fact
that he or she is or was or had agreed to become a director or officer of the
Company, or is or was serving or had agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or entity against any and
all costs, charges and expenses, including without limitation attorneys' and
others' fees and expenses, actually incurred by the Indemnitee in connection
with the defense or settlement thereof or any appeal therefrom if the Indemnitee
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which the Indemnitee shall have been adjudged to be liable to the Company unless
and only to the
3
<PAGE> 4
extent that the Court of Chancery or the court in which such Proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that the Indemnitee has been successful on the
merits or otherwise, including without limitation the dismissal of a Proceeding
without prejudice, in defense of any Proceeding referred to in Sections 2(a) or
2(b) hereof or in defense of any claim, issue or matter therein, he or she shall
be indemnified against any and all costs, charges and expenses, including
without limitation attorneys' and others' fees and expenses, actually incurred
by him in connection therewith.
(d) Any indemnification under Sections 2(a) or 2(b) (unless ordered by
a court) shall be made by the Company only as authorized in the specific case
upon a determination in accordance with Section 4 hereof or any applicable
provision of the Certificate of Incorporation of the Company (the "Certificate
of Incorporation"), By-Laws of the Company (the "Bylaws"), other agreement,
resolution or otherwise.
(e) Any and all costs, charges and expenses, including without
limitation attorneys' and others' fees and expenses, incurred by the Indemnitee
in his or her capacity as a director or officer of the Company in defending a
Proceeding shall be paid by the Company in advance of the final disposition of
such Proceeding in the manner prescribed by Section 4(e) hereof.
(f) Notwithstanding anything in this Agreement to the contrary, the
Indemnitee shall not be entitled to indemnification pursuant hereto in
connection with any Proceeding initiated by the Indemnitee against the Company
or any director or officer of the Company (except for any Proceeding initiated
by the Indemnitee pursuant to Section 6 hereof) unless the Company has joined in
or consented to the initiation of such Proceeding.
(g) The provisions of this Section 2 shall not affect the rights or
obligations of the parties under Section 3 hereof.
3. Additional Indemnification. (a) Pursuant to Section 145(f) of the
DGCL, without limiting any right which the Indemnitee may have pursuant to
Section 2 hereof, the Certificate of Incorporation, the By-Laws, the DGCL, any
policy of insurance or otherwise, but subject to the limitations set forth in
Section 2(f) hereof and to any maximum permissible indemnity which may exist
under applicable law at the time of any request for indemnity hereunder
determined as contemplated by this Section 3(a), the Company shall indemnify the
Indemnitee against any amount which he or she is or becomes legally obligated to
pay relating to or arising out of any claim made against the Indemnitee because
of any act, failure to act or neglect or breach of duty, including any actual or
alleged error, misstatement or misleading statement, which he or she commits,
suffers, permits or acquiesces in while acting in his or her capacity as a
director and/or officer of the Company, or, at the request of the Company, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or entity. The payments which the Company is
obligated to make pursuant to this Section 3 shall include without limitation
4
<PAGE> 5
damages, judgments, settlements and charges, costs, expenses, expenses of
investigation and expenses of defense of Proceedings, and expenses of appeal,
attachment or similar bonds; provided, however, that the Company shall not be
obligated under this Section 3(a) to make any payment in connection with any
claim against the Indemnitee:
(i) to the extent of any fine or similar governmental imposition
which the Company is prohibited by applicable law from paying which
results in a final, nonappealable order; or
(ii) to the extent based upon or attributable to the Indemnitee
gaining in fact a personal profit to which he or she was not legally
entitled, including without limitation profits made from the purchase
and sale by the Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section 16(b) of the
Exchange Act and profits arising from transactions in publicly traded
securities of the Company which were effected by the Indemnitee in
violation of Section 10(b) of the Exchange Act, including Rule l0b-5
promulgated thereunder. The determination of whether the Indemnitee
shall be entitled to indemnification under this Section 3(a) may be,
but shall not be required to be, made in accordance with Section 4
hereof. If that determination is so made, it shall be binding upon the
Company and the Indemnitee for all purposes.
(b) Expenses, including without limitation attorneys' and others' fees
and expenses, incurred by Indemnitee in connection with any claim for which the
Indemnitee may be entitled to indemnification pursuant to Section 3(a) hereof
shall be paid by the Company in advance of the final disposition thereof as
authorized in accordance with Section 4(e) hereof.
4. Certain Procedures Relating to Indemnification and Advancement of
Expenses. (a) Except as otherwise permitted or required by the DGCL, for
purposes of pursuing his or her rights to indemnification under Sections 2(a),
2(b) or 3(a) hereof, as the case may be, the Indemnitee, may, but shall not be
required to, submit an Indemnification Statement to the Company, to the
attention of the Secretary, stating that he or she is entitled to
indemnification hereunder, together with such documents supporting the request
as are reasonably available to the Indemnitee and are reasonably necessary to
determine whether and to what extent the Indemnitee is entitled to
indemnification hereunder (the "Supporting Documentation"). The Company shall
promptly upon receipt of any Indemnification Statement advise the Board in
writing that the Indemnitee has requested indemnification.
(b) The Indemnitee's entitlement to indemnification under Sections
2(a), 2(b) or 3(a), as the case may be, shall be determined not less than 30
calendar days after receipt by the Company of an Indemnification Statement and
Supporting Documentation and shall be made in one of the following ways: (i) by
a majority vote of the Disinterested Directors, if they constitute a quorum of
the Board, or, in the case of an Indemnitee that is not a present or former
officer of the Company, by any committee of the Board or committee of officers
or agents of the Company designated for such purpose by a majority of the Board;
(ii) by a written opinion of Independent Counsel if (A) a Change of Control has
occurred and the Indemnitee so requests or (B) in the case of an Indemnitee that
is a present or former officer of the Company, a quorum of the Board consisting
of Disinterested Directors is not
5
<PAGE> 6
obtainable or, even if obtainable, a majority of such Disinterested Directors so
directs; (iii) by the stockholders of the Company (but only if a majority of the
Disinterested Directors, if they constitute a quorum of the Board, presents the
issue of entitlement to indemnification to the stockholders of the Company for
their determination); or (iv) as deemed to have been determined in accordance
with Section 4(c) hereof. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to clause (ii)
above, a majority of the Disinterested Directors shall select the Independent
Counsel, but only an Independent Counsel to which the Indemnitee does not
reasonably object; provided, however, that if a Change of Control has occurred,
the Indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which the Board does not reasonably object.
(c) Submission of an Indemnification Statement and Supporting
Documentation to the Company pursuant to Section 4(b) hereof shall create a
presumption that the Indemnitee is entitled to indemnification under Sections
2(a), 2(b) or 3(a) hereof, as the case may be, and thereafter the Company shall
have the burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the Person empowered under Section 4(b) hereof
to determine the Indemnitee's entitlement to indemnification has not been
appointed or has not made a determination within 30 calendar days after receipt
by the Company of such Indemnification Statement and Supporting Documentation,
the Indemnitee shall be deemed to be entitled to indemnification unless within
such 30-calendar day period the Person empowered under Section 4(b) hereof to
determine entitlement to indemnification has made a determination, based upon
clear and convincing evidence (sufficient to rebut the foregoing presumption),
that the Indemnitee is not entitled to such indemnification and the Indemnitee
shall have received notice within such period in writing of such determination,
which notice shall (i) disclose with particularity the evidence in support of
such determination and (ii) be sworn to by all Persons who participated in the
determination and voted to deny indemnification. The provisions of this Section
4(c) are intended to be procedural only and shall not affect the right of the
Indemnitee to indemnification under this Agreement and any determination that
the Indemnitee is not entitled to indemnification and any failure to make the
payments requested in the Indemnification Statement shall be subject to review
as provided in Section 6 hereof.
(d) If a determination is made or deemed to have been made pursuant to
this Section 4 that the Indemnitee is entitled to indemnification, the Company
shall pay to the Indemnitee the amounts to which the Indemnitee is entitled
within two business days after such determination of entitlement to
indemnification has been made or deemed to have been made.
(e) For purposes of determining whether to authorize advancement of
expenses pursuant to Section 2(e) hereof, the Indemnitee shall submit an
Undertaking to the Company, stating that (i) he or she has incurred or will
incur actual expenses in defending a Proceeding and (ii) if and to the extent
required by law at the time of such advance, he or she undertakes to repay such
amounts advanced as to which it may ultimately be determined that the Indemnitee
is not entitled. For purposes of requesting advancement of expenses pursuant to
Section 3(b) hereof, the Indemnitee may, but shall not be required to, submit an
Undertaking or such other form of request as he or she determines to be
appropriate (an "Expense Request"). Upon receipt of an Undertaking or Expense
Request, as the case may be, the
6
<PAGE> 7
Company shall within 30 calendar days make payment of the expenses stated in the
Undertaking or Expense Request. No security shall be required in connection with
any Undertaking or Expense Request and any Undertaking or Expense Request shall
be accepted without reference to the Indemnitee's ability to make repayment.
5. Subrogation; Duplication of Payments. (a) In the event of payment
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against the Indemnitee to the extent
the Indemnitee has actually received payment (under any insurance policy, the
Certificate of Incorporation, the By-Laws or otherwise) of the amounts otherwise
payable hereunder.
6. Enforcement. (a) If a claim for indemnification or advancement of
expenses made to the Company pursuant to Section 4 hereof is not timely paid in
full by the Company as required by Section 4 hereof, the Indemnitee shall be
entitled to seek judicial enforcement of the Company's obligations to make such
payment. In the event that a determination is made pursuant to Section 4(c)
hereof that the Indemnitee is not entitled to indemnification hereunder, (i) the
Indemnitee may at any time thereafter seek an adjudication of his or her
entitlement to such indemnification or advancement either, at the Indemnitee's
sole option, in (A) an appropriate court of the State of Delaware or any other
court of competent jurisdiction or (B) an arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association;
(ii) any such judicial proceeding or arbitration shall be de novo and the
Indemnitee shall not be prejudiced by reason of such adverse determination; and
(iii) in any such judicial proceeding or arbitration the Company shall have the
burden of proving that the Indemnitee is not entitled to indemnification under
this Agreement.
(b) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to the provisions of Section 6(a)
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
(c) In any action brought under Section 6(a) hereof, it shall be a
defense to a claim for indemnification pursuant to Sections 2(a) or 2(b) hereof
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the
Undertaking, if any is required, has been tendered to the Company) that the
Indemnitee has not met the standards of conduct which make it permissible under
the DGCL for the Company to indemnify the Indemnitee for the amount claimed, but
the burden of proving such defense shall be on the Company. Neither the failure
of the Company (including any Person empowered under Section 4(b) hereof to
determine the Indemnitee's entitlement to indemnification) to have made a
determination prior to commencement of such action that indemnification of the
Indemnitee is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the
7
<PAGE> 8
DGCL, nor an actual determination by the Company (including any person or
persons empowered under Section 4(b) hereof to determine the Indemnitee's
entitlement to indemnification) that the Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct.
(d) It is the intent of the Company that the Indemnitee not be
required to incur the expenses associated with the enforcement of his or her
rights under this Agreement by litigation or other legal action because the cost
and expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder. Accordingly, if it should appear to the
Indemnitee that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
any action to declare this Agreement void or unenforceable, or institutes any
action, suit or proceeding designed (or having the effect of being designed) to
deny, or to recover from, the Indemnitee the benefits intended to be provided to
the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from
time to time to retain counsel of his or her choice, at the expense of the
Company as hereafter provided, to represent the Indemnitee in connection with
the initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, stockholder or other Person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges and expenses, including without limitation attorneys' and others' fees
and expenses, incurred by the Indemnitee (i) as a result of the Company's
failure to perform this Agreement or any provision thereof or (ii) as a result
of the Company or any Person contesting the validity or enforceability of this
Agreement or any provision thereof as aforesaid.
7. Liability Insurance and Funding. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, the Indemnitee shall be covered by such policy or policies,
in accordance with its or their terms, to the maximum extent of the coverage
available for any Director or officer of the Company. The Company may, but shall
not be required to, create a trust fund, grant a security interest or use other
means (including without limitation a letter of credit) to ensure the payment of
such amounts as may be necessary to satisfy its obligations to indemnify and
advance expenses pursuant to this Agreement.
8. Merger or Consolidation. In the event that the Company shall be a
constituent corporation in a merger, consolidation or other reorganization, the
Company shall require as a condition thereto, (a) if it shall not be the
surviving, resulting or other corporation therein, the surviving, resulting or
acquiring corporation to agree to indemnify the Indemnitee to the full extent
provided herein, and (b) whether or not the Company is the surviving, resulting
or acquiring corporation therein, the Indemnitee shall also stand in the same
position under this Agreement with respect to the surviving, resulting or
acquiring corporation as he or she would have with respect to the Company if its
separate existence had continued.
9. Nonexclusivity and Severability. (a) The right to indemnification
and advancement of expenses provided by this Agreement shall not be exclusive of
any other rights to which the Indemnitee may be entitled under the Certificate
of Incorporation,
8
<PAGE> 9
By-Laws, the DGCL, any other statute, insurance policy, agreement, vote of
stockholders of the Company or of the Board or otherwise, both as to actions in
his or her official capacity and as to actions in another capacity while holding
such office, and shall continue after the Indemnitee has ceased to be a
director, officer, employee or agent of the Company and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that to the extent the Indemnitee otherwise would have any greater right to
indemnification and/or advancement of expenses under any provision of the
Certificate of Incorporation or the By-Laws as in effect on the date hereof, the
Indemnitee shall be deemed to have such greater right pursuant to this
Agreement; and, provided further, that to the extent that any change is made to
the DGCL (whether by legislative action or judicial decision), the Certificate
of Incorporation and/or the By-Laws that permits any greater right to
indemnification and/or advancement of expenses than that provided under this
Agreement as of the date hereof, the Indemnitee shall be deemed to have such
greater right pursuant to this Agreement.
(b) The Company shall not adopt any amendment to the Certificate of
Incorporation or By-Laws the effect of which would be to deny, diminish or
encumber the Indemnitee's rights to indemnity pursuant to the Certificate of
Incorporation, By-Laws, the DGCL or any other applicable law as applied to any
act or failure to act occurring in whole or in part prior to the date upon which
the amendment was approved by the Board or the Company's stockholders, as the
case may be. Notwithstanding the foregoing, in the event that the Company shall
adopt any amendment to the Certificate of Incorporation or By-Laws the effect of
which is to so deny, diminish or encumber the Indemnitee's rights to such
indemnity, such amendment shall apply only to acts or failures to act occurring
entirely after the effective date thereof.
(c) If any provision or provisions of this Agreement are held to be
invalid, illegal or unenforceable for any reason whatsoever: (i) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal, or unenforceable,
that are not themselves invalid, illegal, or unenforceable) shall not in any way
be affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Agreement (including without limitation all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflict of laws thereof.
11. Modification; Survival. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
may be modified only by an instrument in writing signed by both parties hereto.
The provisions of this Agreement shall survive the death, disability or
incapacity of the Indemnitee or the termination of the Indemnitee's service as a
director of the Company and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators.
9
<PAGE> 10
12. Certain Interpretations. For purposes of this Agreement, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on Indemnitee with respect to
any employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee or agent of
the Company which imposes duties on, or involves services by, the Indemnitee
with respect to an employee benefit plan, its participants or beneficiaries;
references to the masculine shall include the feminine; references to the
singular shall include the plural and vice versa; and if the Indemnitee acted in
good faith and in a manner he or she reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan he or she
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to herein.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
IRI INTERNATIONAL CORPORATION
By__________________________________
[Name]
[Title]
[INDEMNITEE]
____________________________________
[Name]
11
<PAGE> 12
Exhibit 1
INDEMNIFICATION STATEMENT
STATE OF _________________)
) SS
COUNTY OF ________________)
I, ____________________ , being first duly sworn, do depose and say as
follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of ________________, 19 __, between
______________ (the Company"), a Delaware corporation, and the undersigned.
2. I am requesting indemnification against charges, costs, expenses,
including without limitation attorneys' and others' fees and expenses,
judgments, fines and amounts paid in settlement, all of which (collectively,
"Liabilities") have been or will be incurred by me in connection with an actual
or threatened action, suit, proceeding or claim to which I am a party or am
threatened to be made a party.
3. With respect to all matters related to any such action, suit,
proceeding or claim, I am entitled to be indemnified as herein contemplated
pursuant to the aforesaid Indemnification Agreement.
12
<PAGE> 13
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of
________________________________________________________________________________
___________________________________________.
____________________
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this day of , 19 .
____________________
[Seal]
My commission expires the ______ day
of _____________, 19____.
13
<PAGE> 14
Exhibit 2
UNDERTAKING
STATE OF _________________)
) SS
COUNTY OF ________________)
I, ____________________ , being first duly sworn, do depose and say as
follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated as of ________________, 199_, between _________________, (the
"Company"), a Delaware corporation, and the undersigned.
2. I am requesting advancement of certain costs, charges and expenses
which I have incurred or will incur in defending an actual or pending civil or
criminal action, suit, proceeding or claim.
3. I hereby undertake to repay this advancement of expenses if it
shall ultimately be determined that I am not entitled to be indemnified by the
Company under the aforesaid Indemnification Agreement or otherwise.
4. The costs, charges and expenses for which advancement is requested
are, in general, all expenses related to _______________________________________
________________________________________________________________________________
______________________________.
____________________
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this day of , 19 .
____________________
[Seal]
My commission expires the _____ day of _______________, 19__.
14
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of April 17, 1997, is
made and entered into by and between Cardwell International Ltd., a Kansas
corporation (the "Company"), and A.C. Teichgraeber (the "Executive") and joined
in to the extent set forth in the Joinder below by IRI International
Corporation, a Delaware corporation ("IRI").
RECITALS
A. The Company desires to retain the services of the Executive as a
senior executive of the Company;
B. Concurrently herewith, the Company, the Executive, IRI and certain
other parties have entered into an Acquisition Agreement (the "Acquisition
Agreement") pursuant to which, among other things, (1) IRI will acquire all of
the issued and outstanding shares of the Company, and (2) the Executive will
sell (or cause entities controlled by him to sell) certain property to IRI for
cash, subject to the terms and conditions of such Acquisition Agreement; and
C. The Executive desires to continue to provide his services to the
Company on the terms and conditions herein provided.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere herein, the
following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) " AFFILIATE" means IRI and any entity controlling, controlled
by or under common control with, IRI.
(b) "BASE PAY" means the salary provided for in Section 4(a), as
such amount may be adjusted hereunder.
(c) "BOARD" means the Board of Directors of the Company or an
authorized committee thereof.
(d) "CAUSE" means that the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with the
Company or any Affiliate;
(ii) any intentional wrongful damage to property of the
Company or any Affiliate;
<PAGE> 2
(iii) intentional Unauthorized Disclosure, Use or Solicitation;
(iv) intentional wrongful engagement in any Competitive
Activity; or
(v) any violation of IRI's ethics policy, a copy of which is
attached hereto;
and any such act shall have been materially harmful to the Company or any
Affiliate.
(e) "CHANGE IN CONTROL" means the occurrence of any event that
causes any person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) other than Energy Services International Limited, a Delaware corporation,
or any of its Affiliates, individually or in the aggregate, to become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 50% or more of the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors of IRI.
(f) "COMPETITIVE ACTIVITY" means any act by the Executive that is
prohibited under Section 6(a).
(g) "DISABILITY" means the Executive's inability, as a result of
mental or physical illness, injury or disease, substantially to perform his
material duties and responsibilities under this Agreement for a period of 180
consecutive calendar days within any 12-month period.
(h) "GOOD REASON" means that, during the Term of Employment, the
Company shall have (i) assigned to the Executive any duties or responsibilities
materially inconsistent with his position and title or otherwise breached any
material provision of this Agreement, and (ii) failed to correct such condition
promptly after receipt by the Board of written notice from the Executive
requesting correction.
(i) "TERM OF EMPLOYMENT" means the period specified in Section 2.
(j) "UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION" means any
violation or breach by the Executive of any provision of Section 7.
2. TERM OF EMPLOYMENT. The Company hereby continues the employment of
the Executive and the Executive hereby accepts such continued employment,
effective as of April 17, 1997 and ending on April 16, 2002. The Executive will
devote his full time and attention to the business and affairs of the Company
and its Affiliates (excluding reasonable amounts of time devoted to
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<PAGE> 3
charitable purposes, other investments and periods in which he is physically or
mentally ill, injured or otherwise disabled).
3. TITLE, DUTIES AND RESPONSIBILITIES. During the Term of Employment,
the Executive will (a) have the title of President of the Cardwell Division, (b)
have and perform such duties and responsibilities substantially similar to those
that the Executive had and performed prior to the date of this Agreement and
such other duties and responsibilities as may be assigned to him from time to
time by the Board, and (c) report directly to the Board. The Executive shall be
invited to join the Board of Directors of IRI.
4. COMPENSATION AND BENEFITS. (a) BASE PAY. During the Term of
Employment, the Executive will receive Base Pay of $250,000 per year, subject to
review by the Company for increases (but not decreases) at the end of each
fiscal year during the Term of Employment. Such Base Pay will be payable by the
Company in accordance with its regular compensation practices and policies
applicable to senior executives of the Company, which practices and policies
shall be substantially similar to the practices and policies of IRI applicable
to senior executives of IRI.
(b) ANNUAL PERFORMANCE BONUS. For each fiscal year of the Company
during the Term of Employment, commencing with the fiscal year ending March 31,
1998, the Executive will be eligible to receive an annual performance bonus of
up to $600,000, which bonus, if any, shall be determined by the Company, in its
sole discretion. Such bonus, if any, will be payable by the Company in cash in
accordance with its regular compensation practices and policies applicable to
its senior executives, which practices and policies shall be substantially
similar to the practices and policies of IRI applicable to senior executives of
IRI.
(c) SPECIAL BONUS. If a Change in Control occurs during the Term of
Employment and while the Executive is still employed hereunder, the Executive
may be eligible to receive a special change in control bonus, which bonus, if
any, shall be determined by the Company, in its sole discretion. Such bonus, if
any, will be payable by the Company in cash in accordance with its regular
compensation practices and policies applicable to its senior executives, which
practices and policies shall be substantially similar to the practices and
policies of IRI applicable to senior executives of IRI.
(d) EMPLOYEE BENEFITS. During the Term of Employment, the Executive
will be entitled to (i) participate in all employee benefit plans, programs,
policies and arrangements sponsored, maintained or contributed to by the
Company, subject to and in accordance with the terms and conditions of such
plans, programs, policies and arrangements as they relate to similarly situated
senior executives of the Company, which plans, programs, policies and
arrangements shall be substantially similar to those of IRI
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<PAGE> 4
applicable to senior executives of IRI, and (ii) receive all other benefits and
perquisites provided or made available by the Company to its senior executives,
subject to and in accordance with the terms and conditions of such benefits and
perquisites as they relate to senior executives of the Company, which other
benefits and perquisites shall be substantially similar to those of IRI
applicable to senior executives of IRI.
(e) EXPENSES. During the Term of Employment, the Executive will be
entitled to reimbursement of all documented reasonable travel and entertainment
expenses incurred by him on behalf of the Company in the course of the
performance of his duties hereunder, subject to and in accordance with the terms
and conditions of the Company's expense reimbursement policies as they relate to
senior executives of the Company, which terms and conditions shall be
substantially similar to those of IRI applicable to senior executives of IRI.
(f) VACATION. During the Term of Employment, the Executive will be
entitled to vacation, in addition to paid public holidays as observed by the
Company from year to year, subject to and in conformity with the Company's
regular compensation practices and policies as they relate to its senior
executives, which vacation practices and policies shall be substantially similar
to those of IRI applicable to senior executives of IRI.
(g) OTHER AGREEMENTS. The rights and obligations of the parties
under the Acquisition Agreement will be governed by the terms and conditions of
each such agreement and will not be enlarged or affected hereby.
5. TERMINATION OF EMPLOYMENT. Subject to the provisions of this
Section 5, the Executive's employment hereunder will be for the Term of
Employment specified in Section 2.
(a) TERMINATION FOR ANY REASON OTHER THAN GOOD REASON OR
TERMINATION FOR CAUSE. The Company may, with or without notice, terminate the
Executive's employment hereunder for Cause. If the Executive's employment is
terminated effective during the Term of Employment by the Executive for any
reason other than Good Reason or by the Company for Cause, the Executive will
thereupon no longer be entitled to any compensation or benefits provided herein,
and nothing herein will limit the Company's rights against the Executive or the
rights and obligations of the parties under Sections 6 and 7.
(b) TERMINATION FOR ANY REASON OTHER THAN CAUSE OR DISABILITY. The
Company may terminate the Executive's employment hereunder for any reason or for
no reason. If the Executive's employment is terminated effective during the Term
of Employment by the Executive for Good Reason or by the Company for any reason
other than Cause or the Executive's Disability, the Executive will be entitled
to receive payments equal to his Base Pay (at
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<PAGE> 5
the rate in effect on the effective date of his termination of employment) for
the remainder of the Term of Employment, payable in a single lump sum on the
effective date of such termination in accordance with the Company's regular
compensation practices and policies applicable to senior executives of the
Company, which practices and policies shall be substantially similar to those of
IRI applicable to senior executives of IRI.
(c) DEATH OR DISABILITY. If the Executive's employment is
terminated effective during the Term of Employment as a result of his death or
by the Company as a result of his Disability, the Executive (or, in the event of
his death, his designated beneficiary) will be entitled to receive payments
equal to his Base Pay (at the rate in effect on the effective date of his
termination of employment) for a period of six (6) months following such
effective date, payable in accordance with the Company's regular compensation
practices and policies applicable to senior executives, which practices and
policies shall be substantially similar to those of IRI applicable to senior
executives of IRI, but less any amounts paid to the Executive under any
long-term disability plan, program, policy or arrangement of the Company or any
Affiliate.
(d) COMPENSATION AND BENEFITS ON TERMINATION. Except as otherwise
provided in Section 5(b) and (c), all compensation and benefits payable to the
Executive pursuant to Section 4 (other than compensation and benefits previously
earned and, if applicable, vested under the terms of this Agreement or any other
applicable employee benefit plan, program, policy, arrangement or agreement)
will terminate as of the effective date of the Executive's termination of
employment, and the Executive hereby waives any claims for damages arising in
connection with his termination of employment pursuant to this Agreement.
6. COMPETITIVE ACTIVITY. (a) During the period ending on the later of
(i) the effective date of the Executive's termination of employment, and (ii)
the last day of the Term of Employment, the Executive will not:
(i) enter into or engage in any business which competes with
the business of the Company or any Affiliate within the
Restricted Territory (as defined below); or
(ii) solicit customers, business patronage or orders for, or
sell, any product or products, or service or services,
in competition with, or for any business, wherever
located, that competes with the business of the Company
or any Affiliate within the Restricted Territory; or
(iii) divert, entice or otherwise take away any customers,
business or patronage or orders of
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<PAGE> 6
the Company or any Affiliate within the Restricted
Territory, or attempt to do so; or
(iv) promote or assist, financially or otherwise, any firm,
person, association, partnership, corporation or other
entity engaged in any business which competes with the
business of the Company or any Affiliate within the
Restricted Territory.
(b) For the purposes of this Section 6, the Restricted Territory
will be defined as and limited to:
(i) the geographic areas within a 50 mile radius of any and
all Company and/or Affiliate locations in, to or for
which the Executive worked, was assigned or had any
responsibility (either direct or supervisory) at the
time of the termination of his employment or at any time
during the two year period prior to such termination;
(ii) any customer, whether within or outside of the
geographic area described in paragraph (i) above, for or
to which the Executive worked, was assigned or had any
direct responsibility at the time of the termination of
his employment or at any time during the two year period
prior to such termination; or
(iii) the following pipe, threading, drilling and/or equipment
companies and their subsidiaries and affiliates, whether
within or outside of the geographic area described in
paragraph (i) above: Dreco, Inc.; National-Oilwell L.P.;
and Continental Emsco Co.
7. UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. (a) The Executive
will keep in strict confidence, and will not, directly or indirectly, at any
time during or after his employment with the Company, disclose, furnish,
disseminate, make available or, except in the course of performing his duties of
employment hereunder, use any trade secrets or confidential business and
technical information of the Company or its customers, vendors, employees or
Affiliates, without limitation as to when or how Executive may have acquired
such information. Such confidential information will include, without
limitation, the Company's products, designs, processes, methods and techniques,
management, training, marketing and selling manuals, promotional materials,
training courses and other training and instructional materials, vendor, product
and service information, customer lists, other customer information and other
trade information. Executive specifically acknowledges that all such
confidential information
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<PAGE> 7
including, without limitation, customer lists, other customer information and
other trade information, whether reduced to writing, maintained on any form of
electronic media, or maintained in the mind or memory of Executive and whether
compiled by the Company, any Affiliate and/or Executive, derives independent
economic value from not being readily known to or ascertainable by proper means
by others who can obtain economic value from its disclosure or use, that
reasonable efforts have been made by the Company and its Affiliates to maintain
the secrecy of such information, that such information is the sole property of
the Company and that any retention and use of such information by Executive
during his employment with the Company (except in the course of performing his
duties and obligations hereunder) or after the termination of his employment
will constitute a misappropriation of the trade secrets of the Company or any
Affiliate.
(b) Executive agrees that upon termination of Executive's
employment with the Company, for any reason, Executive will return to the
Company, in good condition, all property of the Company, including without
limitation, the originals and all copies of all product, design, process,
management, training, marketing and selling manuals, promotional materials,
other training and instructional materials, vendor, product and service
information, customer lists, other customer information and all other selling,
service and trade information and equipment. In the event that such items are
not so returned, the Company will have the right to charge Executive for all
reasonable damages, costs, attorneys' fees and other expenses incurred in
searching for, taking, removing and/or recovering such property.
(c) Executive acknowledges that to the extent permitted by law, all
work papers, reports, documentation, drawing, photographs, negatives, tapes and
masters therefor, prototypes and other materials (hereinafter, "items"),
including, without limitation, any and all such items generated and maintained
on any form of electronic media, generated by Executive during his employment
with the Company will be considered a "work made for hire" and that ownership of
any and all copyrights in any and all such items will belong to the Company
(other than any such items generated by the Executive solely for Cardwell
Concrete Systems, Inc.). The item will recognize the Company as the copyright
owner, will contain all proper copyright notices, e.g., "(year of creation)
Cardwell International Ltd. All rights reserved," and will be in condition to be
registered or otherwise placed in compliance with registration or other
statutory requirements throughout the world.
(d) Executive hereby assigns and agrees to assign to the Company,
its successors, assigns or nominees, all of his rights to any discoveries,
inventions and improvements, whether patentable or not, made, conceived or
suggested, either solely or
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<PAGE> 8
jointly with others, by Executive while in the Company's employ, whether or not
made, conceived or suggested in the course of his employment with the use of the
Company's time, materials or facilities or in any way within or related to the
existing or contemplated scope of the Company's business (other than any
discoveries, inventions or improvements made, conceived or suggested by
Executive while in the employ or service of Cardwell Concrete Systems, Inc.).
Any discovery, invention or improvement relating to any subject matter with
which the Company was concerned during Executive's employment and made,
conceived or suggested by Executive, either solely or jointly with others,
within one year following termination of Executive's employment under this
Agreement or any successor agreements will be irrebuttably presumed to have been
so made, conceived or suggested in the course of such employment with the use of
the Company's time, materials or facilities. Upon request by the Company with
respect to any such discoveries, inventions or improvements, Executive will
execute and deliver to the Company, at any time during or after his employment,
all appropriate documents for use in applying for, obtaining and maintaining
such domestic and foreign patents as the Company may desire, and all proper
assignments therefor, when so requested, at the expense of the Company, but
without further or additional consideration.
(e) Executive may use the Company's trade names, trademarks and/or
service marks in connection with the sale of the Company's products and
services, but only in such manner and for such purposes as may be authorized by
the Company. Upon any termination of this Agreement, Executive immediately will
cease the use of such trade names, trademarks and/or service marks and eliminate
them wherever they have been used or incorporated by Executive.
(f) During the period ending on the later of (i) the effective date
of the Executive's termination of employment, and (ii) the last day of the Term
of Employment, the Executive will not directly or indirectly solicit or endeavor
to cause any employee of the Company or any Affiliate to leave his employment or
induce or attempt to induce any such employee to breach any employment agreement
with the Company or any Affiliate or otherwise interfere with the employment of
any such employee, other than in the course of performing his duties and
obligations hereunder.
8. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company,
- 8 -
<PAGE> 9
including without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor will
thereafter be deemed the "Company" for the purposes of this Agreement), but will
not otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 8(a) and (b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder will not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any attempted assignment
or transfer contrary to this Section 8(c), the Company will have no liability to
pay any amount so attempted to be assigned, transferred or delegated.
9. ADDITIONAL REMEDIES. Notwithstanding any other remedy herein
provided for or available, if the Executive should be in breach of any of the
provisions of Section 6 or 7, the Executive expressly acknowledges and agrees
that the Company will be entitled to injunctive relief or specific performance,
without the necessity of proving damages, in addition to any other remedies it
may have.
10. REPRESENTATION. Each party represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person or entity.
11. SEVERABILITY. In the event that any provision or portion of this
Agreement is determined to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
12. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five
- 9 -
<PAGE> 10
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three business days after
having been sent by a nationally recognized overnight courier service such as
Federal Express or UPS, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his principal residence (with a copy to any counsel designated by the
Executive), or to such other address as any party may have furnished to the
other in writing and in accordance herewith, except that notices of changes of
address will be effective only upon receipt.
13. DISCLOSURE. During the Term of Employment and for one year
thereafter, Executive will communicate the contents of this Agreement to any
person, firm, association, partnership, corporation or other entity which he or
she intends to be employed by, associated with, or represent and which is
engaged in a business that is competitive to the business of the Company.
14. MODIFICATIONS AND WAIVERS. No provision of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board and is agreed to in writing, signed by the Executive and by an officer
of the Company duly authorized by the Board. No waiver by either party hereto of
any breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to its subject matter, except
as such parties may otherwise agree in a writing which specifies that it is an
exception to the foregoing. This Agreement supersedes all prior agreements
between the parties hereto with respect to its subject matter and,
notwithstanding any other provision hereof, will become effective upon the
execution of this Agreement by the parties.
16. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Kansas, without giving effect to the
principles of conflict of laws of such State.
17. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
18. HEADINGS, ETC. The section headings contained in this Agreement are
for convenience of reference only and will not be deemed to control or affect
the meaning or construction of any provision of this Agreement. References to
Sections are to Sections in this Agreement.
- 10 -
<PAGE> 11
19. ARBITRATION; EXCLUSIVE REMEDY. Any and all claims, disputes or
controversies involving the Executive and the Company arising under or in
connection with this Agreement (except those arising under Sections 6 and 7
hereof) which cannot be resolved amicably by the Company and the Executive shall
be submitted to and finally settled by arbitration as provided in this Section
19. There shall be one arbitrator who shall be selected from a list of five
arbitrators who are experienced in the oil field servicing and drilling
manufacturing industries, two of whom shall be chosen by the Company, two of
whom shall be chosen by the Executive and one of whom shall be chosen by the
American Arbitration Association. The arbitrator shall be selected from this
list pursuant to the following procedure: the Executive and the Company shall
each alternately strike one person's name off the list until there is only one
person's name remaining, which person shall be the arbitrator. The location of
any such arbitration proceedings shall be in the city where the arbitrator's
office is located, and such proceedings shall be conducted in accordance with
the Arbitration Rules of the American Arbitration Association currently in
effect unless the Executive and the Company mutually agree otherwise. The award
rendered by the arbitrator shall be final. An action or proceeding to enforce
such award may be brought in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Cardwell International Ltd.
By: ____________________________________
Its: ______________________________
_________________________________________
A.C. Teichgraeber
- 11 -
<PAGE> 12
JOINDER
IRI hereby unconditionally and absolutely guarantees the due and
punctual performance by the Company of its payment obligations under this
Agreement. IRI hereby represents and warrants to the Executive that it is
authorized and empowered to enter into this guarantee and that the performance
of its obligations under this guarantee will not violate any agreement between
it and any other person or entity.
IRI INTERNATIONAL CORPORATION
By:_____________________________
Name: Munawar H. Hidayatallah
Title: Executive President -
Corporate Development
- 12 -
<PAGE> 1
================================================================================
CREDIT AGREEMENT
AMONG
ENERGY SERVICES INTERNATIONAL LTD.,
IRI INTERNATIONAL CORPORATION,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO,
CREDIT LYONNAIS NEW YORK BRANCH,
AS ADMINISTRATIVE AGENT
AND
LEHMAN COMMERCIAL PAPER INC.,
AS ADVISOR, ARRANGER AND SYNDICATION AGENT
DATED AS OF MARCH 31, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
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SECTION 1. DEFINITIONS.................................................. 2
1.1 Defined Terms................................................ 2
1.2 Other Definitional Provisions................................ 23
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................. 23
2.1 Tranche A Term Loans......................................... 23
2.2 Procedure for Tranche A Term Loan Borrowing.................. 23
2.3 Tranche B Term Loans......................................... 24
2.4 Procedure for Tranche B Term Loan Borrowing.................. 24
2.5 Revolving Credit Commitments................................. 25
2.6 Procedure for Revolving Credit Borrowing..................... 25
2.7 Commitment Fees, etc. ....................................... 26
2.8 Repayment of Loans; Evidence of Debt......................... 26
2.9 Optional Termination or Reduction of Commitments............. 27
2.10 Optional Prepayments......................................... 28
2.11 Mandatory Prepayments and Commitment Reductions.............. 28
2.12 Conversion and Continuation Options.......................... 30
2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches.... 31
2.14 Interest Rates and Payment Dates............................. 31
2.15 Computation of Interest and Fees............................. 31
2.16 Inability to Determine Interest Rate......................... 32
2.17 Pro Rata Treatment and Payments; Use of Proceeds............. 32
2.18 Illegality................................................... 33
2.19 Requirements of Law.......................................... 34
2.20 Taxes........................................................ 35
2.21 Indemnity.................................................... 37
2.22 Change of Lending Office..................................... 38
SECTION 3. LETTERS OF CREDIT............................................ 38
3.1 L/C Commitment............................................... 38
3.2 Procedure for Issuance of Letter of Credit................... 38
3.3 Fees, Commissions and Other Charges.......................... 39
3.4 L/C Participations........................................... 39
3.5 Reimbursement Obligation of the Borrower..................... 40
3.6 Obligations Absolute......................................... 41
3.7 Letter of Credit Payments.................................... 41
3.8 Applications................................................. 41
SECTION 4. REPRESENTATIONS AND WARRANTIES............................... 41
4.1 Financial Condition.......................................... 42
4.2 No Change.................................................... 44
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Page
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4.3 Corporate Existence; Compliance with Law..................... 44
4.4 Corporate Power; Authorization; Enforceable Obligations...... 44
4.5 No Legal Bar................................................. 45
4.6 No Material Litigation....................................... 45
4.7 No Default................................................... 45
4.8 Ownership of Property; Liens................................. 45
4.9 Intellectual Property........................................ 45
4.10 No Burdensome Restrictions................................... 45
4.11 Taxes........................................................ 45
4.12 Federal Regulations.......................................... 46
4.13 ERISA........................................................ 46
4.14 Investment Company Act; Other Regulations.................... 46
4.15 Subsidiaries................................................. 47
4.16 Purpose of Loans; Limitations on Use......................... 47
4.17 Environmental Matters. ...................................... 47
4.18 Accuracy of Information...................................... 48
4.19 Security Documents........................................... 49
4.20 Solvency..................................................... 50
4.21 Acquisition Documents........................................ 50
4.22 Labor Matters................................................ 50
SECTION 5. CONDITIONS PRECEDENT......................................... 50
5.1 Conditions to Initial Extension of Credit.................... 50
5.2 Conditions to Tranche B Term Loans........................... 55
5.3 Conditions to Each Extension of Credit....................... 56
SECTION 6. AFFIRMATIVE COVENANTS........................................ 57
6.1 Financial Statements......................................... 57
6.2 Certificates; Other Information.............................. 58
6.3 Payment of Obligations....................................... 59
6.4 Conduct of Business and Maintenance of Existence, etc. ...... 59
6.5 Maintenance of Property; Insurance........................... 59
6.6 Inspection of Property; Books and Records; Discussions....... 59
6.7 Notices...................................................... 60
6.8 Environmental Laws........................................... 60
6.9 Interest Rate Protection..................................... 61
6.10 Further Assurances........................................... 61
6.11 Additional Collateral........................................ 61
6.12 Construction Credit Support Policy........................... 63
SECTION 7. NEGATIVE COVENANTS........................................... 63
7.1 Financial Condition Covenants................................ 63
7.2 Limitation on Indebtedness................................... 65
7.3 Limitation on Liens.......................................... 66
7.4 Limitation on Guarantee Obligations.......................... 67
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<PAGE> 4
Page
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7.5 Limitation on Fundamental Changes............................ 68
7.6 Limitation on Sale of Assets................................. 68
7.7 Limitation on Restricted Payments............................ 69
7.8 Limitation on Capital Expenditures........................... 69
7.9 Limitation on Investments, Loans and Advances................ 70
7.10 Limitation on Optional Payments and Modifications of Debt
Instruments and Organizational Documentation, etc.......... 70
7.11 Limitation on Transactions with Affiliates................... 71
7.12 Limitation on Sales and Leasebacks........................... 71
7.13 Limitation on Changes in Fiscal Year......................... 71
7.14 Limitation on Negative Pledge Clauses........................ 71
7.15 Limitation on Lines of Business.............................. 72
7.16 Limitation on Consolidated Lease Expense..................... 72
7.17 Limitation on Activities of the Parent....................... 72
7.18 Limitation on Foreign Subsidiaries........................... 72
SECTION 8. EVENTS OF DEFAULT............................................ 72
SECTION 9. THE ARRANGER; THE ADMINISTRATIVE AGENT
AND THE SYNDICATION AGENT................. 76
9.1 Appointment.................................................. 76
9.2 Delegation of Duties......................................... 76
9.3 Exculpatory Provisions....................................... 76
9.4 Reliance by Arranger and Administrative Agent................ 77
9.5 Notice of Default............................................ 77
9.6 Non-Reliance on Arranger, Administrative Agent and Other
Lenders.................................................... 78
9.7 Indemnification.............................................. 78
9.8 Arranger and Administrative Agent in Their Individual
Capacities................................................. 79
9.9 Successor Administrative Agent............................... 79
9.10 The Syndication Agent........................................ 79
SECTION 10. MISCELLANEOUS................................................ 80
10.1 Amendments and Waivers....................................... 80
10.2 Notices...................................................... 81
10.3 No Waiver; Cumulative Remedies............................... 82
10.4 Survival..................................................... 82
10.5 Payment of Expenses and Taxes................................ 82
10.6 Successors and Assigns; Participations and Assignments....... 83
10.7 Adjustments; Set-off......................................... 86
10.8 Counterparts................................................. 87
10.9 Severability................................................. 87
10.10 Integration.................................................. 87
10.11 GOVERNING LAW................................................ 87
10.12 Submission To Jurisdiction; Waivers.......................... 87
10.13 Acknowledgements............................................. 88
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<PAGE> 5
Page
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10.14 WAIVERS OF JURY TRIAL........................................ 88
10.15 Confidentiality.............................................. 88
-iv-
<PAGE> 6
Page
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SCHEDULES:
1.1A Commitments and Addresses of Lenders
1.1B Mortgaged Property
1.1C Tranche A Term Loan Amortization Schedule
1.1D Tranche B Term Loan Amortization Schedule
4.15 Subsidiaries
4.16 Refinanced Indebtedness
4.17 Environmental Matters
4.19(b) UCC Filing Jurisdictions
4.19(c) Mortgage Filing Jurisdictions
7.3 Liens
EXHIBITS:
A Form of Master Guarantee and Collateral Agreement
B Form of Mortgage
C-1 Form of Revolving Credit Note
C-2 Form of Tranche A Term Note
C-3 Form of Tranche B Term Note
D Form of Closing Certificate
E Legal Opinion of Jones, Day, Reavis & Pogue
F Form of Exemption Certificate
G Form of Assignment and Acceptance
H Form of Cash Collateral Agreement
-v-
<PAGE> 7
CREDIT AGREEMENT, dated as of March 31, 1997, among ENERGY
SERVICES INTERNATIONAL LTD., a Delaware corporation (the "Parent"), IRI
INTERNATIONAL CORPORATION, a Delaware corporation (the "Borrower"), the several
banks and other financial institutions or entities from time to time parties to
this Agreement (the "Lenders"), CREDIT LYONNAIS NEW YORK BRANCH, as
Administrative Agent for the Lenders hereunder (in such capacity, the
"Administrative Agent"), LEHMAN COMMERCIAL PAPER INC., as advisor and arranger
with respect to the credit facilities contained herein (the "Arranger") and
LEHMAN COMMERCIAL PAPER INC., as syndication agent with respect to the credit
facilities contained herein (the "Syndication Agent").
W I T N E S S E T H
WHEREAS, the Borrower, which is a wholly owned subsidiary of
the Parent, intends to acquire substantially all of the assets of Bowen Tools
Inc. ("Bowen") and its affiliates (the "Bowen Acquisition"), all of the capital
stock of Cardwell International Ltd. ("Cardwell"; together with Bowen, the
"Acquired Companies") and certain assets related to Cardwell's business which
are owned by affiliates of Cardwell (the "Cardwell Acquisition"; and together
with the Bowen Acquisition, the "Acquisitions");
WHEREAS, the Acquisitions will be financed, in part, with the
proceeds of senior subordinated notes in the aggregate principal amount of
$31,000,000 to be issued by the Borrower (the "Interim Notes") and, in part,
with the proceeds of the credit facilities provided for herein;
WHEREAS, pending the consummation of the Cardwell Acquisition
and the satisfaction of certain conditions precedent related thereto, proceeds
of certain of the Tranche A Term Loans borrowed by the Borrower on the Closing
Date will be held by the Administrative Agent in the Cash Collateral Account (as
defined herein); and
WHEREAS, all the obligations of the Borrower and the other
Loan Parties (as defined herein) under the Loan Documents (as defined herein)
(a) will be secured by, among other things, (i) a security interest in certain
assets and property of the Loan Parties and (ii) a pledge of all the issued and
outstanding capital stock of each of the Borrower's direct and indirect
Subsidiaries, and (b) will be unconditionally guaranteed by the Parent and each
of the Parent's direct and indirect Subsidiaries;
NOW, THEREFORE, the parties hereto hereby agree as follows:
<PAGE> 8
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Acquired Companies": as defined in the recitals hereto.
"Acquisitions": as defined in the recitals hereto.
"Acquisition Agreements": collectively (a) the Bowen Asset
Purchase Agreement and (b) the Cardwell Acquisition Agreement.
"Acquisition Documents": as defined in Section 4.21.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either
to (a) vote 10% or more of the securities having ordinary voting power
for the election of directors of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by
contract or otherwise.
"Aggregate Outstanding Revolving Extensions of Credit": as to
any Revolving Credit Lender at any time, an amount equal to the sum of
(a) the aggregate principal amount of all Revolving Credit Loans made
by such Lender then outstanding and (b) such Lender's Revolving Credit
Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum
set forth under the relevant column heading below:
<TABLE>
<CAPTION>
Eurodollar
Base Rate Loans Loans
--------------- ----------
<S> <C> <C>
Revolving Credit Loans 1% 2-3/4%
Term Loans 1-1/2% 3-1/4%
</TABLE>
provided that if (a) on May 31, 1997, the Eligible Backlog (as
certified to the Lenders pursuant to Section 6.2(f)) is less than the
Backlog Threshold or (b) on May 31, 1997, such certificate is not
provided to the Lenders in accordance with Section 6.2(f), then
<PAGE> 9
each of the foregoing Applicable Margins shall be increased by .50%
effective May 31, 1997.
"Application": an application, in such form as the Issuing
Lender may specify from time to time, requesting the Issuing Lender to
issue a Letter of Credit.
"Arranger": as defined in the preamble hereto.
"Asset Sale": any sale or other disposition by the Parent, the
Borrower or any of their Subsidiaries of any asset or assets of the
Parent, the Borrower or such Subsidiary (including any sale and
leaseback of assets and any mortgage of real property other than
pursuant to a Mortgage); provided that any sale of assets expressly
permitted by clauses (a), (c) or (d) of Section 7.6 shall not
constitute an "Asset Sale" hereunder.
"Assignee": as defined in Section 10.6(c).
"Available Revolving Credit Commitment": as to any Lender at
any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Credit Commitment over (b) such Lender's Aggregate
Outstanding Revolving Extensions of Credit.
"Backlog Threshold": (i) $70,000,000 less (ii) the amount of
Rig Orders constituting Eligible Backlog on the Closing Date but not
constituting Eligible Backlog on May 31, 1997 solely because
performance has commenced under such rig orders during such period.
"Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean
the rate of interest per annum established from time to time by the
Administrative Agent as its prime rate in effect at its principal
office in New York City (the Prime Rate not being intended to be the
lowest rate of interest charged by the Administrative Agent in
connection with extensions of credit to debtors); "Base CD Rate" shall
mean the sum of (a) the product of (i) the Three-Month Secondary CD
Rate and (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the C/D Reserve Percentage and (b)
the C/D Assessment Rate; "Three-Month Secondary CD Rate" shall mean,
for any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average
of the
<PAGE> 10
secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not
be a Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it; and "Federal
Funds Effective Rate" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. Any change in the
Base Rate due to a change in the Prime Rate, the Three-Month Secondary
CD Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to
which is based upon the Base Rate.
"Board": the Board of Governors of the Federal Reserve System
of the United States (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified in a notice
pursuant to Section 2.4 or 2.6 as a date on which the Borrower requests
the Lenders to make Loans hereunder.
"Bowen": as defined in the recitals hereto.
"Bowen Asset Purchase Agreement": the Asset Purchase Agreement
by and among the Bowen Sellers and the Borrower dated as of January 20,
1997, and all agreements, assignments, schedules, instruments and other
documents executed in connection therewith, together with such
amendments, waivers, supplements and other modifications thereto as
shall be reasonably satisfactory to the Arranger, the Administrative
Agent and the Lenders.
"Bowen Sellers": collectively, Bowen Tools, Inc. - Delaware,
Bowen and Air Liquide America Corporation.
"Business": as defined in Section 4.17(b).
"Business Day": (i) for all purposes other than as covered by
clause (ii) below, a day other than a Saturday, Sunday or other day on
which commercial banks in New
<PAGE> 11
York City are authorized or required by law to close and (ii) with
respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) and which is also a day for
trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Expenditures": for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing (pursuant to a Financing
Lease) of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period)
which should be capitalized under GAAP on a consolidated balance sheet
of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations
of such Person to pay rent or other amounts under any Financing Lease
and, for the purposes of this Agreement, the amount of such obligations
at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants, rights or options
to purchase any of the foregoing.
"Cardwell": as defined in the recitals hereto.
"Cardwell Acquisition Agreement": the Acquisition Agreement
dated as of March 20, 1997 by and among the Cardwell Sellers and the
Borrower, and all agreements, assignments, schedules, instruments and
other documents executed in connection therewith (including any
material employment agreements), together with such amendments,
waivers, supplements and other modifications thereto as shall be
reasonably satisfactory to the Arranger, the Administrative Agent and
the Lenders.
"Cardwell Deposit Amount": as defined in Section 2.2.
"Cardwell Purchase Price": the "Purchase Price" as defined in
the Cardwell Acquisition Agreement.
"Cardwell Sellers": collectively, the Teichgraeber Family
Limited Partnership, L.P., the Arthur C. Teichgraeber Charitable
Remainder Trust, A.C. Teichgraeber, Greenwood Pipe and Threading
Company and Edco Drilling Company Inc.
"Cash Collateral Account": as defined in the Cash Collateral
Agreement.
<PAGE> 12
"Cash Collateral Agreement": the Cash Collateral Agreement to
be executed and delivered by the Borrower, substantially in the form of
Exhibit H, as the same may be amended, supplemented or otherwise
modified from time to time.
"Cash Equivalents": (a) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of
the United States, in each case maturing within one year from the date
of acquisition; (b) certificates of deposit, time deposits, eurodollar
time deposits or overnight bank deposits having maturities of six
months or less from the date of acquisition issued by any Lender or by
any commercial bank organized under the laws of the United States or
any state thereof having combined capital and surplus of not less than
$250,000,000; and (c) commercial paper of (i) an issuer rated at least
A-1 by Standard & Poor's Ratings Services or P-1 by Moody's Investors
Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally or (ii)
the holding company of any Lender, and, in either case, maturing within
six months from the date of acquisition.
"C/D Assessment Rate": for any day as applied to any Base Rate
Loan, the annual assessment rate in effect on such day which is payable
by a member of the Bank Insurance Fund maintained by the Federal
Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.3(d) (or any successor provision) to the FDIC (or
any successor) for the FDIC's (or such successor's) insuring time
deposits at offices of such institution in the United States.
"C/D Reserve Percentage": for any day as applied to any Base
Rate Loan, that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board, for determining the maximum
reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board as in effect from time to time) in respect of
new non-personal time deposits in Dollars having a maturity of 30 days
or more.
"Closing Date": the date on which the conditions precedent set
forth in Section 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended.
"Collateral": all assets of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"Commercial Letter of Credit": as defined in Section 3.1(a).
<PAGE> 13
"Commitment": as to any Lender, the sum of the Tranche A Term
Loan Commitment, the Tranche B Term Loan Commitment and the Revolving
Credit Commitment of such Lender.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Confidential Information Memorandum": the Confidential
Information Memorandum dated as of February, 1997 with respect to the
Borrower and the credit facilities provided for herein.
"Consolidated Current Assets": at a particular date, all
amounts (other than cash and Cash Equivalents) which would, in
conformity with GAAP, be set forth opposite the caption "total current
assets" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date.
"Consolidated Current Liabilities": at a particular date, all
amounts which would, in conformity with GAAP, be set forth opposite the
caption "total current liabilities" (or any like caption) on a
consolidated balance sheet of the Borrower and its Subsidiaries at such
date, but excluding (a) the current portion of any Funded Debt of the
Borrower and its Subsidiaries and (b) without duplication of clause (a)
above, all Indebtedness consisting of Revolving Credit Loans to the
extent otherwise included therein.
"Consolidated Debt": at any date, the aggregate principal
amount of all Indebtedness of the Borrower and its Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA": for any period, Consolidated Net Income
for such period plus, without duplication and to the extent reflected
as a charge in the statement of such Consolidated Net Income for such
period, the sum of (a) total income tax expense, (b) interest expense,
amortization or writeoff of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation and amortization
expense, (d) amortization of intangibles (including, but not limited
to, goodwill) and organization costs, (e) any extraordinary expenses or
losses (including, whether or not otherwise includable as a separate
item in the statement of such Consolidated Net Income for such period,
losses on sales of assets outside of the ordinary course of business),
(f) any other noncash charges, (g) if applicable, restructuring
charges, write-off of goodwill and licensing agreements and (h) all
non-recurring fees and expenses incurred or paid by the Borrower in
connection with the Acquisitions, the transactions contemplated by this
Agreement, the issuance of the Interim Notes and the Permanent Notes
and the
<PAGE> 14
other transactions contemplated by the Interim Note Documentation and
the Permanent Note Documentation and minus, to the extent included in
the statement of such Consolidated Net Income for such period, the sum
of (a) interest income, (b) any extraordinary income or gains
(including, whether or not otherwise includable as a separate item in
the statement of such Consolidated Net Income for such period, gains on
the sales of assets outside of the ordinary course of business) and (c)
any other noncash income, all as determined on a consolidated basis;
provided that with respect to any calculation of Consolidated EBITDA
for purposes of Section 7.1 for the four fiscal quarters ending on the
following dates the following amounts (the "Added EBITDA Amount") shall
be added to Consolidated EBITDA on such dates: (A) June 30, 1997 -
$5,500,000; (B) September 30, 1997 - $4,100,000; (C) December 31, 1997
- $2,800,000 and (D) March 31, 1998 - $1,400,000; and, provided,
further, that, for purposes of clarifying the preceding proviso, it is
understood that on any date specified in such proviso for which
Consolidated EBITDA is determined with respect to a period of four
fiscal quarters only the Added EBITDA Amount in respect of such date
shall be added to the calculation of Consolidated EBITDA and not the
Added EBITDA Amount with respect to a prior date within such period of
four fiscal quarters.
"Consolidated Fixed Charge Coverage Ratio": as of the last day
of any period, the ratio of (a) Consolidated EBITDA for such period to
(b) the sum of (without duplication) (i) income tax expense actually
paid in cash during such period, (ii) Capital Expenditures actually
paid in cash for such period, excluding Capital Expenditures financed
with the proceeds of Indebtedness permitted to be incurred under
Section 7.2(c) and Capital Expenditures paid for with the proceeds of
any Reinvestment Deferred Amount, (iii) Consolidated Interest Expense
for such period, (iv) scheduled payments required to have been made
during such period on account of principal of Indebtedness of the
Borrower or any of its Subsidiaries (including the Loans but excluding
optional principal prepayments in respect of Revolving Credit Loans)
and (v) Consolidated Lease Expense.
"Consolidated Interest Coverage Ratio": for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period.
"Consolidated Interest Expense": for any period, total
interest expense (including that attributable to Capital Lease
Obligations), both expensed and capitalized, of the Borrower and its
Subsidiaries for such period with respect to all outstanding
Indebtedness of the Borrower and its Subsidiaries (including, without
limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and
net costs under Interest Rate Protection Agreements to the extent such
net costs are allocable to such period in accordance with GAAP),
determined on a consolidated basis in accordance with GAAP, net of
interest income of the Borrowers and its Subsidiaries for such period
(determined on a consolidated basis in accordance with GAAP).
<PAGE> 15
"Consolidated Lease Expense": for any period, the aggregate
amount of fixed and contingent rentals payable by the Borrower and its
Subsidiaries, determined on a consolidated basis in accordance with
GAAP, for such period with respect to leases of real and personal
property; provided that amounts included in Capital Lease Obligations
shall be excluded from Consolidated Lease Expense.
"Consolidated Leverage Ratio": as of the last day of any
period, the ratio of (a) Consolidated Debt as of such day to (b)
Consolidated EBITDA for such period.
"Consolidated Net Income": for any period, the consolidated
net income (or loss) of the Borrower and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP; provided that there
shall be excluded (a) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary of the Borrower or is merged
into or combined with the Borrower or any of its Subsidiaries, (b) the
income (or deficit) of any Person (other than a Subsidiary of the
Borrower) in which the Borrower or any of its Subsidiaries has an
ownership interest, except to the extent that any such income is
actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings
of any Subsidiary of the Borrower to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not
at the time permitted by the terms of any Contractual Obligation (other
than under any Loan Document) or Requirement of Law applicable to such
Subsidiary.
"Consolidated Net Worth": at a particular date, all amounts
which would, in conformity with GAAP, be included on a consolidated
balance sheet of the Borrower and its Subsidiaries under stockholders'
equity as of such date.
"Consolidated Working Capital": the excess, if any, of
Consolidated Current Assets over Consolidated Current Liabilities.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any
of its property is bound.
"Default": any of the events specified in Section 8, whether
or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United
States.
"Domestic Subsidiary": any Subsidiary of the Parent or the
Borrower organized under the laws of any jurisdiction within the United
States.
"Eligible Backlog": the aggregate contract value (determined
in accordance with the Borrower's prior practices) of the Rig Orders
(i) for which the Borrower or
<PAGE> 16
any of its Subsidiaries has entered into a definitive binding contract,
(ii) under which the Borrower or any of its Subsidiaries has not
commenced to perform and (iii) which are supported by all required
documentation (including standby letters of credit) satisfactory to the
Lenders.
"Environmental Laws": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority
or other Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct concerning
the protection of human health or the environment, as now or may at any
time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board) maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum of
interest determined on the basis of the rate for deposits in Dollars
for a period equal to such Interest Period commencing on the first day
of such Interest Period appearing on Page 3750 of the Telerate screen
as of 11:00 A.M., London time, two Business Days prior to the beginning
of such Interest Period. In the event that such rate does not appear on
Page 3750 of the Telerate Service (or otherwise on such service), the
"Eurodollar Base Rate" for purposes of this definition shall be
determined by reference to such other comparable publicly available
service for displaying eurodollar rates as may be selected by the
Administrative Agent or, in the absence of such availability, by
reference to the rate at which the Administrative Agent is offered
Dollar deposits at or about 11:00 A.M., New York City time, two
Business Days prior to the beginning of such Interest Period in the
interbank eurodollar market where its eurodollar and foreign currency
and exchange operations are then being conducted for delivery on the
first day of such Interest Period for the number of days comprised
therein.
"Eurodollar Loans": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
<PAGE> 17
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar
Loans that are Tranche A Term Loans, Tranche B Term Loans or Revolving
Credit Loans, as the case may be, the then current Interest Periods
with respect to all of which begin on the same date and end on the same
later date (whether or not such Loans shall originally have been made
on the same day).
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the
excess of (a) the sum, without duplication, of (i) Consolidated Net
Income for such fiscal year, (ii) the net decrease, if any, in
Consolidated Working Capital during such fiscal year and (iii) to the
extent deducted in computing such Consolidated Net Income, (A) non-cash
interest expense, depreciation and amortization, (B) extraordinary
non-cash losses, (C) deferred income tax expense, (D) non-cash losses
in connection with asset dispositions whether or not constituting
extraordinary losses, and (E) non-cash ordinary losses over (b) the
sum, without duplication, of (i) the aggregate amount of permitted cash
Consolidated Capital Expenditures during such fiscal year, (ii) the net
increase, if any, in Consolidated Working Capital during such fiscal
year, (iii) the aggregate amount of payments of principal in respect of
any Indebtedness not prohibited hereunder during such fiscal year
(other than (x) prepayments of Revolving Credit Loans not accompanied
by reductions of the Revolving Credit Commitments, (y) mandatory
prepayments pursuant to Section 2.11 and (z) payments in respect of
short-term Indebtedness) and (iv) to the extent added in computing such
Consolidated Net Income, (A) deferred income tax credit, (B)
extraordinary non-cash gains, (C) non-cash gains in connection with
asset dispositions whether or not constituting extraordinary gains and
(D) non-cash ordinary gains.
"Excess Cash Flow Application Date": as defined in Section
2.11(d).
"Financing Lease": any lease (or other arrangement conveying
the right to use) of property, real or personal, the obligations of the
lessee in respect of which are required in accordance with GAAP to be
capitalized on a balance sheet of the lessee.
"Foreign Subsidiary": any Subsidiary of the Parent or the
Borrower organized under the laws of any jurisdiction outside the
United States.
<PAGE> 18
"Funded Debt": as to any Person, all Indebtedness of such
Person that matures more than one year from the date of its creation or
matures within one year from such date but is renewable or extendible,
at the option of such Person, to a date more than one year from such
date or arises under a revolving credit or similar agreement that
obligates the lender or lenders to extend credit during a period of
more than one year from such date, including, without limitation, all
current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from
the date of its creation and, in the case of the Borrower, all current
maturities in respect of the Loans.
"GAAP": generally accepted accounting principles in the United
States in effect from time to time.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of
any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation
of the guaranteeing person, whether or not contingent, (i) to purchase
any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for the
purchase or payment of any such primary obligation or (2) to maintain
working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the
term Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be
deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person
may be liable are not stated or determinable, in which case the amount
of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.
<PAGE> 19
"Hedge Obligations": as defined in the Master Guarantee and
Collateral Agreement.
"Indebtedness": of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money,
(b) all obligations of such Person for the deferred purchase price of
property or services (other than current trade payables and accrued
expenses incurred in the ordinary course of such Person's business),
(c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created
or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person, (e) all
Capital Lease Obligations of such Person, (f) all obligations,
contingent or otherwise, of such Person as an account party under
acceptance, letter of credit or similar facilities (other than
obligations in respect of undrawn letters of credit securing current
trade payables or performance obligations incurred in the ordinary
course of business), (g) all obligations of such Person to purchase,
redeem, retire or otherwise acquire for value any Capital Stock of such
Person, (h) all Guarantee Obligations of such Person in respect of
Indebtedness of others, (i) all net payment obligations, contingent or
otherwise, of such Person in respect of Hedge Obligations and (j) all
obligations of the kind referred to in clauses (a) through (i) above
secured by any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, whether or not such
Person has assumed or become liable for the payment of such obligation
(but if not so assumed, the amount of such obligation shall be deemed
not to exceed the fair market value of the property subject to the
Lien).
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Insurance Policies": (i) the insurance policies the Borrower
is required to maintain pursuant to Section 6.5 and (ii) the insurance
policies the Borrower is required to maintain pursuant to Section 5.3
of the Master Guarantee and Collateral Agreement.
"Interest Payment Date": (a) as to any Base Rate Loan, the
last day of each March, June, September and December to occur while
such Loan is outstanding, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest
Period, (c) as to any Eurodollar Loan having an Interest Period longer
than three months, each day which is three months, or a whole multiple
thereof, after the first day of such Interest Period and the last day
of such Interest Period.
"Interest Period": as to any Eurodollar Loan, (a) initially,
the period commencing on the borrowing or conversion date, as the case
may be, with respect to such Eurodollar Loan and ending one, two, three
or six months thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be,
<PAGE> 20
given with respect thereto; and (b) thereafter, each period commencing
on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the
last day of the then current Interest Period with respect thereto;
provided that all of the foregoing provisions relating to Interest
Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that would otherwise extend
beyond the Revolving Credit Termination Date (in the case of Revolving
Credit Loans) or beyond the Term Loan Termination Date (in the case of
the Term Loans) shall end on the Revolving Credit Termination Date or
the Term Loan Termination Date, as applicable;
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar
month; and
(iv) the Borrower shall select Interest Periods so as
not to require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Interest Rate Protection Agreement": any interest rate
protection agreement, interest rate futures contract, interest rate
option, interest rate cap or other interest rate hedge arrangement, to
or under which the Borrower or any Subsidiary is a party or a
beneficiary on the date hereof or becomes a party or a beneficiary
after the date hereof.
"Interest Rate Protection Agreement Obligation": in respect of
any Loan Party, the obligation of such Loan Party under an Interest
Rate Protection Agreement to make a payment to the counterparty thereto
in the event of a termination event or similar occurrence thereunder.
"Interim Note Documentation": collectively (a) the Senior
Subordinated Increasing Rate Note Purchase Agreement dated as of March
31, 1997 among the Borrower, the Parent, certain Subsidiaries,
Strategic Resource Partners Fund, a Delaware statutory business trust,
and certain financial institutions party thereto as lenders and (b) all
other agreements, schedules, certificates and other documents executed
in connection therewith, including, but not limited to, any guarantees
of the Interim Notes, as the same may be entered into, modified,
amended or supplemented from time to time in accordance with the terms
hereof and thereof.
<PAGE> 21
"Interim Notes": as defined in the recitals hereto.
"Issuing Lender": Credit Lyonnais New York Branch, in its
capacity as issuer of any Letter of Credit and any other Lender
designated as "Issuing Lender" hereunder by the Borrower with the
consent of the Arranger, the Administrative Agent and such Lender.
"L/C Commitment": $20,000,000.
"L/C Fee Payment Date": the last day of each March, June,
September and December and the last day of the Revolving Credit
Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of
(a) the aggregate then undrawn and unexpired amount of the then
outstanding Letters of Credit and (b) the aggregate amount of drawings
under Letters of Credit which have not then been reimbursed pursuant to
Section 3.5.
"L/C Participants": the collective reference to all the
Revolving Credit Lenders other than the Issuing Lender.
"Lenders": as defined in the preamble hereto (which shall
include the Issuing Lender).
"Letters of Credit": as defined in Section 3.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any capital lease having substantially the same
economic effect as any of the foregoing) and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction.
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Loan Documents": this Agreement, the Notes, the Applications
and the Security Documents.
"Loan Parties": the Parent, the Borrower and each Subsidiary
of the Parent or the Borrower which is, or is required by the terms
hereof to be, a party to a Loan Document.
<PAGE> 22
"Master Guarantee and Collateral Agreement": the Master
Guarantee and Collateral Agreement to be executed and delivered by the
Parent, the Borrower and each of their Subsidiaries, substantially in
the form of Exhibit A, as the same may be amended, supplemented or
otherwise modified from time to time.
"Material Adverse Effect": a material adverse effect on (a)
the consummation of either of the Acquisitions in accordance with the
applicable Acquisition Documents, (b) the business, assets, results of
operations, condition (financial or otherwise) or prospects (provided
that the Term "prospects" shall not be deemed to be included in this
definition when the term "Material Adverse Effect" is used in Section
4) of the Borrower and its Subsidiaries taken as a whole (prior to and
after giving effect to the Acquisitions) or (c) the validity or
enforceability of this Agreement or any of the other Loan Documents or
the rights or remedies of the Administrative Agent, the Arranger or the
Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the
Parent, the Borrower and/or their Subsidiaries in excess of $500,000
for remedial costs, compliance costs, compensatory damages, punitive
damages, fines, penalties or any combination thereof.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Mortgage": the mortgage or deed of trust made by the
appropriate Loan Party in favor of, or for the benefit of, the
Administrative Agent for the benefit of the Lenders, substantially in
the form of Exhibit B (with such changes thereto as shall be advisable
under the law of the jurisdiction in which such mortgage or deed of
trust is to be recorded), as the same may be amended, supplemented or
otherwise modified from time to time.
"Mortgaged Property": the real property listed on Schedule
1.1B, as to which the Administrative Agent for the benefit of the
Lenders shall be granted a Lien pursuant to each Mortgage.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or
any Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as
<PAGE> 23
and when received) of such Asset Sale or Recovery Event, net of
attorneys' fees, accountants' fees, investment banking fees, brokers'
and underwriters' commissions paid to third parties, amounts required
to be applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject of such
Asset Sale or Recovery Event (other than any Lien in favor of the
Administrative Agent for the benefit of the Lenders), the aggregate
amount of reserves required in the reasonable judgment of the Borrower
to pay contingent liabilities with respect to such Asset Sale (provided
that amounts deducted from aggregate proceeds pursuant to this clause
and not actually paid by the Borrower or any of its Subsidiaries in
liquidation of such contingent liabilities shall be deemed to be Net
Cash Proceeds and shall be applied in accordance with Section 2.11(c)
at such time as the Borrower shall reasonably determine that such
amounts are not required to pay contingent liabilities with respect to
such Asset Sale) and other customary fees and expenses actually
incurred in connection therewith and net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing
arrangements) and (b) in connection with any issuance or sale of
Capital Stock or debt securities or instruments or the incurrence of
Indebtedness, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other
customary fees and expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.20(a).
"Non-U.S. Lender": as defined in Section 2.20(b).
"Notes": the collective reference to the Tranche A Term Notes,
the Tranche B Term Notes and the Revolving Credit Notes.
"Obligations": the unpaid principal of and interest on
(including, without limitation, interest accruing after the maturity of
the Loans and Reimbursement Obligations and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Notes and all other
obligations and liabilities of the Borrower to the Arranger, the
Administrative Agent or to any Lender, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection
with, this Agreement, any other Loan Document, the Letters of Credit,
any Interest Rate Protection Agreement entered into with any Lender or
any other document made, delivered or given in connection herewith or
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees, charges and disbursements of counsel to the
Arranger, the Administrative Agent or to any Lender that are required
to be paid by the Borrower pursuant hereto).
<PAGE> 24
"Parent": as defined in the preamble hereto.
"Participant": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
"Permanent Note Documentation": collectively (a) one or more
note purchase agreements or Indentures entered into by a Loan Party
with respect to the issuance of Permanent Notes in the form referred to
in, or having the terms permitted by, Section 7.2(e) and (b) all other
agreements, schedules, certificates and other documents executed in
connection therewith, including, but not limited to, any guarantees of
the Permanent Notes, as the same may be entered into, modified, amended
or supplemented from time to time in accordance with the terms hereof
and thereof.
"Permanent Notes": senior subordinated notes issued in
accordance with Section 7.2(e), including, but not limited to, the
Rollover Notes.
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledged Notes", "Pledged Securities" and "Pledged Stock":
each as defined in the Master Guarantee and Collateral Agreement.
"Pro Forma Balance Sheet": as defined in Section 4.1(a)(i).
"Pro Forma Income Statement": as defined in Section
4.1(a)(ii).
"Projections": as defined in Section 6.2(c).
"Properties": the collective reference to the real property
owned, leased or operated by the Parent, the Borrower or any of their
Subsidiaries.
"Recovery Event": any settlement of or payment in respect of a
property or casualty insurance claim relating to any asset of the
Parent, the Borrower or any of their Subsidiaries.
"Register": as defined in Section 10.6(e).
<PAGE> 25
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit.
"Reinvestment Deferred Amount": with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds received by the
Parent, the Borrower or any of their Subsidiaries in connection
therewith which are not applied to prepay the Term Loans or reduce the
Revolving Credit Commitments pursuant to Section 2.11(c) as a result of
the delivery of a Reinvestment Notice.
"Reinvestment Event": any Recovery Event in respect of which
the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a
Responsible Officer of the Borrower to the Administrative Agent within
30 days of the Reinvestment Event to which it relates stating that no
Event of Default has occurred and is continuing and that the Borrower
(directly or indirectly through another Subsidiary), in good faith,
intends and expects to use all or a specified portion of the Net Cash
Proceeds of a Recovery Event to restore or replace the assets in
respect of which such Recovery Event occurred within twelve months from
the date of receipt of such Net Cash Proceeds (provided that if the
affected assets constituted Collateral, such restored or replacement
assets shall also constitute Collateral).
"Reinvestment Prepayment Amount": with respect to any
Reinvestment Event, the Reinvestment Deferred Amount relating thereto
less any amount expended prior to the relevant Reinvestment Prepayment
Date to restore or replace the assets in respect of which a Recovery
Event has occurred.
"Reinvestment Prepayment Date": with respect to any
Reinvestment Event, the earliest of (a) the first date occurring after
such Reinvestment Event on which a Default or an Event of Default shall
have occurred, (b) the date occurring twelve months after such
Reinvestment Event and (c) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to, restore or
replace the assets in respect of which a Recovery Event has occurred.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty day
notice period is waived under subsection .13, .14, .16, .18, .19 or .20
of PBGC Reg. Section 2615.
"Required Lenders": at any date shall mean the holders of more
than 50% of (a) until the Closing Date, the Commitments and (b)
thereafter, the sum of (i) the aggregate unpaid principal amount of the
Term Loans (or if Tranche B Term Loans
<PAGE> 26
have not been borrowed, the sum of (A) the aggregate unpaid principal
of the Tranche A Term Loans and (B) the Tranche B Term Loan
Commitments, if any) and (ii) the aggregate Revolving Credit
Commitments, or, if the Revolving Credit Commitments have been
terminated, the Aggregate Outstanding Revolving Extensions of Credit of
the Revolving Credit Lenders.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer, president
or chief financial officer of the Parent or the Borrower, as the case
may be, but in any event, with respect to financial matters, the chief
financial officer of the Parent or the Borrower, as the case may be.
"Revolving Credit Commitment": as to any Lender, the
obligation of such Lender, if any, to make Revolving Credit Loans to
and/or issue or participate in Letters of Credit issued on behalf of
the Borrower hereunder in an aggregate principal and/or face amount not
to exceed the amount set forth under the heading "Revolving Credit
Commitment" opposite such Lender's name on Schedule 1.1A, as the same
may be changed from time to time pursuant to the terms hereof.
"Revolving Credit Commitment Period": the period from and
including the Closing Date to but not including the Revolving Credit
Termination Date, or such earlier date on which the Revolving Credit
Commitments shall have been terminated.
"Revolving Credit Lender": each Lender which has a Revolving
Credit Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.5(a).
"Revolving Credit Note": as defined in Section 2.8(e).
"Revolving Credit Percentage": as to any Revolving Credit
Lender at any time, the percentage which such Lender's Revolving Credit
Commitment then constitutes of the aggregate Revolving Credit
Commitments (or, at any time after the Revolving Credit Commitments
shall have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Revolving Credit Loans then
outstanding constitutes of the aggregate principal amount of the
Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": March 31, 2000.
<PAGE> 27
"Rig Orders": contracts under which the Borrower or one or
more of its Subsidiaries is to build, repair or modify drill rigs.
"Rollover Note Indenture": the Indenture dated as of March 31,
1997 among IRI International Corporation, as issuer, Energy Services
International Ltd., as guarantor, and The Bank of New York, as trustee,
as amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"Rollover Notes": senior subordinated increasing rate rollover
notes issued pursuant to the Rollover Note Indenture.
"Security Documents": the collective reference to each
Mortgage, the Master Guarantee and Collateral Agreement, the Cash
Collateral Agreement and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any asset or
assets of any Person to secure the obligations and liabilities of the
Borrower hereunder and/or under any of the other Loan Documents or to
secure any guarantee of any such obligations and liabilities.
"Sellers": collectively, the Bowen Sellers and the Cardwell
Sellers.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that,
as of any date of determination, (a) the amount of the "present fair
saleable value" of the assets of such Person will, as of such date,
exceed the amount of all "liabilities of such Person, contingent or
otherwise", as of such date, as such quoted terms are determined in
accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be
greater than the amount that will be required to pay the liability of
such Person on its debts as such debts become absolute and matured, (c)
such Person will not have, as of such date, an unreasonably small
amount of capital with which to conduct its business, and (d) such
Person will be able to pay its debts as they mature. For purposes of
this definition, (i) "debt" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance
if such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent,
matured or unmatured, disputed, undisputed, secured or unsecured.
"Standby Letter of Credit": as defined in Section 3.1(a).
<PAGE> 28
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Parent.
"Subsidiary Guarantor": each of the Subsidiaries of the Parent
which is a party to the Master Guarantee and Collateral Agreement.
"Syndication Agent": as defined in the preamble hereto.
"Term Loan Lenders": the collective reference to the Tranche A
Term Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to the Tranche A Term
Loans and Tranche B Term Loans.
"Term Loan Termination Date": March 31, 2002.
"Tranche A Term Loan": as defined in Section 2.1.
"Tranche A Term Loan Commitment": as to any Lender, the
obligation of such Lender, if any, to make a Tranche A Term Loan to the
Borrower hereunder in a principal amount not to exceed the amount set
forth under the heading "Tranche A Term Loan Commitment" opposite such
Lender's name on Schedule 1.1A.
"Tranche A Term Loan Lender": each Lender which has a Tranche
A Term Loan Commitment or which has made a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to any Tranche A Term
Loan Lender at any time, the percentage which such Lender's Tranche A
Term Loan Commitment then constitutes of the aggregate Tranche A Term
Loan Commitments (or, at any time after the Closing Date, the
percentage which the aggregate principal amount of such Lender's
Tranche A Term Loan then outstanding constitutes of the aggregate
principal amount of the Tranche A Term Loans then outstanding).
"Tranche A Term Note": as defined in Section 2.8(e).
<PAGE> 29
"Tranche B Commitment Period": the period from and including
the Closing Date to but not including the first anniversary of the
Closing Date, or such earlier date on which the Tranche B Term Loan
Commitments shall have been terminated.
"Tranche B Term Loan": as defined in Section 2.3.
"Tranche B Term Loan Commitment": as to any Tranche B Term
Loan Lender, the obligation of such Lender, if any, to make a Tranche B
Term Loan to the Borrower hereunder in a principal amount not to exceed
the amount set forth under the heading "Tranche B Term Loan Commitment"
opposite such Lender's name on Schedule 1.1A.
"Tranche B Term Loan Lender": each Lender which has a Tranche
B Term Loan Commitment or which has made a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Lender at any
time, the percentage which such Lender's Tranche B Term Loan Commitment
then constitutes of the aggregate Tranche B Term Loan Commitments (or,
at any time after the Borrower borrows Tranche B Term Loans, the
percentage which the aggregate principal amount of such Lender's
Tranche B Term Loan then outstanding constitutes of the aggregate
principal amount of the Tranche B Term Loans then outstanding).
"Tranche B Term Note": as defined in Section 2.8(e).
"Transferee": as defined in Section 10.6(g).
"Type": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"United States": the United States of America.
"Warrant Agreement": the Warrant Agreement dated as of March
31, 1997 between the Parent and The Bank of New York, as warrant agent.
"Warrants": the warrants to purchase up to 10% of the fully
diluted common stock of the Parent pursuant to the Warrant Agreement.
"Wholly Owned Subsidiary": as to any Person, any other Person
all of the Capital Stock of which (other than directors' qualifying
shares required by law) is owned by such Person directly and/or through
other Wholly Owned Subsidiaries.
<PAGE> 30
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Parent, the Borrower and their Subsidiaries not
defined in Section 1.1 and accounting terms partly defined in Section 1.1, to
the extent not defined, shall have the respective meanings given to them under
GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Tranche A Term Loans. Subject to the terms and conditions
hereof, each Tranche A Term Loan Lender severally agrees to make a term loan (a
"Tranche A Term Loan") to the Borrower on the Closing Date in an amount not to
exceed the amount of the Tranche A Term Loan Commitment of such Lender. The
Tranche A Term Loans may from time to time be (a) Eurodollar Loans, (b) Base
Rate Loans or (c) a combination thereof, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.12.
2.2 Procedure for Tranche A Term Loan Borrowing. The Borrower
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 10:00 A.M., New York City time,
one Business Day prior to the anticipated Closing Date) requesting that the
Tranche A Term Loan Lenders make Tranche A Term Loans on the Closing Date and
specifying (a) the amount to be borrowed and (b) the Closing Date. The Tranche A
Term Loans made on the Closing Date shall initially be Base Rate Loans, no
Tranche A Term Loan may be converted into a Eurodollar Loan prior to the date
which is 3 Business Days after the Closing Date and (except with the prior
written consent of the Arranger) no Tranche A Term Loan may be made, converted
into or continued as a Eurodollar Loan having an Interest Period in excess of
one month prior to the date which is 60 days after the Closing Date. Upon
receipt of such notice, the Administrative Agent shall promptly notify each
Tranche A Term Loan Lender thereof. Not later than 12:00 Noon, New York City
time, on the Closing Date, each Tranche A Term Loan Lender shall make available
to the Administrative Agent at its office specified in Section 10.2 an amount in
immediately available funds equal to the Tranche A Term Loan to be made by such
Lender. The Administrative Agent shall on such date by 2:00 P.M., New York City
time, (i) make
<PAGE> 31
available to the Borrower, in accordance with the instructions of the Borrower,
in like funds as received by the Administrative Agent, $50,000,000, and (ii)
deposit in the Cash Collateral Account the remainder of all such amounts made
available to the Administrative Agent by the Tranche A Term Loan Lenders (the
"Cardwell Deposit Amount"). The Cardwell Deposit Amount shall be held by the
Administrative Agent as security for the Obligations on the terms and conditions
set forth in the Cash Collateral Agreement. Notwithstanding any other provisions
of this Agreement, the portion of the Tranche A Term Loans equal to the Cardwell
Deposit Amount shall at all times be Base Rate Loans.
2.3 Tranche B Term Loans. Subject to the terms and conditions
hereof, each Tranche B Term Loan Lender severally agrees to make a term loan (a
"Tranche B Term Loan") to the Borrower in a single drawing on or prior to the
date which is twelve months after the Closing Date (the "Tranche B Closing
Date") in an amount not to exceed the amount of the Tranche B Term Loan
Commitment of such Lender then in effect. The Tranche B Term Loans may from time
to time be (a) Eurodollar Loans, (b) Base Rate Loans or (c) a combination
thereof, as determined by the Borrower and notified to the Administrative Agent
in accordance with Sections 2.4 and 2.12. The Tranche B Term Loan Commitments
shall terminate immediately subsequent to any drawing on the Tranche B Closing
Date.
2.4 Procedure for Tranche B Term Loan Borrowing. The Borrower
shall give the Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 10:00 A.M., New York City time,
one Business Day prior to the requested Borrowing Date) requesting that the
Tranche B Term Loan Lenders make the Tranche B Term Loans on the requested
Borrowing Date and specifying (a) the amount to be borrowed and (b) the
requested Borrowing Date. If the Borrower requests that the Borrowing Date with
respect to the Tranche B Term Loans be a date within 3 Business Days of the
Closing Date, then the Tranche B Term Loans shall initially be Base Rate Loans.
No Tranche B Term Loan may be converted into or continued as a Eurodollar Loan
prior to the date which is 3 Business Days after the Closing Date. Upon receipt
of such notice, the Administrative Agent shall promptly notify each Tranche B
Term Loan Lender thereof. Not later than 12:00 Noon, New York City time, on the
requested Borrowing Date, each Tranche B Term Loan Lender shall make available
to the Administrative Agent at its office specified in Section 10.2 an amount in
immediately available funds equal to the Tranche B Term Loan to be made by such
Lender. The Administrative Agent shall on such date by 2:00 P.M., New York City
time, deposit to the designated account, in accordance with the instructions of
the Borrower, the aggregate of the amounts made available to the Administrative
Agent by the Tranche B Term Loan Lenders in immediately available funds.
2.5 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the L/C Obligations then outstanding, does not exceed the
amount of such Lender's Revolving Credit Commitment.
<PAGE> 32
During the Revolving Credit Commitment Period, the Borrower may use the
Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans
in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.6 and 2.12, provided that no Revolving Credit Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Revolving Credit Termination Date.
2.6 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 Noon, New York City time, (a) three Business
Days prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be Eurodollar Loans or (b) one Business Day prior
to the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, Base Rate Loans, or a combination thereof and (iv) if
the borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor; provided that prior to the date which is 5 Business
Days after the Closing Date no Revolving Credit Loan may be made as or converted
into a Eurodollar Loan and (except with the prior written consent of the
Arranger) no Revolving Credit Loan may be made, converted into or continued as a
Eurodollar Loan having an Interest Period in excess of one month prior to the
date which is 60 days after the Closing Date. Each borrowing under the Revolving
Credit Commitments shall be in an amount equal to (x) in the case of Base Rate
Loans, $1,000,000 or a whole multiple thereof (or, if the then Available
Revolving Credit Commitments are less than $1,000,000, such lesser amount) and
(y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower,
the Administrative Agent shall promptly notify each Revolving Credit Lender
thereof. Each Revolving Credit Lender will make the amount of its pro rata share
of each borrowing available to the Administrative Agent for the account of the
Borrower at the office of the Administrative Agent specified in Section 10.2
prior to 11:00 A.M., New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. The
aggregate of the amounts made available to the Administrative Agent by the
Revolving Credit Lenders will then be made available to the Borrower by the
Administrative Agent in accordance with the instructions of the Borrower in like
funds as received by the Administrative Agent.
2.7 Commitment Fees, etc. (a) The Borrower agrees to pay to
the Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the rate of 1/2 of 1%
per annum on the average daily
<PAGE> 33
amount of the Available Revolving Credit Commitment of such Lender during the
period for which payment is made, payable quarterly in arrears on the last day
of each March, June, September and December and on the last day of the Revolving
Credit Commitment Period, commencing on the first of such dates to occur after
the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent for
the account of each Tranche B Term Loan Lender a commitment fee for the period
from and including the Closing Date to the last day of the Tranche B Commitment
Period, computed at the rate of 1/2 of 1% per annum on the average daily amount
of the undrawn Tranche B Term Loan Commitment of such Lender during the period
for which payment is made, payable quarterly in arrears on the last day of each
March, June, September and December and on the last day of the Tranche B
Commitment Period, commencing on the first of such dates to occur after the date
hereof.
(c) The Borrower agrees to pay to the Arranger the fees and
other compensation in the amounts and on the dates previously agreed to in
writing by the Borrower and the Arranger.
(d) The Borrower agrees to pay to the Administrative Agent the
fees in the amounts and on the dates agreed to in writing from time to time by
the Borrower and the Administrative Agent.
2.8 Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of the appropriate Lender (i) the then unpaid principal amount of each
Revolving Credit Loan of such Revolving Credit Lender on the last day of the
Revolving Credit Commitment Period (or such earlier date on which the Revolving
Credit Loans become due and payable pursuant to Section 8), (ii) the principal
amount of the Tranche A Term Loans of such Tranche A Term Loan Lender, in 20
consecutive quarterly installments, according to the amortization schedule set
forth on Schedule 1.1C, commencing on June 30, 1997 (or on such earlier date on
which the then unpaid principal amount of the Tranche A Term Loans become due
and payable pursuant to Section 8) and (iii) the principal amount of the Tranche
B Term Loans of such Tranche B Term Loan Lender, in 5 consecutive annual
installments, according to the amortization schedule set forth on Schedule 1.1D,
commencing on March 31, 1998 (or on such earlier date on which the then unpaid
principal amount of such Tranche B Term Loans become due and payable pursuant to
Section 8). The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in Section 2.14.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
<PAGE> 34
(c) The Administrative Agent, on behalf of the Borrower, shall
maintain the Register pursuant to Section 10.6(e) and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Revolving Credit
Loan, Tranche A Term Loan and Tranche B Term Loan made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to Section 2.8(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender (i) a promissory note of the Borrower evidencing any Revolving
Credit Loans of such Lender, substantially in the form of Exhibit C-1 with
appropriate insertions as to date and principal amount (a "Revolving Credit
Note"), and/or (ii) a promissory note of the Borrower evidencing any Tranche A
Term Loan of such Lender, substantially in the form of Exhibit C-2 with
appropriate insertions as to date and principal amount (a "Tranche A Term Note")
and/or (iii) a promissory note of the Borrower evidencing any Tranche B Term
Loan of such Lender, substantially in the form of Exhibit C-3 with appropriate
insertions as to date and principal amount (a "Tranche B Term Note"). A Note and
the Obligation evidenced thereby may be assigned or otherwise transferred in
whole or in part only by registration of such assignment or transfer of such
Note and the Obligation evidenced thereby in the Register (and each Note shall
expressly so provide). Any assignment or transfer of all or part of an
Obligation evidenced by a Note shall be registered in the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Obligation, accompanied by an Assignment and Acceptance substantially in the
form of Exhibit G duly executed by the Assignor thereof, and thereupon one or
more new Notes shall be issued to the designated Assignee and the old Note shall
be returned by the Administrative Agent to the Borrower marked "cancelled." No
assignment of a Note and the Obligation evidenced thereby shall be effective
unless it shall have been recorded in the Register by the Administrative Agent
as provided in this Section 2.8(e).
2.9 Optional Termination or Reduction of Commitments. The
Borrower shall have the right, upon not less than three Business Days' notice to
the Administrative Agent, to terminate the Revolving Credit Commitments or the
Tranche B Term Loan Commitments or, from time to time, to reduce the amount of
the Revolving Credit Commitments or the Tranche B Term Loan Commitments;
provided that no such termination or reduction of Revolving Credit Commitments
shall be permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans made on the effective date thereof, the sum of the
Aggregate
<PAGE> 35
Outstanding Revolving Extensions of Credit of all Revolving Credit Lenders would
exceed the Revolving Credit Commitments then in effect. Any such reduction shall
be in an amount equal to $1,000,000, or a whole multiple thereof, and shall
reduce permanently the Revolving Credit Commitments or the Tranche B Term Loan
Commitments, as the case may be, then in effect.
2.10 Optional Prepayments. The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least three Business Days' irrevocable notice to the
Administrative Agent by the Borrower, specifying the date and amount of
prepayment and whether the prepayment is of Eurodollar Loans, Base Rate Loans or
a combination thereof, and, if of a combination thereof, the amount allocable to
each, provided that if a Eurodollar Loan is prepaid on any day other than the
last day of the Interest Period applicable thereto the Borrower shall also pay
any amounts owing pursuant to Section 2.21. Upon receipt of any such notice, the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with accrued interest to such date on the
amount prepaid. Partial prepayments of the Term Loans shall be applied pro rata
to the Tranche A Term Loans and the Tranche B Term Loans and to the remaining
installments of principal thereof in the inverse order of maturity.
Notwithstanding the foregoing, so long as any Tranche B Term Loans are
outstanding, each Tranche A Term Loan Lender shall have the right to refuse all
or any portion of any prepayment pursuant to this Section 2.10 allocable to such
Lender's Tranche A Term Loans, and the amount so refused shall be applied to
prepay the Tranche B Term Loans in accordance with the preceding sentence.
Amounts prepaid on account of the Term Loans may not be reborrowed. Partial
prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate
principal amount of $1,000,000 or a whole multiple thereof.
2.11 Mandatory Prepayments and Commitment Reductions. (a) If
any debt securities or instruments of the Parent, the Borrower or any of their
Subsidiaries shall be issued or sold or the Parent, the Borrower or any of their
Subsidiaries shall incur any Indebtedness (except any debt securities or
instruments issued or Indebtedness incurred in accordance with Section 7.2
(other than Net Cash Proceeds not required to be prepaid pursuant to the proviso
in Section 7.2(e))) an amount equal to 100% of the Net Cash Proceeds thereof
shall be applied on the date of such issuance or incurrence toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in paragraph (e) of this Section 2.11. Nothing in this
paragraph (a) shall be deemed to permit the incurrence of Indebtedness not
permitted by Section 7.2.
(b) If any Capital Stock of the Parent, the Borrower or any of
their Subsidiaries shall be issued or sold (except (i) any Capital Stock the
proceeds of which are used solely to refinance the Interim Notes or the Rollover
Notes in accordance with the second paragraph of Section 7.10, (ii) the Warrants
and (iii) any Capital Stock issued upon exercise of the Warrants) an amount
equal to 100% of the first $25,000,000 of Net Cash Proceeds thereof and 50% of
the Net Cash Proceeds thereof in excess of $25,000,000 shall be applied on the
date of
<PAGE> 36
such issuance or incurrence toward the prepayment of the Term Loans and the
reduction of the Revolving Credit Commitments as set forth in paragraph (e) of
this Section 2.11.
(c) If on any date the Parent, the Borrower or any of their
Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or from any
Recovery Event (other than, if no Default or Event of Default shall have
occurred and be continuing, to the extent that such Net Cash Proceeds are to be
used to restore or replace the assets in respect of which such Recovery Event
occurred within twelve months from the date of such Recovery Event, as certified
by a Responsible Officer of the Borrower pursuant to a Reinvestment Notice;
provided that if such Net Cash Proceeds exceed $5,000,000, the Borrower shall
deposit such Net Cash Proceeds in a cash collateral account under the exclusive
dominion and control of the Administrative Agent as security for the Obligations
in accordance with terms and conditions reasonably satisfactory to the
Administrative Agent), such Net Cash Proceeds shall be applied on such date
toward the prepayment of the Term Loans and the reduction of the Revolving
Credit Commitments as set forth in paragraph (e) of this Section 2.11; provided
that, notwithstanding the foregoing, on each Reinvestment Prepayment Date, an
amount equal to the Reinvestment Prepayment Amount with respect to the relevant
Reinvestment Event shall be applied toward the prepayment of the Term Loans and
the reduction of the Revolving Credit Commitments as set forth in paragraph (e)
of this Section 2.11.
(d) If, for any fiscal year of the Borrower ending after the
Closing Date, there shall be Excess Cash Flow, the Borrower shall, on the
relevant Excess Cash Flow Application Date, apply toward the prepayment of the
Term Loans and the reduction of the Revolving Credit Commitments as set forth in
paragraph (e) of this Section 2.11 a percentage of such Excess Cash Flow equal
to 75%. Each such prepayment and commitment reduction shall be made on a date
(an "Excess Cash Flow Application Date") no later than five days after the
earlier of (i) the date on which the financial statements of the Borrower
referred to in Section 6.1(a) for the fiscal year with respect to which such
prepayment is made are required to be delivered to the Lenders and (ii) the date
such financial statements are actually delivered.
(e) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to this Section 2.11 shall be applied first
to the prepayment of the Term Loans and second to reduce permanently the
Revolving Credit Commitments. Any such reduction of the Revolving Credit
Commitments shall be accompanied by prepayment of the Revolving Credit Loans to
the extent, if any, that the sum of the Aggregate Outstanding Revolving
Extensions of Credit of all Revolving Credit Lenders exceeds the amount of the
aggregate Revolving Credit Commitments as so reduced, provided that if the
aggregate principal amount of Revolving Credit Loans then outstanding is less
than the amount of such excess (because L/C Obligations constitute a portion
thereof), the Borrower shall, to the extent of the balance of such excess,
replace outstanding Letters of Credit and/or deposit an amount in cash in a cash
collateral account established with the Administrative Agent for the benefit of
the Lenders on terms and conditions satisfactory to the Administrative Agent.
The application of any prepayment pursuant to this Section 2.11 shall be made,
within each category of Loans to be prepaid as provided above, first to Base
Rate Loans and second to Eurodollar Loans.
<PAGE> 37
Each prepayment of the Loans under this Section 2.11 shall be accompanied by
accrued interest to the date of such prepayment on the amount prepaid. All
prepayments of the Term Loans pursuant to this Section 2.11 shall be applied pro
rata to the Tranche A Term Loans and the Tranche B Term Loans and to the
remaining installments of principal thereof in the inverse order of scheduled
maturity. Notwithstanding the foregoing, so long as any Tranche B Term Loans are
outstanding, each Tranche A Term Loan Lender shall have the right to refuse all
or any portion of any prepayment pursuant to this Section 2.11 allocable to such
Lender's Tranche A Term Loans and the amount so refused shall be applied first
pro rata to prepay the Tranche B Term Loans and second to reduce permanently the
Revolving Credit Commitments as provided above. Amounts prepaid on account of
the Term Loans may not be reborrowed.
2.12 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving
the Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election. Any such notice of conversion to Eurodollar Loans shall
specify the length of the initial Interest Period therefor. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan (A) when any Event of Default has occurred and is continuing and
the Administrative Agent has or the Required Lenders have determined in its or
their sole discretion not to permit such a conversion or (B) having an Interest
Period in excess of one month prior to the date which is 60 days after the
Closing Date and (ii) no Loan may be converted into a Eurodollar Loan after the
date that is one month prior to (y) the Revolving Credit Termination Date, with
respect to Revolving Credit Loans and (z) the Term Loan Termination Date, with
respect to Term Loans.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
Section 1.1, of the length of the next Interest Period to be applicable to such
Loans, provided that no Eurodollar Loan may be continued as such (i) when any
Event of Default has occurred and is continuing and the Administrative Agent has
or the Required Lenders have determined in its or their sole discretion not to
permit such a continuation or (ii) after the date that is one month prior to (A)
the Revolving Credit Termination Date, with respect to the Revolving Credit
Loans or (B) the Term Loan Termination Date, with respect to Term Loans, and
provided, further, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
Base Rate Loans on the last day of such then expiring Interest Period.
<PAGE> 38
2.13 Minimum Amounts and Maximum Number of Eurodollar
Tranches. Notwithstanding anything to the contrary in this Agreement, all
borrowings, conversions, continuations and optional prepayments of Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Loans comprising each Eurodollar
Tranche shall be equal to $1,000,000 or a whole multiple of $1,000,000 in excess
thereof, (b) no more than four Eurodollar Tranches in respect of the Revolving
Credit Loans shall be outstanding at any one time and (c) no more than eight
Eurodollar Tranches in respect of all Loans (including the Revolving Credit
Loans) shall be outstanding at any one time.
2.14 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin.
(c) If all or a portion of (i) any principal of any Loan or
Reimbursement Obligations, (ii) any interest payable thereon, (iii) any
commitment fee or (iv) any other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), the
principal of the Loans and Reimbursement Obligations and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per annum
which is the highest rate applicable to Term Loans provided for herein on such
nonpayment date plus 2%, in each case from the date of such non-payment until
such overdue principal, interest, commitment fee or other amount is paid in full
(as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of this
Section 2.14 shall be payable from time to time on demand.
2.15 Computation of Interest and Fees. (a) Interest on Loans
and Reimbursement Obligations, commitment fees, letter of credit commissions and
interest on overdue interest, commitment fees and other amounts payable
hereunder shall be calculated on the basis of a 360-day year for the actual days
elapsed, except that, with respect to Base Rate Loans the rate of interest on
which is calculated on the basis of the Prime Rate, the interest thereon shall
be calculated on the basis of a 365- (or 366-, as the case may be) day year for
the actual days elapsed. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of each determination of a Eurodollar Rate.
Any change in the interest rate on a Loan resulting from a change in the Base
Rate or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change becomes effective. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
<PAGE> 39
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the Borrower,
deliver to the Borrower a statement showing the quotations used by the
Administrative Agent in determining any interest rate pursuant to Section
2.15(a).
2.16 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans, (y) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans
that were to be continued on the first day of such Interest Period as Eurodollar
Loans shall be converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert Loans to Eurodollar Loans.
2.17 Pro Rata Treatment and Payments; Use of Proceeds. (a)
Each borrowing by the Borrower from the Lenders hereunder, each payment by the
Borrower on account of any commitment fee and any reduction of the Commitments
of the Lenders shall be made pro rata according to the respective Tranche A Term
Loan Percentages, Tranche B Term Loan Percentages or Revolving Credit
Percentages, as the case may be, of the relevant Lenders. Except as provided in
Section 2.10 and 2.11, each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Term Loans shall be made pro rata
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Loan Lenders (or, in the case of installment payments made
pursuant to Section 2.8 or payments of accrued interest in respect thereof, the
affected Term Loans then held by the relevant Term Loan Lenders). Each payment
(including each prepayment) by the Borrower on account of principal of and
interest on the Revolving Credit Loans shall be made pro rata according to the
respective outstanding principal amounts of the Revolving Credit Loans then
<PAGE> 40
held by the Revolving Credit Lenders. All payments (including prepayments) to be
made by the Borrower hereunder and under the Notes, whether on account of
principal, interest, fees or otherwise, shall be made without setoff or
counterclaim and shall be made prior to 12:00 Noon, New York City time, on the
due date thereof to the Administrative Agent, for the account of the Lenders, at
the Administrative Agent's office specified in Section 10.2, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this Section 2.17(b) shall be conclusive in
the absence of manifest error. If such Lender's share of such borrowing is not
made available to the Administrative Agent by such Lender within three Business
Days of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrower (together with any
amounts due under Section 2.21).
(c) The Borrower shall use the proceeds of the Loans only in
the manner expressly contemplated by Section 4.16.
2.18 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If
<PAGE> 41
any such conversion of a Eurodollar Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, the Borrower shall
pay to such Lender such amounts, if any, as may be required pursuant to Section
2.21.
2.19 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, any Letter of
Credit, any Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof
(except for taxes covered by Section 2.20 and changes in the rate of
tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or any
other acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional amounts pursuant to this Section 2.19, it shall promptly
notify the Borrower (with a copy to the Administrative Agent) of the event by
reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
<PAGE> 42
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify the Borrower (with
a copy to the Administrative Agent) of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable pursuant
to this Section 2.19, together with a calculation thereof in reasonable detail,
shall be submitted by the affected Lender to the Borrower (with a copy to the
Administrative Agent) and such certificate shall be conclusive in the absence of
manifest error. The obligations of the Borrower pursuant to this Section 2.19
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
(d) In the event any Lender delivers a certificate requesting
compensation pursuant to this Section 2.19, the Borrower may, at its sole
expense and effort, upon notice to such Lender and the Administrative Agent,
require such Lender to transfer and assign, without recourse (in accordance with
and subject to the restrictions contained in Section 10.6), all of its
interests, rights and obligations under this Agreement and the other Loan
Documents to an assignee which shall assume such assigned obligations (which
assignee may be another Lender, if a Lender accepts such assignment); provided,
however, that (x) such assignment shall not conflict with any law, rule or
regulation or order of any court or other Governmental Authority having
jurisdiction, (y) the Borrower shall have received the prior written consent to
such assignment of the Administrative Agent, which consent shall not
unreasonably be delayed or withheld and (z) the Borrower or such assignee shall
have paid to the affected Lender in immediately available funds an amount equal
to the sum of the principal of the outstanding Loans of such Lender plus all
interest, fees and other amounts accrued and unpaid for the account of such
Lender hereunder (including any amounts under this Section 2.19); provided,
further, that if prior to any such transfer and assignment the circumstances or
event that resulted in such Lender's claim for compensation under this Section
2.19 cease to cause such Lender to suffer increased costs or reductions in
amounts received or receivable or reduction in return on capital (including as a
result of any action taken by such Lender pursuant to Section 2.22), or if such
Lender shall waive its right to claim further compensation under this Section
2.19 in respect of such circumstances or event, then such Lender shall not
thereafter be required to make any such transfer and assignment hereunder.
2.20 Taxes. (a) All payments made by the Borrower under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent or any Lender
as a result of a present or former connection between the Administrative Agent
or such Lender and the jurisdiction of the Governmental Authority imposing such
tax or any political subdivision or taxing authority thereof or therein (other
than any such connection arising solely
<PAGE> 43
from the Administrative Agent or such Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement or any other Loan Document). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to the
Administrative Agent or any Lender hereunder or under the Notes, the amounts so
payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes, provided, however, that the Borrower shall make payments net of and after
deduction for Non-Excluded Taxes and shall not be required to increase any such
amounts payable to any Non-U.S. Lender (as defined below) that fails to comply
with Section 2.20(b). Whenever any Non-Excluded Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Administrative Agent and
the Lenders for any Non-Excluded Taxes, incremental taxes, interest or penalties
that may become payable by the Administrative Agent or any Lender as a result of
any such failure. The agreements in this Section 2.20 shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
(b) Each Lender (or Transferee) that is not a corporation or
partnership created or organized in or under the laws of the United States, any
estate that is subject to federal income taxation regardless of the source of
its income or any trust which is subject to the supervision of a court within
the United States and the control of a United States fiduciary as described in
section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to the
Borrower and the Administrative Agent (or, in the case of a Participant, to the
Lender from which the related participation shall have been purchased) on or
before the date on which it becomes a party to this Agreement (or, in the case
of a Participant, on or before the date on which such Participant purchases the
related participation) either:
(A) (x) two duly completed and signed copies of either
Internal Revenue Service Form 1001 (relating to such Non-U.S. Lender
and entitling it to a complete exemption from withholding of U.S. Taxes
on all amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Loan Documents) or Form 4224 (relating to all
amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Loan Documents), or successor and related
applicable forms, as the case may be, and (y) two duly completed and
signed copies of Internal Revenue Service Form W-8 or W-9, or successor
and related applicable forms, as the case may be; or
<PAGE> 44
(B) in the case of a Non-U.S. Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and that does
not comply with the requirements of clause (A) hereof, (x) a statement
in the form of Exhibit F (or such other form of statement as shall be
reasonably requested by the Borrower or the Administrative Agent from
time to time) to the effect that such Non-U.S. Lender is eligible for a
complete exemption from withholding of U.S. Taxes under Code Section
871(h) or 881(c), and (y) two duly completed and signed copies of
Internal Revenue Service Form W-8 or successor and related applicable
form.
Further, each Non-U.S. Lender agrees to deliver to the Borrower and the
Administrative Agent, and if applicable, the assigning Lender (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two further duly completed and signed copies of such Forms 1001,
4224, W-8 or W-9, as the case may be, or successor and related applicable forms,
on or before the date that any such form expires or becomes obsolete and
promptly after the occurrence of any event requiring a change from the most
recent form(s) previously delivered by it to the Borrower or the Administrative
Agent (or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) in accordance with applicable United
States laws and regulations; unless, in any such case, any change in law or
regulation has occurred subsequent to the date such Lender became a party to
this Agreement (or in the case of a Participant, the date on which such
Participant purchased the related participation) which renders all such forms
inapplicable or which would prevent such Lender (or Participant) from properly
completing and executing any such form with respect to it and such Lender
promptly notifies the Borrower and the Administrative Agent (or, in the case of
a Participant, the Lender from which the related participation shall have been
purchased) if it is no longer able to deliver, or if it is required to withdraw
or cancel, any form or statement previously delivered by it pursuant to this
Section 2.20(b). A Non-U.S. Lender shall not be required to deliver any form or
statement pursuant to the immediately preceding sentences in this Section
2.20(b) that such Non-U.S. Lender is not legally able to deliver (it being
understood and agreed that the Borrower shall withhold or deduct such amounts
from any payments made to such Non-U.S. Lender that the Borrower reasonably
determines are required by law and that payments resulting from a failure to
comply with this paragraph (b) shall not be subject to payment or indemnity by
the Borrower pursuant to Section 2.20(a)).
2.21 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the amount so prepaid,
or not so borrowed, converted or continued, for the period from the
<PAGE> 45
date of such prepayment or of such failure to borrow, convert or continue to the
last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest for such Loans
provided for herein (excluding, however, the Applicable Margin included therein,
if any) over (ii) the amount of interest (as reasonably determined by such
Lender) which would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market. A certificate as to any amounts payable pursuant to this
Section 2.21, together with a calculation thereof in reasonable detail, shall be
submitted to the Borrower by any affected Lender and such certificate shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
2.22 Change of Lending Office. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of Section 2.18,
2.19(a) or 2.20 with respect to such Lender, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another lending office for any Loans affected by such
event with the object of avoiding the consequences of such event; provided that
such designation is made on terms that, in the sole judgment of such Lender,
cause such Lender and its lending office(s) to suffer no material economic,
legal or regulatory disadvantage, and provided, further, that nothing in this
Section 2.22 shall affect or postpone any of the obligations of the Borrower or
the rights of any Lender pursuant to Section 2.18, 2.19(a) or 2.20.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Revolving
Credit Lenders set forth in Section 3.4(a), agrees to issue letters of credit
("Letters of Credit") for the account of the Borrower on any Business Day during
the Revolving Credit Commitment Period in such form as may be approved from time
to time by the Issuing Lender; provided that the Issuing Lender shall have no
obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
Aggregate Outstanding Revolving Extensions of Credit would exceed the aggregate
Revolving Credit Commitments. Each Letter of Credit shall (i) be denominated in
Dollars, (ii) be either (x) a standby letter of credit issued to support (I)
obligations of the Borrower or any of its Subsidiaries, contingent or otherwise,
which finance the working capital and business needs of the Borrower or its
Subsidiaries or (II) performance obligations of the Borrower and its
Subsidiaries, in each case, incurred in the ordinary course of business (a
"Standby Letter of Credit"), or (y) a commercial letter of credit in respect of
the purchase of goods or services by the Borrower or any of its Subsidiaries in
the ordinary course of business (a "Commercial Letter of Credit"), (iii) expire
no later than five Business Days prior to the Revolving Credit Termination Date
and (iv) expire no later than 365 days after its date of issuance, provided that
any Letter of Credit with a 365-day duration may provide for the renewal thereof
at the election of the Borrower (in
<PAGE> 46
accordance with procedures to be established by the Issuing Lender) for
additional 365-day periods (which shall not expire later than five Business Days
prior to the Revolving Credit Termination Date).
(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at its address for notices specified herein
an Application therefor, completed to the satisfaction of the Issuing Lender,
and such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Standby
Letter of Credit (including the amount thereof). On each L/C Fee Payment Date,
the Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the aggregate face
amount of the Commercial Letters of Credit outstanding on such date.
3.3 Fees, Commissions and Other Charges. (a) The Borrower
agrees that it will pay a commission on all outstanding Standby Letters of
Credit at a rate per annum equal to 1/8 of 1% above the Applicable Margin then
in effect with respect to Revolving Credit Loans that are Eurodollar Loans of
the face amount of each such Letter of Credit, of which 1/8 of 1% per annum will
be a fronting fee for the account of the Issuing Lender, and the remainder will
be shared ratably among the Revolving Credit Lenders in accordance with their
Revolving Credit Percentages, payable quarterly in arrears on each L/C Fee
Payment Date after the issuance date. The Borrower agrees that it will pay a
commission on all outstanding Commercial Letters of Credit at a rate per annum
equal to 1/8 of 1% above the Applicable Margin then in effect with respect to
Revolving Credit Loans that are Eurodollar Loans of the average daily face
amount of such Letters of Credit during the period for which such payment is
made, of which 1/8 of 1% per annum will be a fronting fee for the account of the
Issuing Lender, and the remainder will be shared ratably among the Revolving
Credit Lenders in
<PAGE> 47
accordance with the Revolving Credit Percentage, payable quarterly in arrears on
each L/C Fee Payment Date.
(b) In addition to the foregoing fees and commissions, the
Borrower agrees that it shall pay or reimburse the Issuing Lender promptly upon
demand for such normal and customary costs and expenses as are incurred or
charged by the Issuing Lender in issuing, negotiating, effecting payment under,
amending or otherwise administering any Letter of Credit.
(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the L/C Participants all
fees and commissions received by the Administrative Agent for their respective
accounts pursuant to this Section.
3.4 L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
draft paid by the Issuing Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Lender that, if a draft
is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, times (iii) a fraction the numerator of which is the
number of days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant pursuant to
Section 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to Base Rate Loans hereunder. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
<PAGE> 48
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant its
pro rata share of such payment in accordance with Section 3.4(a), the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the Issuing Lender), or any payment of interest on account thereof, the
Issuing Lender will distribute to such L/C Participant its pro rata share
thereof; provided that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in
Section 2.14(c). Each drawing under any Letter of Credit shall constitute a
request by the Borrower to the Administrative Agent for a borrowing pursuant to
Section 2.6 of Base Rate Loans in the amount of such drawing, the proceeds of
such Loans to be applied to reimburse such drawing. The Borrowing Date with
respect to such borrowing shall be the date of such drawing.
3.6 Obligations Absolute. The Borrower's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Issuing Lender, any
beneficiary of a Letter of Credit or any other Person. The Borrower also agrees
with the Issuing Lender that the Issuing Lender shall not be responsible for,
and the Borrower's Reimbursement Obligations under Section 3.5 shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
any beneficiary of any Letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee. The Issuing
Lender shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards or care specified in the Uniform
Commercial Code of the State of New York, shall
<PAGE> 49
be binding on the Borrower and shall not result in any liability of the Issuing
Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Lender shall promptly notify
the Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Arranger, the Administrative Agent and the
Lenders to enter into this Agreement and to make the Loans and issue or
participate in the Letters of Credit, the Parent and the Borrower hereby
represent and warrant to the Administrative Agent and each Lender that:
4.1 Financial Condition. (a)(i) The unaudited pro forma
consolidated balance sheet of the Borrower as at December 31, 1996 (including
the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have
heretofore been furnished to each Lender, has been prepared giving effect (as if
such events had occurred on such date) to (A) the Acquisitions and the other
transactions contemplated by the Acquisition Documents, (B) the borrowings under
this Agreement contemplated to be made on the Closing Date (including all
borrowings to be held by the Administrative Agent pursuant to the Cash
Collateral Agreement) and the use of proceeds thereof, (C) the issuance of the
Interim Notes and (D) the payment of fees and expenses in connection with the
foregoing. The Pro Forma Balance Sheet has been prepared based on the best
information available to the Borrower as of the date of delivery thereof and
presents fairly on a pro forma basis the estimated consolidated financial
position of the Borrower as of December 31, 1996, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(ii) The unaudited pro forma consolidated income statement of
the Borrower for the period of four consecutive fiscal quarters ended as of
December 31, 1996 (including the notes thereto) (the "Pro Forma Income
Statement"), copies of which have heretofore been furnished to each Lender, has
been prepared giving effect (as if such events had occurred on the first day of
such period) to (A) the Acquisitions and the other transactions contemplated by
the Acquisition Documents, (B) the borrowings under this Agreement contemplated
to be made on the Closing Date (including all borrowings to be held by the
Administrative Agent pursuant
<PAGE> 50
to the Cash Collateral Agreement) and the use of proceeds thereof, (C) the
issuance of the Interim Notes and (D) the payment of fees and expenses in
connection with the foregoing. The Pro Forma Income Statement has been prepared
based on the best information available to the Borrower as of the date of
delivery thereof and presents fairly on a pro forma basis the estimated
consolidated results of operations of the Borrower for the period of four
consecutive fiscal quarters ended as of December 31, 1996, assuming that the
events specified in the preceding sentence had actually occurred on the first
day of such period. The Pro Forma Income Statement presents Consolidated EBITDA
for the Borrower for such period of not less than $27,200,000.
(b) (i) The consolidated balance sheets of the Borrower as at
March 31, 1996 and March 31, 1995 and the related consolidated statements of
income and of cash flows for the fiscal years ended on such dates, reported on
by KPMG Peat Marwick L.P., copies of which have heretofore been furnished to
each Lender, are complete and correct and present fairly in all material
respects the consolidated financial condition of the Borrower as at such dates,
and the consolidated results of operations and consolidated cash flows for the
fiscal years then ended. The unaudited consolidated balance sheet of the
Borrower as at February 28, 1997 and the related unaudited consolidated
statements of income and of cash flows for the eleven-month period ended on such
date, certified by a Responsible Officer of the Borrower, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly in all material respects the consolidated financial condition of the
Borrower as at such date, and the consolidated results of operations and
consolidated cash flows for the eleven-month period then ended (subject to
normal year-end audit adjustments).
(ii) The audited consolidated and combined balance sheet of
Bowen as at September 30, 1996 and the related unaudited statement of income for
the nine-month period ended on such date, reported on, in the case of such
balance sheet, by Ernst & Young LLP, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly in all
material respects the consolidated financial condition of Bowen as at such date.
The unaudited consolidated and combined balance sheets of Bowen as at December
31, 1995 and December 31, 1996 and the related unaudited statements of income
and of cash flows (in the case of December 31, 1995) for the fiscal years ended
on such dates, certified by the chief financial officer of Bowen, copies of
which have heretofore been furnished to each Lender, are complete and correct
and present fairly in all material respects the consolidated financial condition
of Bowen as at such dates, and the results of operations and consolidated cash
flows for the fiscal years then ended.
(iii) The consolidated balance sheets of Cardwell as at
December 31, 1995 and October 31, 1996 and the related consolidated statements
of income and of cash flows for the fiscal year and ten-month period,
respectively, ended on such dates, reported on by Grant Thornton in the case of
the December 31, 1995 financial statements and by KPMG Peat Marwick L.P. in the
case of the October 31, 1996 financial statements, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly in all material respects the consolidated financial condition of Cardwell
as at such dates, and the
<PAGE> 51
consolidated results of operations and consolidated cash flows for the fiscal
year and ten-month period, respectively, then ended. The unaudited consolidated
balance sheets of Cardwell as at December 31, 1996 and January 31, 1997 and the
related unaudited consolidated statement of income for the fiscal year ended on
December 31, 1996, certified by the chief financial officer of Cardwell, copies
of which have heretofore been furnished to each Lender, are complete and correct
and present fairly the consolidated financial condition of Cardwell as at such
dates, and the consolidated results of operations for the fiscal year ended on
December 31, 1996 (subject to normal year-end audit adjustments in the case of
the January 31, 1997 financial statements).
All such financial statements, including the related schedules
and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein). Neither the Borrower nor any of the
Acquired Companies had at the date of the most recent balance sheet referred to
above any undisclosed liabilities, any material Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto and not required to be disclosed by
GAAP except, in the case of Bowen, matters expressly identified or referred to
in any exhibit or schedule to the Bowen Asset Purchase Agreement or matters
which are not required to be expressly so identified or referred to in any such
exhibit or schedule by reason of any express limitation or exclusion in any
representation, warranty, covenant, agreement or undertaking contained in the
Bowen Asset Purchase Agreement. During the period from March 31, 1996 to and
including the date hereof there has been no sale, transfer or other disposition
by the Borrower or any of its consolidated Subsidiaries or by any of the
Acquired Companies or any of their consolidated Subsidiaries of any material
part of their business or property and no purchase or other acquisition of any
business or property (including any Capital Stock of any other Person) material
in relation to the consolidated financial condition of the Borrower or the
Acquired Companies, in each case, at March 31, 1996, other than pursuant to the
Acquisition Documents.
4.2 No Change. (a) Since March 31, 1996, there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from March 31, 1996 to and
including the date hereof no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Parent or the Borrower nor
has any of the Capital Stock of the Parent or the Borrower been redeemed,
retired, purchased or otherwise acquired for value by the Parent or the
Borrower.
4.3 Corporate Existence; Compliance with Law. Each of the
Parent, the Borrower and their Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the power and authority, and the legal right, to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged, (c) is duly qualified and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to be so
<PAGE> 52
qualified could not reasonably be expected to have a Material Adverse Effect and
(d) is in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations.
Each Loan Party has the power and authority, and the legal right, to make,
deliver and perform each Loan Document to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
action to authorize the execution, delivery and performance of the Loan
Documents to which it is a party and, in the case of the Borrower, to authorize
the borrowings on the terms and conditions of this Agreement and the Notes. No
material consent or authorization of, filing with, notice to or other act by or
in respect of, any Governmental Authority or any other Person is required in
connection with the Acquisitions and the other transactions contemplated hereby,
the borrowings hereunder or with the execution, delivery, performance, validity
or enforceability of this Agreement or any of the Loan Documents, except the
filings referred to in Section 4.19(b) and (c). Each Loan Document has been duly
executed and delivered on behalf of each Loan Party thereto. This Agreement
constitutes, and each other Loan Document upon execution will constitute, a
legal, valid and binding obligation of each Loan Party thereto, enforceable
against each such Loan Party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of
this Agreement and the other Loan Documents, the issuance of Letters of Credit,
the borrowings hereunder, the use of the proceeds thereof and the consummation
of the Acquisitions will not violate any Requirement of Law or Contractual
Obligation of the Parent, the Borrower or of any of their Subsidiaries and will
not result in, or require, the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation (other than the Liens created by the Security
Documents).
4.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Parent or the Borrower, threatened by or against the
Parent, the Borrower or any of their Subsidiaries or against any of its or their
respective properties or revenues (a) with respect to any of the Loan Documents
or any of the transactions contemplated hereby or thereby or (b) which could
reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither the Parent, the Borrower nor any of
their Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
<PAGE> 53
4.8 Ownership of Property; Liens. Each of the Parent, the Borrower and
their Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other property, and none of such property is subject to any Lien except as
permitted by Section 7.3. The Borrower and its Subsidiaries have title in fee
simple to no real property other than the Mortgaged Property and any real
property the fair market value of which the Borrower reasonably believes is less
than $75,000.
4.9 Intellectual Property. The Parent, the Borrower and each of their
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted, except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect
(collectively, the "Intellectual Property"). No material claim has been asserted
and is pending by any Person challenging or questioning the use of any
Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does the Parent or the Borrower know of any valid basis for any
such claim. The use of Intellectual Property by the Parent, the Borrower and
their Subsidiaries does not infringe on the rights of any Person in any material
respect.
4.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation of the Parent, the Borrower or any of their Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
4.11 Taxes. Each of the Parent, the Borrower and their Subsidiaries has
filed or caused to be filed all Federal, state and other material tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower); no tax Lien has been filed, and, to the knowledge of the
Parent and the Borrower, no claim is being asserted, with respect to any such
tax, fee or other charge.
4.12 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect or for any purpose which
violates the provisions of the Regulations of the Board. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or
<PAGE> 54
deemed made with respect to any Plan, and each Plan has complied in all material
respects with the applicable provisions of ERISA and the Code. No termination of
a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan
has arisen, during such five-year period. The present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits by a material amount.
Neither the Borrower nor any Commonly Controlled Entity has had a complete or
partial withdrawal from any Multiemployer Plan which has resulted or could
reasonably be expected to result in a material liability under ERISA, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any material liability under ERISA if the Borrower or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this representation
is made or deemed made. To the knowledge of the Borrower and the Commonly
Controlled Entities, no such Multiemployer Plan is in Reorganization or
Insolvent. The present value (determined using actuarial and other assumptions
which are reasonable in respect of the benefits provided and the employees
participating) of the liability of the Borrower and each Commonly Controlled
Entity for post retirement benefits to be provided to their current and former
employees under Plans which are welfare benefit plans (as defined in Section
3(1) of ERISA) does not, in the aggregate, exceed the assets under all such
Plans allocable to such benefits by an amount in excess of $100,000.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Federal or State statute or regulation
(other than Regulation X of the Board) which limits its ability to incur
Indebtedness.
4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15 constitute
all the direct or indirect Subsidiaries of the Parent and the Borrower and
Schedule 4.15 shows, as to each such Subsidiary, its jurisdiction of its
incorporation, its authorized capitalization and the ownership of Capital Stock
of such Subsidiary. The Parent has no direct Subsidiaries other than the
Borrower.
4.16 Purpose of Loans; Limitations on Use. The proceeds of the Tranche
A Term Loans shall be used to finance the Acquisitions and to pay related fees
and expenses. The proceeds of the Tranche B Term Loans shall be used to repay a
portion of the Interim Notes. The Revolving Credit Loans shall be used to
refinance certain existing indebtedness of the Borrower and the Acquired
Companies as described on Schedule 4.16 and to finance the working capital needs
and other general corporate purposes of the Borrower and its Subsidiaries in the
ordinary course of business.
<PAGE> 55
4.17 Environmental Matters. Except as set forth on Schedule 4.17:
(a) The Properties do not contain, and have not previously contained,
any Materials of Environmental Concern in amounts or concentrations or under
circumstances which (i) constitute or constituted a violation of, or (ii) could
give rise to liability under, any Environmental Law, except in either case
insofar as such violation or liability, or any aggregation thereof, could not
reasonably be expected to result in the payment of a Material Environmental
Amount.
(b) The Properties and all operations at the Properties are in material
compliance, and have in the last five years been in material compliance, with
all applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to the
Properties or the business operated by the Parent, the Borrower or any of their
Subsidiaries (the "Business") which could reasonably be expected to materially
interfere with the continued operation of the Properties. Neither the Parent,
the Borrower nor any of their Subsidiaries has assumed any liability of any
other Person under Environmental Laws.
(c) Neither the Parent, the Borrower nor any of their Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental matters
or compliance with Environmental Laws with regard to any of the Properties or
the Business, nor does the Parent, the Borrower or any of their Subsidiaries
have knowledge or reason to believe that any such notice will be received or is
being threatened, except insofar as such notice or threatened notice, or any
aggregation thereof, does not involve a matter or matters that could reasonably
be expected to result in the payment of a Material Environmental Amount.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could give rise to liability under, any
applicable Environmental Law, except insofar as any such violation or liability
referred to in this paragraph, or any aggregation thereof, could not reasonably
be expected to result in the payment of a Material Environmental Amount.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Parent, the Borrower or any of their
Subsidiaries, threatened, under any Environmental Law to which the Parent, the
Borrower or any of their Subsidiaries is or will be named as a party with
respect to the Properties or the Business, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements
<PAGE> 56
outstanding under any Environmental Law with respect to the Properties
or the Business, except insofar as such proceeding, action, decree,
order or other requirement, or any aggregation thereof, could not
reasonably be expected to result in the payment of a Material Adverse
Amount.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of the Parent, the Borrower
or any of their Subsidiaries in connection with the Properties or
otherwise in connection with the Business, in violation of or in
amounts or in a manner that could give rise to liability under
Environmental Laws, except insofar as any such violation or liability
referred to in this paragraph, or any aggregation thereof, could not
reasonably be expected to result in the payment of a Material
Environmental Amount.
4.18 Accuracy of Information. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other document, certificate or statement furnished
to the Arranger, the Administrative Agent or the Lenders, by or on behalf of any
Loan Party for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements contained herein or therein not misleading. It is understood that no
representation or warranty is made concerning the forecasts, estimates, pro
forma information, projections and statements as to anticipated future
performance or conditions, and the assumptions on which they were based
contained in any such information, reports, financial statements, exhibits or
schedules, except that as of the date such forecasts, estimates, pro forma
information, projections and statements were generated, such forecasts,
estimates, pro forma information, projections and statements were based upon
good faith estimates and assumptions believed by management of the Parent, the
Borrower and their Subsidiaries to be reasonable at such time. Such forecasts,
estimates, pro forma information and statements, and the assumptions on which
they were based, may or may not prove to be correct. There is no fact known to
the Parent, the Borrower or any of their Subsidiaries that could reasonably be
expected to have a Material Adverse Effect that has not been expressly disclosed
herein, in the other Loan Documents, or in such other documents, certificates
and statements furnished to the Administrative Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.
4.19 Security Documents. (a) The Master Guarantee and
Collateral Agreement is effective to create in favor of the Administrative
Agent, for the benefit of the Lenders, a legal, valid and enforceable security
interest in the Pledged Securities described therein and proceeds thereof and,
when the Pledged Notes and the stock certificates representing the Pledged Stock
described therein are delivered to the Administrative Agent, the Master
Guarantee and Collateral Agreement shall constitute a fully perfected first
priority Lien on, and security interest in, all right, title and interest of the
relevant pledgor in such Pledged Securities and the proceeds thereof, as
security for the Obligations (as defined in the Master
<PAGE> 57
Guarantee and Collateral Agreement), in each case prior and superior in right to
any other Person.
(b) The Master Guarantee and Collateral Agreement is effective
to create in favor of the Administrative Agent, for the benefit of the Lenders,
a legal, valid and enforceable security interest in the Collateral described
therein (other than the Pledged Securities) and proceeds thereof, and when
financing statements in appropriate form are filed in the offices specified on
Schedule 4.19(b), the Master Guarantee and Collateral Agreement shall constitute
a fully perfected Lien on, and security interest in, all right, title and
interest of the Loan Parties in such Collateral (other than the Pledged
Securities) and the proceeds thereof, as security for the Obligations (as
defined in the Master Guarantee and Collateral Agreement), in each case prior
and superior in right to any other Person, other than with respect to Liens
expressly permitted by Section 7.3.
(c) Each Mortgage, when executed and delivered by the relevant
Loan Party, shall be effective to create in favor of the Administrative Agent,
for the benefit of the Lenders, a legal, valid and enforceable Lien on the
Mortgaged Property described therein and proceeds thereof, and when each
Mortgage is filed in the office(s) specified on Schedule 4.19(c), each Mortgage
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Loan Parties in the Mortgaged Property and the
proceeds thereof, as security for the Obligations (as defined in the relevant
Mortgage), in each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 7.3.
(d) The Cash Collateral Agreement is effective to create in
favor of the Administrative Agent, for the benefit of the Lenders, a legal,
valid and enforceable security interest in the Collateral described therein and
proceeds thereof and the Cash Collateral Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the Borrower in such Collateral and the proceeds thereof, as
security for the Obligations (as defined herein), in each case prior and
superior in right to any other Person.
4.20 Solvency. Each Loan Party is, and after giving effect to
the consummation of the Acquisitions and the incurrence of all Indebtedness and
obligations being incurred in connection herewith and therewith will be and will
continue to be, Solvent.
4.21 Acquisition Documents. The Borrower has heretofore
furnished to each Lender a true, complete and correct copy of the Acquisition
Agreements and all schedules, exhibits, annexes and amendments thereto and all
side letters or agreements affecting the terms thereof (collectively, the
("Acquisition Documents"). The Acquisition Documents have not been amended,
supplemented or otherwise modified; none of the provisions thereof has been
waived; to the knowledge of each of the Parent and the Borrower, each of the
parties thereto is in material compliance with its covenants and agreements
contained therein; each of the representations and warranties contained therein
is true and correct in all material respects as of the time made or deemed made;
and the Acquisition Documents constitute the complete
<PAGE> 58
understanding among the Sellers and the Borrower relating to the Acquisitions.
The Acquisition Documents have been duly authorized, executed and delivered by
the Borrower, and, to the best knowledge of the Borrower, the Acquisition
Documents have been duly authorized, executed and delivered by the other parties
thereto. The Acquisition Documents are in full force and effect and constitute
the legal, valid and binding obligation of the Borrower and the other parties
thereto enforceable against each such party in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law). Except as
specified in the Acquisition Documents, no consent or authorization of, filing
with, notice to or other act by or in respect of, any Governmental Authority or
any other Person is required in connection with the Acquisitions or with the
execution, delivery, performance, validity or enforceability of the Acquisition
Documents.
4.22 Labor Matters. There are no strikes pending or, to the
knowledge of each of the Parent and the Borrower, threatened against the Parent,
the Borrower or any of their Subsidiaries which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect. The
hours worked and payments made to employees of the Parent, the Borrower and each
of their Subsidiaries have not been in violation of the Fair Labor Standards Act
or any other applicable Requirement of Law, except to the extent such violations
could not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect. All material payments due from the Parent, the Borrower
or any of their Subsidiaries on account of wages and employee health and welfare
insurance and other benefits have been paid or accrued as a liability on the
books of the Parent, the Borrower or such Subsidiary.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement
of each Lender to make the initial extension of credit requested to be made by
it is subject to the satisfaction, prior to or concurrently with the making of
such extension of credit on the Closing Date (which Closing Date shall occur on
or before March 31, 1997), of the following conditions precedent:
(a) Loan Documents. The Arranger shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Parent and the Borrower, with a counterpart or a conformed copy for
each Lender, (ii) for the account of any Lender requesting Notes in
accordance with Section 2.8(e), Notes conforming to the requirements
hereof and executed and delivered by a duly authorized officer of the
Borrower, (iii) the Master Guarantee and Collateral Agreement, executed
and delivered by a duly authorized officer of each party thereto, with
a counterpart or a conformed copy for each Lender, (iv) the Cash
Collateral Agreement, executed and delivered by a duly authorized
officer of the Borrower, with a counterpart or conformed copy for each
<PAGE> 59
Lender and (v) each Mortgage, executed and delivered by a duly
authorized officer of each party thereto, with a counterpart for each
Lender.
(b) Bowen Acquisition. The Bowen Acquisition shall have been
consummated for an aggregate purchase price not exceeding $75,000,000,
subject to any purchase price adjustments. The Bowen Acquisition and
the other transactions described in the Bowen Asset Purchase Agreement
which were to occur on or prior to the Closing Date shall have been
consummated in all material respects in accordance with the terms and
provisions thereof, no material provisions of the Bowen Asset Purchase
Agreement shall have been amended, supplemented or otherwise modified
or waived without the prior written consent of the Arranger, and the
Arranger shall have received a certificate of the Borrower signed by a
duly authorized officer of the Borrower to such effect and to the
effect that the only condition to the consummation of such Acquisition
remaining to be satisfied under the Bowen Asset Purchase Agreement
(which condition shall be satisfied simultaneously with the making of
the initial extension of credit hereunder) is the delivery of funds
sufficient to pay the amounts required to be paid under the Bowen Asset
Purchase Agreement. Prior to or simultaneously with the making of the
initial extension of credit hereunder, the Arranger shall have received
(i) evidence satisfactory to it that ownership of the fee and leasehold
interests in the real property purchased in such Acquisition shall have
been transferred to the Borrower or a Subsidiary Guarantor and all
other rights and assets acquired by the Borrower pursuant to the Bowen
Asset Purchase Agreement shall have been transferred to the Borrower or
a Subsidiary Guarantor and (ii) a true, correct, complete and fully
executed copy of the Bowen Asset Purchase Agreement and all schedules
and material documents executed or delivered in connection therewith,
accompanied by a certificate of a duly authorized officer of the
Borrower to such effect, all of which shall be in form and substance
reasonably satisfactory to the Arranger.
(c) Related Agreements. The Arranger shall have received, in
form and substance reasonably satisfactory to it, with a copy for each
Lender, true and correct copies, certified as to authenticity by the
Borrower of (i) the Interim Note Documentation and (ii) the Permanent
Note Documentation, to the extent agreed to on or prior to the Closing
Date. The Arranger shall have received (in a form reasonably
satisfactory to the Arranger), with a copy for each Lender, true and
correct copies, certified as to authenticity by the Borrower, of the
Insurance Policies (or certificates evidencing the effectiveness of
such Insurance Policies and the material terms thereof) and such other
documents or instruments as may be reasonably requested by the
Arranger, including, without limitation, a copy of any other debt
instrument, security agreement or other material contract to which the
Loan Parties may be a party.
(d) Capitalization; Capital Structure. The Borrower shall have
received at least $31,000,000 in net cash proceeds from the issuance of
the Interim Notes pursuant to the Interim Note Documentation, the terms
and conditions (including without limitation the subordination
provisions applicable thereto) of which shall be satisfactory to the
<PAGE> 60
Arranger in all material respects. The capital structure of the Parent,
the Borrower and each of their Subsidiaries after the Acquisitions and
the financings contemplated hereby shall be satisfactory to the
Arranger and the Lenders in all respects.
(e) Pro Forma Financial Statements; Interim Financial
Statements. The Lenders shall have received (i) the Pro Forma Balance
Sheet, which Pro Forma Balance Sheet shall be in form and substance
reasonably satisfactory to the Lenders, (ii) the Pro Forma Income
Statement, which Pro Forma Income Statement shall be in form and
substance reasonably satisfactory to the Lenders and (iii) satisfactory
unaudited interim consolidated financial statements of the Borrower and
each of the Acquired Companies for each fiscal month ended in the 1997
fiscal year as to which such financial statements are available prior
to the Closing Date and such financial statements shall not reflect any
material adverse change in the consolidated financial condition of such
reporting entity as reflected in the financial statements previously
delivered to the Lenders. The Pro Forma Income Statement presents
Consolidated EBITDA for the Borrower for such period of not less than
$27,200,000.
(f) Approvals. All governmental and third party approvals
(including landlords' and other consents) necessary or, in the
reasonable discretion of the Arranger, advisable in connection with the
Bowen Acquisition, the financings contemplated hereby and the
continuing operations of the Borrower and its Subsidiaries shall have
been obtained and be in full force and effect, and all applicable
waiting periods shall have expired without any action being taken or
threatened by any competent authority which would restrain, prevent or
otherwise impose adverse conditions on the Bowen Acquisition, the
financing thereof or the continuing operations of the Borrower.
(g) Business Plan. The Lenders shall have received a detailed
business plan of the Borrower for fiscal years 1997 - 2003 and a
written analysis of the business and prospects of the Borrower and its
Subsidiaries for the period from the Closing Date through the final
maturity of the Term Loans, in each case, (i) on a pro forma basis
reflecting the Acquisitions and the other transactions contemplated
hereby and (ii) reasonably satisfactory to the Lenders.
(h) Lien Searches. The Arranger shall have received the
results of a recent search by a Person satisfactory to the Arranger, of
the Uniform Commercial Code, judgment and tax lien filings in each of
the relevant jurisdictions where assets of the Loan Parties (prior and
subsequent to the Bowen Acquisition) are located, and such search shall
reveal no liens on any of such assets except for liens permitted by
Section 7.3 or liens to be discharged on or prior to the Closing Date
pursuant to documentation satisfactory to the Arranger.
<PAGE> 61
(i) Expenses. The fees and expenses incurred or to be incurred
in connection with the Acquisitions and the financing thereof,
excluding the refinancing of the Interim Notes, shall not exceed
$6,500,000 in the aggregate.
(j) Environmental. The Lenders shall have received such
environmental information with respect to the real property owned or
leased by the Loan Parties or to be acquired pursuant to the
Acquisitions as such Lenders may reasonably request and such
information shall be provided by a firm satisfactory to the Arranger
and in form and substance satisfactory to the Lenders.
(k) Closing Certificate. The Arranger shall have received,
with a counterpart for each Lender, a certificate of each Loan Party,
dated the Closing Date, substantially in the form of Exhibit D, with
appropriate insertions and attachments, executed by the President or
any Vice President and the Secretary or any Assistant Secretary of such
Loan Party.
(l) Corporate Proceedings of Loan Parties. The Arranger shall
have received, with a counterpart for each Lender, a copy of the
resolutions of the Board of Directors of each Loan Party authorizing
(i) the execution, delivery and performance of the Loan Documents to
which it is a party (including, but not limited to, the granting of any
Liens provided for therein), and (ii) in the case of the Borrower, the
borrowings contemplated hereunder.
(m) Fees. The Arranger and the Administrative Agent shall have
received all fees required to be paid, and all expenses for which
invoices have been presented, on or before the Closing Date.
(n) Legal Opinions. The Arranger shall have received, with a
counterpart for each Lender, (i) the following executed legal opinions:
(1) the executed legal opinion of Jones, Day, Reavis
& Pogue, counsel to the Loan Parties, substantially in the
form of Exhibit E; and
(2) such legal opinions in respect of the filing of
the Mortgages as may be reasonably requested by the Arranger,
from local counsel;
(ii) a reliance letter or reliance letters permitting the
Administrative Agent and the Lenders to rely on all of the opinions of
counsel rendered in connection with the Interim Notes and the Bowen
Acquisition.
Each such legal opinion shall be in form and substance satisfactory to
the Lenders and shall cover such matters incident to the transactions
contemplated by this Agreement as the Arranger may reasonably require.
<PAGE> 62
(o) Pledged Securities; Stock Powers. The Administrative Agent
shall have received the Pledged Notes (duly indorsed to the bearer) and
the certificates representing the shares pledged pursuant to the Master
Guarantee and Collateral Agreement, together with an undated stock
power for each such certificate executed in blank by a duly authorized
officer of the pledgor thereof.
(p) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing
statement) required by the Security Documents or under law or
reasonably requested by the Arranger to be filed, registered or
recorded in order to create in favor of the Administrative Agent, for
the benefit of the Lenders, a perfected Lien on the Collateral
described therein, prior and superior in right to any other Person
(other than with respect to Liens expressly permitted by Section 7.3),
shall be in proper form for filing, registration or recordation in each
jurisdiction in which the filing, registration or recordation thereof
is so required or requested.
(q) Surveys. The Arranger shall have received, and the title
insurance company issuing the policy referred to in Section 5.1(r) (the
"Title Insurance Company") shall have received, maps or plats of an
as-built survey of the sites of the property covered by each Mortgage
(except as otherwise agreed to by the Arranger) certified to the
Administrative Agent and the Title Insurance Company in a manner
satisfactory to them, dated a date satisfactory to the Arranger and the
Title Insurance Company by an independent professional licensed land
surveyor satisfactory to the Arranger and the Title Insurance Company,
which maps or plats and the surveys on which they are based shall be
made in accordance with the Minimum Standard Detail Requirements for
Land Title Surveys jointly established and adopted by the American Land
Title Association and the American Congress on Surveying and Mapping in
1992, and, without limiting the generality of the foregoing, there
shall be surveyed and shown on such maps, plats or surveys the
following: (i) the locations on such sites of all the buildings,
structures and other improvements and the established building setback
lines; (ii) the lines of streets abutting the sites and width thereof;
(iii) all access and other easements appurtenant to the sites or
necessary or desirable to use the sites; (iv) all roadways, paths,
driveways, easements, encroachments and overhanging projections and
similar encumbrances affecting the site, whether recorded, apparent
from a physical inspection of the sites or otherwise known to the
surveyor; (v) any encroachments on any adjoining property by the
building structures and improvements on the sites; and (vi) if the site
is described as being on a filed map, a legend relating the survey to
said map.
(r) Title Insurance Policy. The Arranger shall have received
in respect of each parcel covered by each Mortgage a mortgagee's title
policy (or policies) or marked up unconditional binder for such
insurance dated the Closing Date. Each such policy shall (i) be in an
amount satisfactory to the Arranger; (ii) be issued at ordinary rates;
(iii) insure that the Mortgage insured thereby creates a valid first
Lien on such parcel free
<PAGE> 63
and clear of all defects and encumbrances, except such as may be
approved by the Arranger; (iv) name the Administrative Agent for the
benefit of the Lenders as the insured thereunder; (v) be in the form of
ALTA Loan Policy - 1992; (vi) contain such endorsements and affirmative
coverage as the Arranger may request; and (vii) be issued by title
companies satisfactory to the Arranger (including any such title
companies acting as co-insurers or reinsurers, at the option of the
Arranger). The Arranger shall have received evidence satisfactory to it
that all premiums in respect of each such policy, and all charges for
mortgage recording tax, if any, have been paid.
(s) Flood Insurance. If requested by the Arranger, the
Arranger shall have received (i) a policy of flood insurance which (A)
covers any parcel of improved real property which is encumbered by any
Mortgage, (B) is written in an amount not less than the outstanding
principal amount of the indebtedness secured by such Mortgage which is
reasonably allocable to such real property or the maximum limit of
coverage made available with respect to the particular type of property
under the National Flood Insurance Act of 1968, whichever is less, and
(C) has a term ending not earlier than the maturity of the indebtedness
secured by such Mortgage and (ii) confirmation that the Company has
received the notice requirement pursuant to Section 208(e)(3) of
Regulation H of the Board.
(t) Copies of Documents. The Arranger shall have received a
copy of all recorded documents referred to, or listed as exceptions to
title in, the title policy or policies referred to in Section 5.1(r)
and a copy, certified by such parties as the Arranger may deem
appropriate, of all other documents affecting the property covered by
each Mortgage.
(u) Solvency Analysis. The Lenders shall have received an
analysis from the chief financial officer of the Borrower documenting
the solvency of the Borrower and its Subsidiaries after giving effect
to the Acquisitions, the financings and the other transactions
contemplated hereby.
(v) Borrowing Notice. The Administrative Agent shall have
received notice pursuant to Section 2.2 requesting the Tranche A Term
Loan Lenders to make Tranche A Term Loans in an amount sufficient to
consummate the Acquisitions and to pay related fees and expenses.
5.2 Conditions to Tranche B Term Loans. The agreement of each
Tranche B Term Loan Lender to make any Tranche B Term Loan requested to be made
by it on any date is subject to the satisfaction of the following conditions
precedent:
(a) Issuance of Common Stock. The Parent shall have issued
common stock on terms satisfactory to the Lenders, received net cash
proceeds thereof of at least $15,500,000 and contributed such net
proceeds to the Borrower in a manner reasonably satisfactory to the
Lenders, and the Borrower shall have applied the proceeds thereof to
<PAGE> 64
repay the portion of the Interim Notes not to be repaid with the
proceeds of the Tranche B Term Loans; and
(b) Consolidated EBITDA. The Consolidated EBITDA of the
Borrower and its Subsidiaries shall have been at least $30,000,000 for
the four consecutive fiscal quarters most recently ended prior to the
date of borrowing the Tranche B Term Loans. For purposes of this test,
Consolidated EBITDA shall be determined in the same manner as set forth
in the Pro Forma Income Statement.
5.3 Conditions to Each Extension of Credit. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date (including, without limitation, its initial extension of credit) is subject
to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by any Loan Party in or pursuant to
the Loan Documents shall be true and correct in all material respects
on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
(c) Additional Matters. All proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Agreement, the other Loan Documents and the
Acquisitions shall be reasonably satisfactory in form and substance to
the Administrative Agent, and the Administrative Agent shall have
received such other documents and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
(d) Borrowing Notice. The Borrower shall have delivered to the
Administrative Agent the applicable borrowing notice in accordance with
the relevant subsection of Section 2.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.3 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Parent and the Borrower hereby jointly and severally agree
that, so long as the Commitments remain in effect, any Note or Letter of Credit
remains outstanding and unpaid or any other amount is owing to any Lender, the
Arranger or the Administrative Agent
<PAGE> 65
hereunder, the Parent and the Borrower shall and shall cause each of their
respective Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent
for distribution to each Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such year and the related consolidated statements of income
and retained earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year,
reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by
KPMG Peat Marwick L.P. or other independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated balance sheet
of the Borrower and its Subsidiaries as at the end of such quarter and
the related unaudited consolidated statements of income and retained
earnings and of cash flows of the Borrower and its Subsidiaries for
such quarter and the portion of the fiscal year through the end of such
quarter, setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer of the Borrower
as being fairly stated in all material respects (subject to normal
year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45
days after the end of each month occurring during each fiscal year of
the Borrower (other than the third, sixth, ninth and twelfth such
month), the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such month and the related unaudited
consolidated statements of income and retained earnings and of cash
flows of the Borrower and its Subsidiaries for such month and the
portion of the fiscal year through the end of such month, setting forth
in each case in comparative form the figures for the previous year;
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods.
6.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), (i) a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
<PAGE> 66
such certificate and (ii) copies of all reports or written
communications providing advice, recommendations or analysis to the
management of the Parent or the Borrower, as the case may be, from such
independent certified public accountants with regard to their audit of
the financial statements referred to in Sections 6.1(a) and (c) or the
internal financial controls and systems of the Parent or the Borrower;
(b) concurrently with the delivery of any financial statement
pursuant to Section 6.1, (x) a certificate of a Responsible Officer of
each of the Parent and the Borrower stating that, to the best of each
such Responsible Officer's knowledge, during such period (i) no
Subsidiary has been formed or acquired (or, if any such Subsidiary has
been formed or acquired, the Loan Parties have complied with the
requirements of Section 6.11 with respect thereto), (ii) neither the
Parent, the Borrower nor any of their Subsidiaries has changed its
name, its principal place of business, its chief executive office or
the location of any material item of tangible Collateral without
complying with the requirements of this Agreement and the Security
Documents with respect thereto, (iii) the Parent has observed and
performed and is in compliance with Section 7.17 and (iv) each Loan
Party has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement
and the other Loan Documents to which it is a party to be observed,
performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Default or Event of Default except as
specified in such certificate, (y) in the case of quarterly or annual
financial statements, a certificate containing all information
reasonably necessary for determining compliance by the Parent, the
Borrower and their Subsidiaries with the provisions of this Agreement
(including but not limited to Sections 2.11 and 7.1) as of the last day
of such fiscal quarter or fiscal year of the Parent or the Borrower, as
the case may be and (z) a certificate of a Responsible Officer of the
Borrower stating that to the best of such Responsible Officer's
knowledge, the Eligible Backlog of the Borrower and its Subsidiaries is
as specified in such certificate;
(c) as soon as available, and in any event no later than 30
days after the end of each fiscal year of the Borrower, a projected
consolidated balance sheet of the Borrower as of the end of the
following fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and
projected income for the following fiscal year, together with an
operating budget with respect to the following fiscal year, and, as
soon as available, significant revisions, if any, of such projections
with respect to such fiscal year (collectively, the "Borrower
Projections"), which Borrower Projections shall in each case be
accompanied by a certificate of a Responsible Officer of the Borrower
stating that such Borrower Projections are based on reasonable
estimates, information and assumptions believed by such Responsible
Officer to be reasonable and that such Responsible Officer has no
reason to believe that such Borrower Projections are incorrect or
misleading in any material respect;
<PAGE> 67
(d) within 45 days after the end of each fiscal quarter of
each fiscal year of the Borrower, a narrative discussion and analysis
of the financial condition and results of operations of the Borrower
and its Subsidiaries for such fiscal quarter and for the period from
the beginning of the then current fiscal year to the end of such fiscal
quarter, as compared to the portion of the Borrower Projections, as
applicable, covering such periods and to the comparable periods of the
previous year;
(e) within five days after the same are filed, copies of all
financial statements and reports which the Parent, the Borrower or any
of their Subsidiaries may make to, or file with, the Securities and
Exchange Commission or any successor or analogous Governmental
Authority; and
(f) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Parent, the Borrower or their Subsidiaries, as the
case may be.
6.4 Conduct of Business and Maintenance of Existence, etc. (a)
Continue to engage in business of the same general type as now conducted by it,
(b) preserve, renew and keep in full force and effect its existence and (c) take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted pursuant to Section 7.5 and except, in the case of
clause (c) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (d) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted; (b) maintain with financially sound
and reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and (c) furnish to each Lender, upon written request, full information
as to the insurance carried.
6.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities; and upon
reasonable notice permit representatives of any Lender upon
<PAGE> 68
reasonable notice to visit and inspect any of its properties and examine and
make abstracts from any of its books and records at any reasonable time and as
often as may reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Parent, the Borrower and
their Subsidiaries with senior officers of the Parent, the Borrower and their
Subsidiaries and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent
of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Parent, the Borrower or any of their Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any
time between the Parent, the Borrower or any of their Subsidiaries and
any Governmental Authority, which in either case, if not cured or if
adversely determined, as the case may be, could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Parent, the
Borrower or any of their Subsidiaries in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Parent, the Borrower or any of their
Subsidiaries knows or has reason to know thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Plan, a
failure to make any required contribution to a Plan, the creation of
any Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action
by the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan; and
(e) any development or event which could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Parent, the Borrower or the
relevant Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects
with, and take all reasonable efforts to ensure compliance in all material
respects by all tenants and subtenants, if any, with, all applicable
Environmental Laws, except to the extent that the same are being contested in
good faith by appropriate proceedings and the pendency of such
<PAGE> 69
proceedings could not reasonably be expected to have a Material Adverse Effect,
and obtain and comply in all material respects with and maintain, and take all
reasonable efforts to ensure that all tenants and subtenants obtain and comply
in all material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws insofar as any failure to so comply, obtain or maintain reasonably could be
expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws, except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not
reasonably be expected to have a Material Adverse Effect.
6.9 Interest Rate Protection. In the case of the Borrower,
within 30 days after the Closing Date, enter into Interest Rate Protection
Agreements with one or more of the Lenders providing interest rate protection
with respect to at least $35,000,000 of the Term Loans for a period of at least
24 months such that the Eurodollar Base Rate for determining the interest rate
thereon shall not be higher than 1% above the Eurodollar Base Rate that would be
applicable to a six-month Interest Period commencing on the Closing Date.
6.10 Further Assurances. Promptly perform or cause to be
performed any and all acts and execute or cause to be executed any and all
documents (including, without limitation, financing statements and continuation
statements) for filing under the provisions of the Uniform Commercial Code or
any other Requirement of Law which are necessary or advisable to maintain in
favor of the Administrative Agent, for the benefit of the Lenders, Liens on the
Collateral that are duly perfected in accordance with all applicable
Requirements of Law.
6.11 Additional Collateral. (a) With respect to any assets
acquired after the Closing Date by the Parent, the Borrower or any of their
Domestic Subsidiaries that are intended to be subject to the Lien created by any
of the Security Documents but which are not so subject (other than any assets
described in paragraph (b), (c) or (d) of this Section), promptly (and in any
event within 30 days after the acquisition or creation thereof): (i) execute and
deliver to the Administrative Agent such amendments to the Master Guarantee and
Collateral Agreement or such other documents as the Administrative Agent shall
deem necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a Lien on such assets, (ii) take all actions necessary
or advisable to cause such Lien to be duly perfected in accordance with all
applicable Requirements of Law, including, without limitation, the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be
requested by the Administrative Agent, and (iii) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i) and (ii) immediately preceding,
which opinions shall be in form and substance and from counsel reasonably
satisfactory to the Administrative Agent.
<PAGE> 70
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary of the Parent or the Borrower (other than a Foreign
Subsidiary), promptly: (i) execute and deliver to the Administrative Agent, for
the benefit of the Lenders, such amendments to the Master Guarantee and
Collateral Agreement as the Administrative Agent shall deem necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
a Lien on the Capital Stock of such Subsidiary which is owned by the Parent, the
Borrower or any of their Subsidiaries, (ii) deliver to the Administrative Agent
the certificates representing such Capital Stock, together with undated stock
powers duly executed and delivered in blank, (iii) cause such new Subsidiary (A)
to become a party to the Master Guarantee and Collateral Agreement, pursuant to
documentation which is in form and substance satisfactory to the Administrative
Agent, and (B) to take all actions necessary or advisable to cause the Lien
created by such security agreement to be duly perfected in accordance with all
applicable Requirements of Law, including, without limitation, the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be
requested by the Administrative Agent and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i), (ii) and (iii) immediately
preceding, which opinions shall be in form and substance and from counsel
reasonably satisfactory to the Administrative Agent.
(c) With respect to any fee interest in any real estate having
a value (together with improvements thereof) of at least $100,000, in each case
acquired after the Closing Date by the Parent, the Borrower or any of their
Domestic Subsidiaries, or, in the case of any real property encumbered by any
mortgage or deed of trust on the Closing Date, promptly after the Indebtedness
secured thereby shall have been paid in full (other than with the proceeds of
permitted Indebtedness incurred to refinance such secured Indebtedness),
promptly (i) execute and deliver a first priority mortgage or deed of trust, as
the case may be (subordinate only to such mortgages or deeds of trust as are
necessary to permit the Borrower or such Subsidiary to purchase such real
estate), in favor of the Administrative Agent, for the benefit of the Lenders,
covering such real estate, in form and substance reasonably satisfactory to the
Administrative Agent, (ii) if requested by the Administrative Agent, provide the
Lenders with (x) title and extended coverage insurance covering such real estate
in an amount at least equal to the purchase price of such real estate (or such
other amount as shall be reasonably specified by the Administrative Agent) as
well as a current ALTA survey thereof, together with a surveyor's certificate
and (y) any consents or estoppels deemed necessary or advisable by the
Administrative Agent in connection with such mortgage or deed of trust, each of
the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described in
the preceding clauses (i) and (ii), which opinions shall be in form and
substance and from counsel reasonably satisfactory to the Administrative Agent.
(d) With respect to any new Foreign Subsidiary created or
acquired after the Closing Date by the Parent, the Borrower or any of their
Domestic Subsidiaries (the creation or acquisition of which shall not be
permitted hereunder except in accordance with the terms of Section 7.18),
promptly (i) execute and deliver to the Administrative Agent such amendments
<PAGE> 71
to the Master Guarantee and Collateral Agreement (or comparable documentation)
as the Administrative Agent deems necessary or advisable in order to grant to
the Administrative Agent, for the benefit of the Lenders, a perfected first
priority security interest in the Capital Stock of such new Subsidiary which is
owned by the Parent, the Borrower or any of their Subsidiaries (provided that in
no event shall more than 65% of the Capital Stock of any such new Subsidiary be
required to be so pledged), (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of the
Parent, the Borrower or such Subsidiary, as the case may be, and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described in the preceding clauses (i) and
(ii), which opinions shall be in form and substance and from counsel reasonably
satisfactory to the Administrative Agent.
(e) Within 60 days of the Closing Date, if reasonably
requested by the Administrative Agent, provide the Administrative Agent with the
surveys described in Section 5.1(q) with respect to certain Mortgaged Properties
for which surveys were not provided on or prior to the Closing Date.
6.12 Construction Credit Support Policy. Maintain its current
policy of requiring non-U.S. customers to provide an irrevocable letter of
credit to support the portion of any material equipment sale not paid for in
advance in cash.
SECTION 7. NEGATIVE COVENANTS
The Parent and the Borrower hereby jointly and severally agree
that, so long as the Commitments remain in effect, any Note or Letter of Credit
remains outstanding and unpaid or any other amount is owing to any Lender, the
Arranger or the Administrative Agent hereunder, the Parent and the Borrower
shall not, and shall not permit any of their respective Subsidiaries to,
directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated
Leverage Ratio of the Borrower and its Subsidiaries for any period of four
consecutive fiscal quarters of the Borrower ending on any date set forth below
to exceed the ratio set forth below opposite such date:
<PAGE> 72
<TABLE>
<CAPTION>
Consolidated
Fiscal Quarter Ending Leverage Ratio
<S> <C>
June 30, 1997 4.00 to 1.0
September 30, 1997 4.00 to 1.0
December 31, 1997 4.00 to 1.0
March 31, 1998 4.00 to 1.0
June 30, 1998 3.50 to 1.0
September 30, 1998 3.50 to 1.0
December 31, 1998 3.50 to 1.0
March 31, 1999 3.00 to 1.0
June 30, 1999 3.00 to 1.0
September 30, 1999 3.00 to 1.0
December 31, 1999 3.00 to 1.0
March 31, 2000 2.50 to 1.0
June 30, 2000 2.50 to 1.0
September 30, 2000 2.50 to 1.0
December 31, 2000 2.50 to 1.0
March 31, 2001 and thereafter 2.00 to 1.0
</TABLE>
(b) Consolidated EBITDA. Permit Consolidated EBITDA of the
Borrower and its Subsidiaries for any period of four consecutive fiscal quarters
of the Borrower ending with any fiscal quarter set forth below to be less than
the amount set forth below opposite such date:
<TABLE>
<CAPTION>
Consolidated
Fiscal Quarter Ending EBITDA
<S> <C>
December 31, 1997 $25,000,000
March 31, 1998 28,000,000
June 30, 1998 28,000,000
September 30, 1998 28,000,000
December 31, 1998 28,000,000
March 31, 1999 35,000,000
June 30, 1999 35,000,000
September 30, 1999 35,000,000
December 31, 1999 35,000,000
March 31, 2000 40,000,000
June 30, 2000 40,000,000
September 30, 2000 40,000,000
December 31, 2000 40,000,000
March 31, 2001 and thereafter 50,000,000
</TABLE>
<PAGE> 73
(c) Consolidated Interest Coverage Ratio. Permit the
Consolidated Interest Coverage Ratio of the Borrower and its Subsidiaries for
any period of four consecutive fiscal quarters of the Borrower ending with any
fiscal quarter set forth below to be less than the ratio set forth below
opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated
Interest
Fiscal Quarter Ending Coverage Ratio
<S> <C>
June 30, 1997 2.5 to 1.0
September 30, 1997 2.5 to 1.0
December 31, 1997 2.5 to 1.0
March 31, 1998 2.75 to 1.0
June 30, 1998 2.75 to 1.0
September 30, 1998 3.0 to 1.0
December 31, 1998 3.0 to 1.0
March 31, 1999 3.25 to 1.0
June 30, 1999 3.25 to 1.0
September 30, 1999 3.50 to 1.0
Thereafter 3.50 to 1.0
</TABLE>
(d) Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio of the Borrower and its Subsidiaries
for any period of four consecutive fiscal quarters of the Borrower to be less
than 1.05 to 1.00 on any date during the period from March 31, 1998 through
March 30, 1999 or be less than 1.10 to 1.0 on any date from March 31, 1999 and
thereafter.
7.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness (i) of the Borrower to a Wholly Owned
Subsidiary, (ii) of a Domestic Wholly Owned Subsidiary to the Borrower
or any other Subsidiary and (iii) of any Foreign Subsidiary to the
Borrower or any Subsidiary in an aggregate principal amount at any time
outstanding (with respect to all Foreign Subsidiaries of the Parent)
not to exceed $1,000,000, provided that such Indebtedness referred to
in this clause (iii), if to the Borrower or any Domestic Subsidiary, is
evidenced by a promissory note or promissory notes which has or have
been pledged to the Administrative Agent on terms and conditions
satisfactory to the Administrative Agent;
(c) Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition or construction of fixed or capital assets
(whether pursuant to a loan, a
<PAGE> 74
Financing Lease or otherwise) in an aggregate principal amount not
exceeding as to the Borrower and its Subsidiaries $5,000,000 at any
time outstanding;
(d) (i) Interim Notes in an aggregate principal amount not to
exceed $31,000,000 and (ii) Interim Notes issued in lieu of cash
interest on other Interim Notes in accordance with the Interim Note
Documentation; and
(e) Indebtedness of any of the Loan Parties incurred to
prepay, redeem, retire or repurchase in full the Interim Notes or the
Rollover Notes, as the case may be, pursuant to Permanent Note
Documentation so long as (i) the terms and conditions thereof are
reasonably satisfactory to the Arranger and the Required Lenders
(provided that the Rollover Indenture as entered into on the Closing
Date shall be deemed to be reasonably satisfactory to the Arranger and
the Required Lenders) and (ii) the aggregate principal amount of such
Indebtedness shall not exceed the sum (the "Interim Note Principal
Amount") of $31,000,000 plus the amount of additional Interim Notes or
the Rollover Notes, as the case may be, issued to pay interest in lieu
of payment of interest in cash; provided that to the extent such
Indebtedness consists of "High Yield Notes" (as defined in the Interim
Note Documentation) issued pursuant to the Interim Note Documentation
the aggregate principal amount of such Indebtedness may exceed the
Interim Note Principal Amount to the extent the Net Cash Proceeds
thereof in excess of the amount required to pay in full the aggregate
principal amount of the Interim Notes or the Rollover Notes, as the
case may be (which aggregate principal amount shall not exceed the
Interim Note Principal Amount) plus any accrued and unpaid interest and
fees due in accordance with the Interim Note Documentation or the
Rollover Indenture, as the case may be, are applied pursuant to Section
2.11(a) to the prepayment of the Term Loans and to reduce permanently
the Revolving Credit Commitments.
7.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Parent, the Borrower or their Subsidiaries, as the case may be, in
conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's or other like Liens arising in the ordinary
course of business which are not overdue for a period of more than 60
days or which are being contested in good faith by appropriate
proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
<PAGE> 75
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary;
(f) Liens securing Indebtedness of the Borrower or any
Subsidiary incurred to finance the acquisition or construction of fixed
or capital assets, provided that (i) such Liens shall be created
substantially simultaneously with the acquisition or construction of
such fixed or capital assets, (ii) such Liens do not at any time
encumber any property other than the property financed by such
Indebtedness, (iii) the amount of Indebtedness secured thereby is not
increased and (iv) the proceeds of the Indebtedness secured by any such
Lien shall at no time exceed 100% of the original purchase price of
such property;
(g) Liens created pursuant to the Security Documents;
(h) Liens in favor of customs and revenue authorities to
secure payment of customs duties in connection with the importation of
goods in the ordinary course of business and other similar Liens
arising in the ordinary course of business;
(i) Liens existing on the Closing Date and listed on Schedule
7.3;
(j) leases or subleases granted to third Persons not
interfering with the ordinary course of business of the Parent, the
Borrower or any of their Subsidiaries;
(k) Permitted Exceptions (as defined in the Mortgages); and
(l) Liens created under Environmental Laws that are being
contested in good faith and as to which adequate reserves have been
established to the extent required by GAAP and secure obligations not
in excess of $500,000; provided that the Borrower and its Subsidiaries
shall take all reasonable actions to terminate such Liens.
7.4 Limitation on Guarantee Obligations. Create, incur, assume
or suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations of the Loan Parties in respect of
the Interim Notes or the Permanent Notes in accordance with the Interim
Note Documentation or the Permanent Note Documentation, respectively;
<PAGE> 76
(b) Guarantee Obligations made in the ordinary course of its
business by the Borrower of obligations of any of its Subsidiaries
(provided that the Guarantee Obligations by the Borrower in respect of
the obligations of any and all Foreign Subsidiaries shall not exceed
$1,000,000) which obligations are otherwise permitted under this
Agreement;
(c) Guarantee Obligations in respect of Standby Letters of
Credit; and
(d) the Guarantee Obligations of the Loan Parties pursuant to
the Master Guarantee and Collateral Agreement.
7.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Wholly Owned Subsidiary of the Parent or the Borrower
may be merged or combined with or into the Borrower (provided that the
Borrower shall be the continuing or surviving corporation) or with or
into any one or more Domestic Wholly Owned Subsidiaries of the Borrower
(provided that the Domestic Wholly Owned Subsidiary or Subsidiaries
shall be the continuing or surviving corporation); and
(b) any Wholly Owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to Borrower or any Domestic Wholly Owned
Subsidiary of the Borrower.
7.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary of the Parent
or the Borrower, issue or sell any shares of such Subsidiary's Capital Stock to
any Person other than the Borrower or any Domestic Wholly Owned Subsidiary of
the Borrower, except:
(a) the sale or other disposition of obsolete or worn out
property in the ordinary course of business having a fair market value
not to exceed, in the aggregate, $500,000 in any period of twelve
consecutive months;
(b) the sale or other disposition of any property in the
ordinary course of business, provided that (other than inventory) the
aggregate book value of all assets so sold or disposed of in any period
of twelve consecutive months shall not exceed $500,000;
(c) the sale of inventory in the ordinary course of business;
and
<PAGE> 77
(d) as permitted by Section 7.5(b).
To the extent the Required Lenders waive the provisions of this Section 7.6 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by
this Section 7.6, such Collateral in each case shall be sold free and clear of
the Liens in favor of the Administrative Agent created by the Security Documents
and the Administrative Agent shall take such actions as it deems appropriate in
connection therewith or may be reasonably requested by the Borrower to evidence
such Lien release, in each case at the Borrower's expense.
7.7 Limitation on Restricted Payments. Declare or pay any
dividend (other than dividends payable solely in common stock of the Person
making such dividend) on, or make any payment on account of, or set apart assets
for a sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock
(including but not limited to in respect of any preferred Capital Stock
outstanding or dividends accumulated thereon on the Closing Date) of the Parent
or the Borrower or any of their Subsidiaries or any warrants or options to
purchase any such Capital Stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Parent, the Borrower or any
Subsidiary, except the issuance of the Warrants and Capital Stock in respect of
the Warrants pursuant to the terms of the Warrant Agreement. Notwithstanding the
foregoing, (A) provided that no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof, the Borrower may pay
dividends to the Parent for the purpose of (i) permitting the Parent to satisfy
its federal, state and local income tax obligations to the extent such
obligations are actually due and owing and are a direct result of the net income
of the Borrower being included on a consolidated, combined or unitary income tax
return filed by the Parent or otherwise being attributed to the Parent for tax
purposes (provided that the Parent shall promptly pay such tax obligations);
(ii) permitting the Parent to pay the necessary fees and expenses to maintain
its corporate existence and good standing (in an aggregate amount not to exceed
$50,000 per annum); and (iii) permitting the Parent to comply with the Interim
Note Documentation (in an aggregate amount not to exceed $50,000 per annum) and
(B) any Subsidiary of the Borrower may pay dividends to Borrower.
7.8 Limitation on Capital Expenditures. (a) Make or commit to
make (by way of the acquisition of securities of a Person or otherwise) any
Capital Expenditure except for expenditures in the ordinary course of business
not exceeding, in the aggregate for the Borrower and its Subsidiaries during any
of the fiscal years of the Borrower set forth below, the amount set forth
opposite such fiscal year:
<PAGE> 78
<TABLE>
<CAPTION>
Fiscal Year Amount
<S> <C>
1997 $10,000,000
1998 10,000,000
1999 10,000,000
2000 10,000,000
2001 10,000,000
2002 10,000,000
</TABLE>
(b) Notwithstanding the foregoing, in the event that the
amount of Capital Expenditures permitted to be made by the Borrower and its
Subsidiaries pursuant to clause (a) above in any fiscal year (before giving
effect to any increase in such permitted expenditure amount pursuant to this
clause (b)) is greater than the amount of such Capital Expenditures made by the
Borrower and its Subsidiaries during such fiscal year, such excess may be
carried forward and utilized to make Capital Expenditures in the immediately
succeeding fiscal year.
(c) Notwithstanding the foregoing, the Borrower and its
Subsidiaries may make Capital Expenditures (which Capital Expenditures will not
be included in any determination under the foregoing clause (a)) with the
proceeds of Indebtedness received by the Borrower or any of its Subsidiaries
pursuant to Section 7.2(c).
(d) Notwithstanding the foregoing, the Borrower and its
Subsidiaries may make Capital Expenditures (which Capital Expenditures will not
be included in any determination under the foregoing clause (a)) with any
Reinvestment Deferred Amount.
7.9 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person,
except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of the Loan Parties for
travel, entertainment and relocation expenses in the ordinary course of
business in an aggregate amount for the Borrower and its Subsidiaries
not to exceed $500,000 at any one time outstanding;
(d) investments by the Borrower in a Domestic Wholly Owned
Subsidiary and investments by any Subsidiary in the Borrower and in one
or more Domestic Wholly Owned Subsidiaries; and
<PAGE> 79
(e) additional investments in an aggregate amount, so long as
at the time of such investment no Default or Event of Default shall have
occurred and be continuing or would result therefrom, at any time not to exceed
$1,000,000.
7.10 Limitation on Optional Payments and Modifications of Debt
Instruments and Organizational Documentation, etc. (a) Make any optional payment
or prepayment on or redemption or purchase of any material Indebtedness (other
than the Loans) or preferred Capital Stock including, without limitation, the
Interim Notes or the Permanent Notes, (b) amend, modify or change, or consent or
agree to any amendment, modification or change to any of the terms of any such
Indebtedness, including, without limitation, the provisions of the Interim
Notes, the Rollover Notes or the Permanent Notes (other than any such amendment,
modification or change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate or extend the
date for payment of interest or dividends thereon) or (c) amend, modify or
change in any material respect, or consent or agree to any amendment,
modification, or change in any material respect to the terms of any of its
capitalization or organizational documents (including but not limited to in
respect of any preferred Capital Stock of any Loan Party) or, to the extent such
amendment, modification or change could reasonably be expected to have a
Material Adverse Effect, a material contract.
Notwithstanding the foregoing, (a) the Interim Notes and the
Rollover Notes may be refinanced with Permanent Notes in accordance with the
provisions of Section 7.2(e) without limitation by this Section 7.10 and (b) so
long as no Default or Event of Default exists or would result therefrom, the
Interim Notes and the Rollover Notes and any accrued interest thereon may be
repaid with the proceeds of the sale of Capital Stock of the Parent in
accordance with the terms and conditions of the Interim Note Documentation or
the Rollover Indenture, as the case may be.
7.11 Limitation on Transactions with Affiliates. Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate (other
than the Parent or the Borrower) unless such transaction (a) is otherwise
permitted under this Agreement, (b) is in the ordinary course of business of the
Parent, the Borrower or such Subsidiary, (c) is upon fair and reasonable terms
no less favorable to the Parent, the Borrower or such Subsidiary, as the case
may be, than it would obtain in a comparable arm's length transaction with a
Person which is not an Affiliate and (d) with respect to any transaction or
series of related transactions involving aggregate payments in excess of
$100,000, is disclosed in writing to the Administrative Agent.
7.12 Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Parent, the
Borrower or any of their Subsidiaries of real or personal property which has
been or is to be sold or transferred by the Parent, the Borrower or such
Subsidiary to such Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security of such property or rental
obligations of the Parent, the Borrower or such Subsidiary.
<PAGE> 80
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Parent, the Borrower or any of their respective Subsidiaries to end
on a day other than March 31.
7.14 Limitation on Negative Pledge Clauses. Enter into with
any Person, or suffer to exist, any agreement, other than (a) this Agreement and
the other Loan Documents, (b) the Interim Note Documentation, (c) the Permanent
Note Documentation and (d) any industrial revenue bonds, purchase money
mortgages or Financing Leases permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the assets financed
thereby) which prohibits or limits the ability of the Parent, the Borrower or
any of their Subsidiaries to create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired.
7.15 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are directly related thereto.
7.16 Limitation on Consolidated Lease Expense. Permit
Consolidated Lease Expense for any fiscal year of the Borrower and its
Subsidiaries to exceed $1,000,000.
7.17 Limitation on Activities of the Parent. In the case of
the Parent, notwithstanding anything to the contrary in this Agreement or any
other Loan Document, (a) conduct, transact or otherwise engage in, or commit to
conduct, transact or otherwise engage in, any business or operations other than
those incidental to its ownership of the Capital Stock of the Borrower, (b)
incur, create, assume or suffer to exist any Indebtedness or other liabilities
or financial obligations, except (i) nonconsensual obligations imposed by
operation of law, (ii) pursuant to the Loan Documents to which it is a party and
(iii) obligations with respect to its Capital Stock (other than any such
obligations constituting Indebtedness), (c) own, lease, manage or otherwise
operate any properties or assets (including cash and cash equivalents) other
than the ownership of shares of Capital Stock of the Borrower, (d) create or
permit to exist any Subsidiary of the Parent or the Borrower other than a Wholly
Owned Subsidiary or (e) directly or indirectly, convey, sell, transfer of
otherwise dispose of, or create, assume, incur or permit to be created, assumed,
incurred or to exist, any Lien of any kind upon, any Capital Stock of the
Borrower owned by the Parent.
7.18 Limitation on Foreign Subsidiaries. Create or permit to
exist any Foreign Subsidiary except with the prior written consent of the
Arranger and the Required Lenders.
<PAGE> 81
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan
or Reimbursement Obligation when due in accordance with the terms
hereof; or the Borrower shall fail to pay any interest on any Loan or
Reimbursement Obligation, or any other amount payable hereunder or
under any other Loan Document, within five days after any such interest
or other amount becomes due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by the
Parent, the Borrower or any other Loan Party herein or in any other
Loan Document or which is contained in any certificate, document or
financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan Document or under
or in connection with the Interim Note Documentation or Permanent Note
Documentation shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Parent, the Borrower or any other Loan Party shall
default in the observance or performance of any agreement contained in
(i) Sections 6 (other than Sections 6.3, 6.4 and 6.5) or 7, (ii)
Section 5.6 or 5.8(b) of the Master Guarantee and Collateral Agreement,
(iii) Section 5, 6 or 7 of any Mortgage or (iv) Section 6 of the Cash
Collateral Agreement; or
(d) The Parent, the Borrower or any other Loan Party shall
default in the observance or performance of any other agreement
contained in this Agreement or any other Loan Document (other than as
provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 days; or
(e) The Parent, the Borrower or any of their Subsidiaries
shall (i) default in making any payment of any principal of any
Indebtedness (including, without limitation, any Guarantee Obligation)
or Interest Rate Protection Agreement Obligation on the scheduled or
original due date with respect thereto; or (ii) default in making any
payment of any interest on any such Indebtedness beyond the period of
grace, if any, provided in the instrument or agreement under which such
Indebtedness or Interest Rate Protection Agreement Obligation was
created; or (iii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Interest
Rate Protection Agreement Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or beneficiary
of such Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case
of any such Indebtedness constituting a Guarantee Obligation or
Interest Rate Protection Agreement
<PAGE> 82
Obligation) to become payable; provided that a default, event or
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default under this
Agreement unless, at such time, one or more defaults, events or
conditions of the type described in clauses (i), (ii) and (iii) of this
paragraph (e) shall have occurred and be continuing with respect to
Indebtedness and/or Guarantee Obligations and/or Interest Rate
Protection Agreement Obligations of the Parent, the Borrower and their
Subsidiaries the outstanding principal amount of which exceeds in the
aggregate $1,000,000; or
(f) (i) The Parent, the Borrower or any of their Subsidiaries
shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any
substantial part of its assets, or the Parent, the Borrower or any of
their Subsidiaries shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Parent, the
Borrower or any of their Subsidiaries any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against the
Parent, the Borrower or any of their Subsidiaries any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the Parent, the
Borrower or any of their Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) the Parent, the Borrower or any of their
Subsidiaries shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of any Loan Party or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any
<PAGE> 83
Single Employer Plan shall terminate for purposes of Title IV of ERISA,
(v) any Loan Party or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case
in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could, in the sole
judgment of the Required Lenders, reasonably be expected to have a
Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Parent, the Borrower or any of their Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance) of
$1,000,000 or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason,
to be in full force and effect, or any Loan Party or any Affiliate of
any Loan Party shall so assert, or any Lien created by any of the
Security Documents shall cease to be enforceable and of the same effect
and priority purported to be created thereby; or
(j) (i) There shall be a direct or indirect holding company
parent of the Borrower other than the Parent; (ii) the Parent shall
cease to own and control, of record and beneficially, directly, 100% of
each class of outstanding Capital Stock of the Borrower free and clear
of all Liens; (iii) any Wholly Owned Subsidiary of the Borrower shall
issue any Capital Stock (or any security convertible into any of its
Capital Stock) which is not pledged to the Administrative Agent for the
benefit of the Lenders; (iv) Hushang Ansary shall cease to own,
directly or indirectly, Capital Stock of the Parent possessing the
voting power, including in combination with any applicable stockholder
agreements, to elect a majority of the Parent's directors; (v) any
Person or "group" (within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended) (other than Hushang
Ansary) shall have beneficial ownership of more than 25% of the
economic and or voting interest in the Parent's Capital Stock; or (vi)
(A) prior to the date of an initial registered public offering by the
Borrower or the Parent of its common Capital Stock, Hushang Ansary
shall cease to own, directly or indirectly, on a fully diluted basis in
the aggregate at least 66-2/3% of the economic and voting interest in
the Capital Stock of the Borrower and the Parent free of Liens except
Liens created by the Security Documents and (B) on or after the date of
an initial registered public offering by the Borrower or the Parent of
its common Capital Stock, Hushang Ansary shall cease to own, directly
or indirectly, on a fully diluted basis in the aggregate at least 51%
of the economic and voting interest in the Capital Stock of the
Borrower and the Parent free of Liens except Liens created by the
Security Documents; or
<PAGE> 84
(k) the subordination provisions of the Interim Notes or the
Permanent Notes shall cease, for any reason, to be valid or any Loan
Party shall so assert in writing;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Parent, the
Borrower or any of their Subsidiaries, automatically the Commitments shall
immediately terminate and the Loans hereunder (with accrued interest thereon)
and all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) shall immediately become due and payable, and
(B) if such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Commitments to
be terminated forthwith, whereupon the Commitments shall immediately terminate;
and (ii) with the consent of the Required Lenders, the Administrative Agent may,
or upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit shall
have presented the documents required thereunder) to be due and payable
forthwith, whereupon the same shall immediately become due and payable. With
respect to all Letters of Credit with respect to which presentment for honor
shall not have occurred at the time of an acceleration pursuant to this
paragraph, the Borrower shall at such time deposit in a cash collateral account
opened by the Administrative Agent an amount equal to the aggregate then undrawn
and unexpired amount of such Letters of Credit. Amounts held in such cash
collateral account shall be applied by the Administrative Agent to the payment
of drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other obligations of the Borrower hereunder and
under the other Loan Documents. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other obligations of the Borrower hereunder and under the
other Loan Documents shall have been paid in full, the balance, if any, in such
cash collateral account shall be returned to the Borrower (or such other Person
as may be lawfully entitled thereto). Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
SECTION 9. THE ARRANGER; THE ADMINISTRATIVE AGENT
AND THE SYNDICATION AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Arranger as the arranger of such Lender under this Agreement and
the other Loan Documents, and each Lender irrevocably authorizes the Arranger,
in such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Arranger by the
<PAGE> 85
terms of this Agreement and the other Loan Documents, together with such other
powers as are reasonably incidental thereto. Each Lender hereby irrevocably
designates and appoints the Administrative Agent as the agent of such Lender
under this Agreement and the other Loan Documents, and each Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement,
neither the Arranger nor the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Arranger or
the Administrative Agent.
9.2 Delegation of Duties. The Arranger and the Administrative
Agent may execute any of its duties under this Agreement and the other Loan
Documents by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The Arranger
and the Administrative Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care.
9.3 Exculpatory Provisions. Neither the Arranger, the
Administrative Agent nor any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or any other Loan Document (except to the extent that any of the
foregoing are found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from its or such Person's own gross
negligence or willful misconduct) or (ii) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
any Loan Party or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Arranger or the
Administrative Agent under or in connection with, this Agreement or any other
Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or any other Loan
Document or for any failure of any Loan Party a party thereto to perform its
obligations hereunder or thereunder. The Arranger and the Administrative Agent
shall not be under any obligation to any Lender to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Loan Party.
9.4 Reliance by Arranger and Administrative Agent. The
Arranger and the Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or
<PAGE> 86
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Parent or the Borrower), independent
accountants and other experts selected by the Arranger or the Administrative
Agent. The Administrative Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Administrative
Agent. The Arranger and the Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action; provided that neither
the Arranger nor the Administrative Agent shall fail or refuse to take any
action under this Agreement or any other Loan Document as a result of a failure
of the Lenders to indemnify them against liabilities or expenses resulting from
their own gross negligence or willful misconduct. The Arranger and the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders (or, if so specified by this
Agreement, all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
9.5 Notice of Default. The Arranger and the Administrative
Agent shall not be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default hereunder unless the Arranger or the Administrative
Agent, as the case may be, has received written notice from a Lender, the Parent
or the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Arranger, Administrative Agent and Other
Lenders. Each Lender expressly acknowledges that neither the Arranger nor the
Administrative Agent nor any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by the Arranger or the Administrative Agent hereinafter taken,
including any review of the affairs of a Loan Party or any Affiliate of a Loan
Party, shall be deemed to constitute any representation or warranty by the
Arranger or the Administrative Agent to any Lender. Each Lender represents to
the Arranger and the Administrative Agent that it has, independently and without
reliance upon the Arranger or the Administrative Agent or any other Lender, and
based on such documents and information as it
<PAGE> 87
has deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their Affiliates and made its own
decision to make its Loans hereunder and enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon the
Arranger or the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their Affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Arranger or
the Administrative Agent hereunder, the Arranger and the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
Affiliate of a Loan Party which may come into the possession of the Arranger or
the Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify the
Arranger and the Administrative Agent in its capacity as such (to the extent not
reimbursed by the Parent or the Borrower and without limiting the obligation of
the Parent or the Borrower to do so), ratably according to their respective
Revolving Credit Percentages, Tranche A Term Loan Percentages and Tranche B Term
Loan Percentages in effect on the date on which indemnification is sought under
this Section 9.7, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Notes) be imposed on, incurred by or
asserted against the Arranger or the Administrative Agent in any way relating to
or arising out of, the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Arranger or the Administrative Agent under or in connection with any of
the foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements which are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted
from the Arranger's or the Administrative Agent's gross negligence or willful
misconduct. The agreements in this Section 9.7 shall survive the payment of the
Notes and all other amounts payable hereunder.
9.8 Arranger and Administrative Agent in Their Individual
Capacities. The Arranger and its Affiliates and the Administrative Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with any Loan Party as though the Arranger were not the
Arranger and the Administrative Agent were not the Administrative Agent
hereunder and under the other Loan Documents. With respect to its Loans made or
renewed by it and any Note issued to it and with respect to any Letter of Credit
<PAGE> 88
issued or participated in by it, the Arranger and the Administrative Agent shall
have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Arranger and the Administrative Agent, respectively, and the terms "Lender" and
"Lenders" shall include the Arranger and the Administrative Agent in their
individual capacities.
9.9 Successor Administrative Agent. The Administrative Agent
may resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall have
been approved by the Borrower (which approval shall not be unreasonably withheld
or delayed), whereupon such successor agent shall succeed to the rights, powers
and duties of the Administrative Agent hereunder. Effective upon such
appointment and approval, the term "Administrative Agent" shall mean such
successor agent and the former Administrative Agent's rights, powers and duties
as Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and the other Loan
Documents. The Required Lenders, with the consent of the Borrower, may replace
the Administrative Agent, provided that if a Default or an Event of Default
shall occur and be continuing the consent of the Borrower shall not be required.
9.10 The Syndication Agent. The Syndication Agent, in its
capacity as such, shall not have any duties or responsibilities hereunder or
under any Loan Document nor any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Syndication Agent in its capacity as such.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party to the relevant Loan Documents may, or,
with the written consent of the Required Lenders, the Administrative Agent and
each Loan Party to the relevant Loan Document may, from time to time, (a) enter
into written amendments, supplements or modifications hereto and to the other
Loan Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders or the Administrative Agent, as the case may
be, may specify in such instrument, any of the requirements of this Agreement or
the other Loan Documents or any Default or Event of
<PAGE> 89
Default and its consequences; provided that no such waiver and no such
amendment, supplement or modification shall (i) forgive the principal amount or
extend the final scheduled date of maturity of any Note, or reduce the stated
rate of any interest, fee or letter of credit commission payable hereunder or
extend the scheduled date of any payment thereof or increase the amount or
extend the expiration date of any Lender's Revolving Credit Commitment, or make
any change in the application of any prepayment of the Loans specified in the
first sentence of Section 2.11(e) or in Section 2.17(a), or the right to refuse
prepayments set forth in the last sentence of Section 2.11(e), in each case
without the consent of each Lender directly affected thereby, (ii) extend the
scheduled date or change the amount of any amortization payment or waive or
extend the date of any mandatory prepayment in respect of the Tranche A Term
Loans referred to in Section 2.8 without the consent of each Lender affected
thereby or extend the scheduled date or change the amount of any amortization
payment or waive or extend the date of any mandatory prepayment in respect of
the Tranche B Term Loans referred to in Section 2.8 without the consent of each
Lender affected thereby, (iii) amend, modify or waive any provision of this
Section 10.1 or reduce any percentage specified in the definition of Required
Lenders, or consent to the assignment or transfer by any Loan Party of any of
its rights and obligations under this Agreement and the other Loan Documents or
release all or a substantial portion of the Collateral (other than in connection
with any sale or other disposition of assets permitted by Section 7.6) or any
guarantee of the Obligations, in each case, without the written consent of all
the Lenders, (iv) amend, modify or waive any provision of Sections 9.1 through
9.9 without the written consent of the Arranger and the Administrative Agent,
(v) amend, modify or waive any provision of Section 9.10 without the written
consent of the Syndication Agent or (vi) amend, modify or waive any provision of
Section 3 without the written consent of the Issuing Lender. Any such waiver and
any such amendment, supplement or modification shall apply equally to each of
the Lenders and shall be binding upon the Loan Parties, the Lenders, the
Administrative Agent and all future holders of the Notes. In the case of any
waiver, the Loan Parties, the Lenders and the Administrative Agent shall be
restored to their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Parent, the Borrower, the
Administrative Agent and the Arranger, and as set forth in Schedule 1.1B in the
case of the Lenders, or to such other address as may be hereafter notified by
the respective parties hereto and any future holders of the Notes:
<PAGE> 90
The Parent: Energy Services International Ltd.
First Interstate Bank Plaza
1000 Louisiana, Suite 5900
Houston, Texas 77002
Attention Mr. Munawar H. Hidayatallah
Telecopy (713) 659-1526
Telephone:(713) 751-2717
The Borrower: IRI International Corporation
First Interstate Bank Plaza
1000 Louisiana, Suite 5900
Houston, Texas 77002
Attention Mr. Munawar H. Hidayatallah
Telecopy (713) 659-1526
Telephone:(713) 751-2717
The Administrative
Agent: Credit Lyonnais New York Branch
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention Thomas Byargeon
Telecopy (713) 751-0307
Telephone:(713) 751-0500
The Arranger: LEHMAN COMMERCIAL PAPER INC.
3 World Financial Center
New York, New York 10285
Attention Michelle Swanson
Telecopy (212) 528-0819
Telephone:(212) 526-0330
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to Section 2.2, 2.4, 2.6, 2.9, 2.10 or 2.12 shall not be
effective until received. Any notice or delivery to or from or consent required
of the Borrower hereunder or pursuant to any other Loan Document may be made to
or by the Borrower.
10.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any
Lender, any right, remedy, power
<PAGE> 91
or privilege hereunder or under the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
10.4 Survival. All representations and warranties made
hereunder, in the other Loan Documents and in any document, certificate or
statement delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the Notes and the making of the
Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Administrative Agent and the Arranger for all their
reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement and the other Loan Documents and any other
documents prepared in connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent, (b) to pay or reimburse each Lender and the Administrative
Agent for all its costs and expenses incurred in connection with the enforcement
or preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, the fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and counsel to the Administrative Agent, (c) to pay,
indemnify, and hold each Lender, the Administrative Agent, the Arranger and the
Syndication Agent harmless from, any and all recording and filing fees and any
and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent, the
Arranger and the Syndication Agent and their respective officers, directors,
trustees, employees, affiliates, agents and controlling persons (each, an
"indemnitee") harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Parent, the Borrower, any
of their Subsidiaries or any of the Properties (all the foregoing in this clause
(d), collectively, the "indemnified liabilities"), provided that the Borrower
shall have no obligation hereunder to any indemnitee with respect to indemnified
liabilities to the extent such indemnified liabilities are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such indemnitee. The
agreements
<PAGE> 92
in this Section 10.5 shall survive repayment of the Notes and all other amounts
payable hereunder and the termination of the Commitments and, in the case of any
Lender that may assign any interest in its Commitments, Loans or Letter of
Credit Interest hereunder, shall survive the making of such assignment,
notwithstanding that such assigning Lender may cease to be a "Lender" hereunder.
10.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the Parent,
the Borrower, the Lenders, the Administrative Agent, the Arranger, all future
holders of the Notes and their respective successors and assigns, except that
neither the Parent nor the Borrower may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, without the consent of the Borrower, in
the ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities (each, a "Participant")
participating interests in any Loan owing to such Lender, any Note held by such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Loan Documents. In the event of any such sale by a
Lender of a participating interest to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of any such Note for all purposes
under this Agreement and the other Loan Documents, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents. In no event shall any Participant under any such
participation have any right to approve any amendment or waiver of any provision
of any Loan Document, or any consent to any departure by any Loan Party
therefrom, except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Notes or any fees payable
hereunder, postpone the date of the final maturity of the Notes, consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, release all or a substantial
portion of the Collateral (other than in connection with any sale or other
disposition of assets permitted by Section 7.6) or any guarantee of the
Obligations, in each case to the extent subject to such participation. The
Borrower agrees that if amounts outstanding under this Agreement and the Notes
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall, to
the maximum extent permitted by applicable law, be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement and any Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement or any Note,
provided that, in purchasing such participating interest, such Participant shall
be deemed to have agreed to share with the Lenders the proceeds thereof as
provided in Section 10.7(a) as fully as if it were a Lender hereunder. The
Borrower also agrees that each Participant shall be entitled to the benefits of
Sections 2.19, 2.20 and 2.21 with respect to its participation in the
Commitments and the Loans outstanding from time to time as if it was a Lender;
provided
<PAGE> 93
that, in the case of Section 2.20, such Participant shall have complied with the
requirements of said Section and provided, further, that no Participant shall be
entitled to receive any greater amount pursuant to any such Section than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time and from time to time assign to
any Lender or any affiliate thereof or any Person under common management with
any such Lender or, with the consent of the Borrower, the Administrative Agent,
the Arranger and, in the case of an assignment of Revolving Credit Commitments,
the Issuing Lender (which, in each case, shall not be unreasonably withheld,
delayed or conditioned) (provided that no such consent need be obtained by
Lehman Commercial Paper Inc. for a period of 120 days following the Closing
Date), to an additional bank, financial institution or other entity (an
"Assignee") all or any part of its rights and obligations under this Agreement,
the Letters of Credit and the Notes pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit G, executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Borrower, the Administrative Agent, the Arranger
and, in the case of an assignment of Revolving Credit Commitments, the Issuing
Lender) and delivered to the Administrative Agent for its acceptance and
recording in the Register with a copy to the Arranger; provided that (except
with the consent of the Borrower, the Administrative Agent and the Arranger) (i)
no such assignment to an Assignee (other than any Lender or any affiliate
thereof or any Person under common management with such Lender) shall be in an
aggregate principal amount of less than $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement and the Notes)
and (ii) subsequent to any such assignment the assigning Lender shall not retain
an aggregate principal amount of less than $5,000,000 in Commitments and Loans.
Such assignment need not be ratable as among any Tranche A Term Loan Commitments
and/or Tranche A Term Loans, Tranche B Term Loan Commitments and/or Tranche B
Term Loans and Revolving Credit Commitments and/or Revolving Credit Loans of the
assigning Lender. Upon such execution, delivery, acceptance and recording, from
and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto). Notwithstanding any
provision of this paragraph (c) and paragraph (e) of this Section 10.6, the
consent of the Borrower shall not be required, and, unless requested by the
Assignee and/or the assigning Lender, new Notes shall not be required to be
executed and delivered by the Borrower, for any assignment which occurs at any
time when any Event of Default shall have occurred and be continuing.
<PAGE> 94
(d) A Note and the Obligation(s) evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Note and the Obligation(s) evidenced thereby
on the Register (and each Note shall expressly so provide). Any assignment or
transfer of all or part of such Obligation(s) and the Note(s) evidencing the
same shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note(s) evidencing such Obligation(s), accompanied
by an Assignment and Acceptance duly executed by the Noteholder thereof, and
thereupon one or more new Note(s) in the same aggregate principal amount shall
be issued to the designated Assignee(s) and the old Notes(s) shall be returned
by the Administrative Agent to the Borrower marked "cancelled." No assignment of
a Note and the Obligation(s) evidenced thereby shall be effective unless it has
been recorded in the Register as provided in this Section 10.6(d).
(e) The Administrative Agent shall maintain at its address
referred to in Section 10.2 a copy of each Assignment and Acceptance delivered
to it and a register (the "Register") for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Loans owing to, each Lender from time to time and the registered owners of the
Obligation(s) evidenced by the Note(s). The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loan or the Obligation evidenced by
a Note recorded therein for all purposes of this Agreement. The Register shall
be available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof, by the Borrower, the Administrative
Agent, the Arranger and the Issuing Lender) together with payment to the
Administrative Agent of a registration and processing fee of $2,000 (except that
no such registration and processing fee shall be payable (y) by Lehman
Commercial Paper Inc. for a period of 120 days following the Closing Date or (z)
in the case of an Assignee which is already a Lender or is an affiliate of a
Lender), the Administrative Agent shall (i) promptly accept such Assignment and
Acceptance and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and the Borrower. On or prior to such effective
date, the Borrower, at its own expense, upon request, shall execute and deliver
to the Administrative Agent (in exchange for the Revolving Credit Note, Tranche
A Term Note and/or Tranche B Term Note, as the case may be, of the assigning
Lender) a new Revolving Credit Note, Tranche A Term Note and/or Tranche B Term
Note, as the case may be, to the order of such Assignee in an amount equal to
the Revolving Credit Commitment, Tranche A Term Loan and/or Tranche B Term Loan,
as the case may be, assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Lender has retained a Revolving Credit Commitment, Tranche
A Term Loan and/or Tranche B Term Loan, as the case may be, upon request, a new
Revolving Credit Note, Tranche A Term Note and/or Tranche B Term Note, as the
case may be, to the order of the assigning Lender in an amount
<PAGE> 95
equal to the Revolving Credit Commitment, Tranche A Term Loan and/or Tranche B
Term Loan, as the case may be, retained by it hereunder. Such new Notes shall be
dated the Closing Date and shall otherwise be in the form of the Note replaced
thereby.
(g) Each of the Parent and the Borrower authorizes each Lender
to disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning the Parent, the Borrower and their respective Affiliates
which has been delivered to such Lender by or on behalf of the Parent or the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Parent or the Borrower in connection with such Lender's
credit evaluation of the Parent, the Borrower and their respective Affiliates
prior to becoming a party to this Agreement.
(h) Nothing herein shall prohibit or restrict any Lender from
(i) pledging or assigning any Note to any Federal Reserve Bank in accordance
with applicable law or (ii) with the prior consent of the Administrative Agent
and the Borrower (which, in each case, shall not be unreasonably withheld or
delayed or conditioned), pledging its rights in connection with any Loan or Note
to any other Person.
10.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of its Loans or
the Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof then due and owing to such Lender (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 8(f), or otherwise), in a greater proportion
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans or the Reimbursement Obligations then due
and owing to such other Lender, or interest thereon, such Benefitted Lender
shall purchase for cash from the other Lenders a participating (or, at the
option of such Lender, a direct) interest in such portion of each such other
Lender's Loan and/or of the Reimbursement Obligations owing to each such other
Lender, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided that if all or any portion
of such excess payment or benefits is thereafter recovered from such Benefitted
Lender, such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Parent or the Borrower, any such notice being expressly waived by the Parent and
the Borrower to the extent permitted by applicable law, upon any amount becoming
due and payable by the Parent or the Borrower hereunder or under the Notes
(whether at the stated maturity, by acceleration or otherwise) to set off and
appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or
<PAGE> 96
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Parent or the Borrower. Each
Lender agrees promptly to notify the Parent, the Borrower and the Administrative
Agent after any such setoff and application made by such Lender, provided that
the failure to give such notice shall not affect the validity of such setoff and
application.
10.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Parent, the Borrower, the Administrative Agent,
the Arranger and the Lenders with respect to the subject matter hereof, and
there are no promises, undertakings, representations or warranties by the
Administrative Agent, the Arranger or any Lender relative to subject matter
hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of the Parent
and the Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the United States for
the Southern District of New York, and appellate courts from any
thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such
<PAGE> 97
action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead
or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Parent or the Borrower, as the case may be at its
address set forth in Section 10.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section 10.12 any special, exemplary, punitive or
consequential damages.
10.13 Acknowledgements. Each of the Parent and the Borrower
hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent, the Arranger nor any
Lender has any fiduciary relationship with or duty to the Parent or the
Borrower arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between Administrative
Agent, the Arranger and Lenders, on one hand, and the Parent and the
Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Parent, the Borrower
and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE PARENT, THE BORROWER, THE
ADMINISTRATIVE AGENT, THE ARRANGER AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Administrative Agent, the
Arranger and each Lender agrees to keep confidential all non-public information
provided to it by any Loan Party pursuant to this Agreement that is designated
by such Loan Party as confidential; provided that nothing herein shall prevent
the Administrative Agent, the Arranger or any
<PAGE> 98
Lender from disclosing any such information (a) to the Administrative Agent, the
Arranger any other Lender or any affiliate or investment advisor of any Lender,
(b) to any Transferee or prospective Transferee which agrees to comply with the
provisions of this Section 10.15, (c) to the employees, directors, agents,
attorneys, accountants and other professional advisors of such Lender or its
affiliates, (d) upon the request or demand of any Governmental Authority having
jurisdiction over the Administrative Agent or such Lender, (e) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (f) if requested or required to do
so in connection with any litigation or similar proceeding, (g) which has been
publicly disclosed other than in breach of this Section 10.15 or (h) in
connection with the exercise of any remedy hereunder or under any other Loan
Document.
<PAGE> 99
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
ENERGY SERVICES INTERNATIONAL LTD.
By: /s/ Munawar H. Hidayatallah
-----------------------------------------------
Title: Executive Vice President-
Corporate Development
IRI INTERNATIONAL CORPORATION
By: /s/ Munawar H. Hidayatallah
-----------------------------------------------
Title: Executive Vice President-
Corporate Development
LEHMAN COMMERCIAL PAPER INC., as Arranger
and as a Lender
By: /s/ Dennis Dee
-----------------------------------------------
Title: Authorized Signatory
CREDIT LYONNAIS NEW YORK BRANCH, as
Administrative Agent, Issuing Lender and as a Lender
By: /s/ Mark Koneval
-----------------------------------------------
Title: Vice President
<PAGE> 100
BHF-BANK AKTIENGESELLSCHAFT, as a Lender
By: /s/ Paul Travers
---------------------------------------------------
Title: Vice President
By: /s/ Thomas J. Scifo
---------------------------------------------------
Title: Assistant Vice President
CITIBANK, N.A., as a Lender
By: /s/ Hans L. Christensen
---------------------------------------------------
Title: Vice President
PRIME INCOME TRUST, as a Lender
By: /s/ Rafael Scolari
---------------------------------------------------
Title: Vice President - Portfolio Manager
SENIOR HIGH INCOME PORTFOLIO, as a Lender
By: /s/ Gilles Marchand
---------------------------------------------------
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC., as a Lender
By: /s/ Gilles Marchand
---------------------------------------------------
Title: Authorized Signatory
<PAGE> 101
PILGRIM AMERICA PRIME RATE TRUST, as a
Lender
By: /s/ Thomas C. Hunt
---------------------------------------------------
Title: Portfolio Analyst
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager, as a Lender
By: /s/ Justin Driscoll
--------------------------------------------------
Title: Senior Vice President
<PAGE> 102
COMMITMENTS; LENDING OFFICES AND ADDRESSES
<TABLE>
<CAPTION>
REVOLVING CREDIT TRANCHE A TERM TRANCHE B TERM
LENDER AND ADDRESS LOAN COMMITMENT LOAN COMMITMENT LOAN COMMITMENT TOTAL COMMITMENT
<S> <C> <C> <C> <C>
BHF - BANK AKTIENGESELLSCHAFT $5,900,000 $1,425,000 $3,700,000 $11,025,000
590 Madison Avenue
New York, NY 10022
Tel: (212) 756-5912
Fax: (212) 756-5536
Contact: Tom Scifo
CREDIT LYONNAIS $9,550,000 $1,425,000 $5,900,000 $16,875,000
NEW YORK BRANCH
1301 Avenue of the Americas
18th Floor
New York, NY 10019
Tel: (212) 261-7867
Fax: (212) 459-3176
Contact: Mark Koneval
CITIBANK, N.A. $11,425,000 $11,425,000
399 Park Avenue
9th Floor (zone 8)
New York, NY 10043
Tel: (212) 559-8785
Fax: (212) 793-1871
Contact: Ghazali Inam
PRIME INCOME TRUST $11,425,000 $11,425,000
2 World Trade Center
New York, NY 10048
Tel: (212) 392-5686
Fax: (212) 392-5345
Contact: Rafael Scolari
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
REVOLVING CREDIT TRANCHE A TERM TRANCHE B TERM
LENDER AND ADDRESS LOAN COMMITMENT LOAN COMMITMENT LOAN COMMITMENT TOTAL COMMITMENT
<S> <C> <C> <C> <C>
MERRILL LYNCH SENIOR FLOATING $11,425,000 $11,425,000
RATE FUND, INC.
SENIOR HIGH INCOME PORTFOLIO
800 Scudders Mill Road
Plainsborough, NJ 08536
Tel: (609) 282-3348
Fax: (609) 282-2757
Contact: Gilles Marchand
PILGRIM AMERICA PRIME RATE $10,000,000 $10,000,000
TRUST
Two Renaissance Square
40 North Central, Suite 1200
Phoenix, AZ 85004
Tel: (602) 417-8100
Fax:
Contact: Tim Hunt
CRESCENT/MACH I PARTNERS, L.P. $5,000,000 $5,000,000
BY: TCW ASSET MANAGEMENT
COMPANY, ITS INVESTMENT MANAGER
200 Park Avenue
Suite 2200
New York, NY 10166-0228
Tel: (212) 297-4138
Fax: (212) 297-4159
Contact: Mark L. Gold
LEHMAN BROTHERS INC. $9,550,000 $12,875,000 $5,900,000 $28,325,000
3 World Financial Center
9th Floor
New York, NY 10285
Tel: (212) 526-2204
Fax: (212) 526-4827
Contact: Jack Lucid
</TABLE>
<PAGE> 104
Schedule 1.1C
TRANCHE A TERM LOAN AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
Quarter Principal Amount
<S> <C>
June 30, 1997 $ 500,000
September 30, 1997 500,000
December 31, 1997 500,000
March 31, 1998 500,000
June 30, 1998 750,000
September 30, 1998 750,000
December 31, 1998 750,000
March 31, 1999 750,000
June 30, 1999 1,250,000
September 30, 1999 1,250,000
December 31, 1999 1,250,000
March 31, 2000 1,250,000
June 30, 2000 2,500,000
September 30, 2000 2,500,000
December 31, 2000 2,500,000
March 31, 2001 2,500,000
June 30, 2001 11,250,000
September 30, 2001 11,250,000
December 31, 2001 11,250,000
March 31, 2002 11,250,000
</TABLE>
<PAGE> 105
Schedule 1.1D
TRANCHE B TERM LOAN AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
Quarter Principal Amount
<S> <C>
March 31, 1998 $ 175,000
March 31, 1999 175,000
March 31, 2000 175,000
March 31, 2001 175,000
March 31, 2002 14,800,000
</TABLE>
<PAGE> 106
Schedule 4.15
SUBSIDIARIES
Bowen Mexicana, S.A. De C.V.
Bowen Tools, Ltd.
<PAGE> 1
================================================================================
SENIOR SUBORDINATED INCREASING RATE
NOTE PURCHASE AGREEMENT
among
IRI INTERNATIONAL CORPORATION
ENERGY SERVICES INTERNATIONAL LIMITED
and
STRATEGIC RESOURCE PARTNERS FUND
-----------------------------
Dated as of March 31, 1997
-----------------------------
$31,000,000
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Defined Terms.................................................................... 1
Section 1.2 Interpretation................................................................... 16
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties in the Acquisition Agreements and
the Senior Credit Facility....................................................... 16
Section 2.2 Organization; Good Standing...................................................... 16
Section 2.3 Due Authorization and Enforceability............................................. 17
Section 2.4 No Conflicts..................................................................... 17
Section 2.5 No Violations; Material Contracts................................................ 18
Section 2.6 Capital Stock; Subsidiaries...................................................... 18
Section 2.7 Senior Credit Facility; Liens.................................................... 19
Section 2.8 No Violation of Regulations of Board of Governors of Federal
Reserve System................................................................... 19
Section 2.9 Governmental Regulations......................................................... 19
Section 2.10 Financial Statements; No Undisclosed Liabilities................................. 19
Section 2.11 Full Disclosure.................................................................. 20
Section 2.12 Private Offering; Rule 144A Matters.............................................. 20
Section 2.13 Proprietary Matter............................................................... 21
Section 2.14 Absence of Proceedings........................................................... 21
Section 2.15 Absence of Labor Disputes........................................................ 21
Section 2.16 Taxes............................................................................ 22
Section 2.17 Absence of Employment Law Violations, Etc........................................ 22
Section 2.18 Environmental Laws............................................................... 22
Section 2.19 Permits.......................................................................... 23
Section 2.20 Properties; Leases............................................................... 23
Section 2.21 Insurance........................................................................ 23
Section 2.22 Financial Condition; Solvency.................................................... 23
Section 2.23 Foreign Corrupt Practices Act.................................................... 24
Section 2.24 No Material Adverse Change....................................................... 24
Section 2.25 ERISA............................................................................ 24
ARTICLE III
SALE AND REPAYMENT
Section 3.1 Sale of the Interim Notes........................................................ 25
Section 3.2 Maturity......................................................................... 25
Section 3.3 Mandatory Exchange; Issuance of Rollover Notes and Warrants...................... 25
Section 3.4 Interest on the Interim Notes.................................................... 26
i
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 3.5 Default Interest................................................................. 27
Section 3.6 Mandatory Redemption............................................................. 27
Section 3.7 Optional Prepayment.............................................................. 27
Section 3.8 Rollover Fee..................................................................... 28
Section 3.9 Indemnity........................................................................ 28
Section 3.10 Effect of Notice of Prepayment................................................... 28
Section 3.11 Method of Payment................................................................ 28
Section 3.12 Inability to Determine Interest Rate; Interest Periods Less Than
Three Months..................................................................... 28
Section 3.13 Payment on Business Days......................................................... 29
Section 3.14 Partial Redemption............................................................... 29
ARTICLE IV
COVENANTS
Section 4.1 Use of Proceeds.................................................................. 29
Section 4.2 Notice of Default on Interim Notes and Related Matters........................... 29
Section 4.3 Offering......................................................................... 29
Section 4.4 Issuance of High Yield Notes and Warrants........................................ 30
Section 4.5 Additional Subsidiary Guarantees................................................. 31
Section 4.6 Merger and Sale.................................................................. 31
Section 4.7 Information; SEC Reports; Compliance Certificates................................ 32
Section 4.8 Authorizations and Approvals..................................................... 33
Section 4.9 Limitation on Incurrence of Additional Indebtedness and Issuance
of Preferred Stock............................................................... 33
Section 4.10 Restricted Payments.............................................................. 34
Section 4.11 Limitation on Restrictions on Distributions from Subsidiaries.................... 35
Section 4.12 Limitation on Sales of Assets and Subsidiary Stock............................... 35
Section 4.13 Limitation on Transactions with Affiliates....................................... 35
Section 4.14 Line of Business................................................................. 36
Section 4.15 Capitalization; Restrictions on Certain Amendments............................... 36
Section 4.16 Liens............................................................................ 36
Section 4.17 No Senior Subordinated Indebtedness.............................................. 36
Section 4.18 Corporate Existence; Compliance with Laws; Taxes; Maintenance
of Insurance..................................................................... 36
Section 4.19 Liquidation...................................................................... 37
Section 4.20 Stay, Extension and Usury Laws................................................... 37
Section 4.21 Change of Control................................................................ 37
ARTICLE V
CONDITIONS TO THE INTERIM LENDERS' OBLIGATIONS
Section 5.1 Closing.......................................................................... 38
Section 5.2 Conditions of the Interim Lenders' Obligations................................... 39
ii
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
ARTICLE VI
TRANSFER OF THE INTERIM NOTES; REPRESENTATIONS OF INTERIM LENDERS
<S> <C> <C>
Section 6.1 Transfer of the Interim Notes.................................................... 42
Section 6.2 Registration of Transfer or Exchange............................................. 43
Section 6.3 Register......................................................................... 43
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default................................................................ 43
Section 7.2 Acceleration..................................................................... 45
Section 7.3 No Avoidance..................................................................... 45
Section 7.4 Rights and Remedies Cumulative................................................... 45
Section 7.5 Delay or Omission Not Waiver..................................................... 46
Section 7.6 Waiver of Past Defaults.......................................................... 46
Section 7.7 Rights of Holders To Receive Payment............................................. 46
ARTICLE VIII
SUBORDINATION OF INTERIM NOTES
Section 8.1 Agreement to Subordinate......................................................... 46
Section 8.2 Liquidation, Dissolution, Bankruptcy............................................. 46
Section 8.3 Default on Senior Credit Facility................................................ 46
Section 8.4 When Distribution Must Be Paid Over.............................................. 47
Section 8.5 Subrogation...................................................................... 47
Section 8.6 Relative Rights.................................................................. 47
Section 8.7 Subordination May Not Be Impaired by Company..................................... 48
Section 8.8 Distribution or Notice to Representative......................................... 48
Section 8.9 Holders Entitled to Rely......................................................... 48
Section 8.10 Acceleration of Interim Notes.................................................... 48
Section 8.11 Reliance by Holders of Senior Debt on Subordination Provisions................... 48
Section 8.12 Amendments....................................................................... 48
ARTICLE IX
TERMINATION
Section 9.1 Termination...................................................................... 49
Section 9.2 Liability........................................................................ 49
ARTICLE X
RELATED PARTY GUARANTEES
Section 10.1 Related Party Guarantees......................................................... 49
Section 10.2 Subordination of Related Party Guarantees........................................ 50
iii
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 10.3 Limitation on Guarantor Liability................................................ 51
Section 10.4 Execution and Delivery of Related Party Guarantees............................... 51
Section 10.5 Stay of Acceleration............................................................. 51
Section 10.6 Consolidation or Merger of Guarantors............................................ 51
ARTICLE XI
INDEMNITY
Section 11.1 Indemnification.................................................................. 52
Section 11.2 Notice of Action................................................................. 52
Section 11.3 Indemnity not Available.......................................................... 53
Section 11.4 Indemnity for Taxes, Reserves and Expenses....................................... 53
Section 11.5 Indemnification for Underwriting Services........................................ 54
Section 11.6 Survivorship of Indemnification.................................................. 54
Section 11.7 Liability Not Exclusive; Payments................................................ 54
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses; Documentary Taxes...................................................... 54
Section 12.2 Notices.......................................................................... 54
Section 12.3 Consent to Amendments and Waivers................................................ 55
Section 12.4 Statements Required in Officers' Certificate and Opinion......................... 56
Section 12.5 Parties.......................................................................... 56
Section 12.6 New York Law; Submission to Jurisdiction; Waiver of Jury Trial................... 56
Section 12.7 Replacement Interim Notes........................................................ 57
Section 12.8 Successors and Assigns........................................................... 57
Section 12.9 Severability Clause.............................................................. 57
Section 12.10 Representations, Warranties and Agreements To Survive Delivery................... 57
Section 12.11 No Adverse Interpretation of Other Agreements.................................... 57
iv
</TABLE>
<PAGE> 6
EXHIBITS
Exhibit A - Form of Debt Registration Rights Agreement
Exhibit B - Form of Equity Registration Rights Agreement
Exhibit C - Form of Escrow Agreement
Exhibit D - Form of Interim Note
Exhibit E - Form of Rollover Note Indenture
Exhibit F - Form of Stockholders Agreement
Exhibit G - Form of Warrant Agreement
Exhibit H - Form of Opinion of Counsel
SCHEDULES
Schedule 1E - Existing Debt
Schedule 1P - Permitted Liens
Schedule 2.5 - Material Contracts
Schedule 2.6 - Subsidiaries; Percentage Ownership
Schedule 2.10 - Financial Statements
Schedule 2.13 - Intellectual Property
Schedule 2.14 - Proceedings
Schedule 2.18 - Environmental
Schedule 2.25 - ERISA Schedule
Schedule 5.2(l) - Additional Liabilities
v
<PAGE> 7
SENIOR SUBORDINATED INCREASING RATE NOTE PURCHASE AGREEMENT
SENIOR SUBORDINATED INCREASING RATE NOTE PURCHASE AGREEMENT, dated
as of March 31, 1997 (the "Agreement"), among IRI International Corporation, a
Delaware corporation (the "Company"), Energy Services International Ltd., a
Delaware corporation and the Company's direct parent (the "Parent"), and
Strategic Resource Partners Fund, a Delaware statutory business trust managed by
an affiliate of Lehman Brothers Inc. ("Strategic Resource Partners" and,
together with any successors and assigns, the "Interim Lenders").
RECITALS
The Company and the Parent have authorized the execution and issuance
of $31,000,000 of Senior Subordinated Increasing Rate Notes dated March 31, 1997
(the "Interim Notes") to facilitate the financing of the Company's acquisition
of the assets of Bowen Tools, Inc. - Delaware ("Bowen-Delaware"), a Delaware
corporation, Bowen Tools, Inc., a Delaware corporation (Bowen Tools, Inc. and
Bowen-Delaware together, "Bowen"), and all of the issued and outstanding capital
stock and certain related assets of Cardwell International Ltd, a Kansas
corporation ("Cardwell").
This Agreement sets forth the terms and conditions upon which the
Interim Lenders will purchase the Interim Notes.
AGREEMENT
Accordingly, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"Acquired Businesses" means Cardwell and Bowen.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisitions" means, collectively, the Bowen Acquisition and the
Cardwell Acquisition.
"Acquisition Agreements" means, collectively, the agreement entered
into by the Company in connection with the Bowen Acquisition and the agreement
entered into by the Company in connection with the Cardwell Acquisition.
"Action" has the meaning specified in Section 11.2.
1
<PAGE> 8
"Administrative Agent" means Credit Lyonnais, New York Branch, as
Administrative Agent under the Senior Credit Facility, or any successor thereto.
"Affected Party" means any Interim Lender or Holder, any beneficial
owner of any Interim Lender or Holder and their respective successors and
assigns.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control. Neither the Interim
Lenders nor their Affiliates nor any Holder will be treated as an Affiliate of
the Company for purposes of this Agreement.
"Affiliate Transaction" has the meaning specified in Section 4.13.
"Applicable LIBOR Rate" means, for each Interest Period, the quotient
(rounded upwards, if necessary, to the nearest 1/100 of 1%) of (x) the rate for
deposits in U.S. dollars for a period of three months commencing on the first
day of such Interest Period which appear on Page 3750 of the Telerate Screen as
of 11:00 a.m., London time, on the Determination Date for such Interest Period;
provided, however, that if more than one rate appears on Page 3750 of the
Telerate Screen, the rate for such Interest Period will be the arithmetic mean
of such rates rounded upwards, if necessary, to the nearest 1/100 of 1%;
provided, further, however, that if such rate is not available on any
Determination Date for any Interest Period, then the Applicable LIBOR Rate for
such Interest Period shall mean the arithmetic mean rounded upwards, if
necessary, to the nearest 1/100 of 1%, of the interest rates per annum at which
deposits in an amount comparable to the aggregate principal amount of the
Interim Notes then outstanding in U.S. dollars are offered to Lehman Brothers by
no less than three leading banks in the London Interbank market for a period of
three months commencing on the first day of such Interest Period, as of 11:00
a.m., London time, on such Determination Date divided by (y) a number equal to
1.00 minus the Eurodollar Reserve Percentage.
"Applicable Spread" means 650 basis points for each day on or prior
to November 30, 1997 and increasing by 50 basis points on November 30, 1997 and
increasing by 50 basis points on each three-month anniversary of November 30,
1997 for so long as the Interim Notes are outstanding.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback), other than in the ordinary course of business consistent
with past practices and (ii) the issue or sale by any Person or any of its
Subsidiaries of Equity Interests of any of such Person's Subsidiaries.
Notwithstanding the foregoing: (i) a transfer of assets by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary that is a
Guarantor and (ii) an issuance or sale of Equity Interests by a Subsidiary of
the Parent or the Company to the Company or to a Wholly Owned Subsidiary that is
a Guarantor will not be deemed to be Asset Sales.
"Bankruptcy Law" means Title 11, United States Code, or any similar
federal or state law for the relief of debtors.
2
<PAGE> 9
"Base CD Rate" means, for any day, the sum of (a) the quotient of (i)
the Three-Month Secondary CD Rate divided by (ii) a number equal to 1.0 minus
the CD Reserve Percentage and (b) the CD Assessment Rate;
"Base Rate" means, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any
change in the Base Rate due to a change in the Prime Rate, the Base CD Rate or
the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Base CD Rate
or the Federal Funds Effective Rate, as the case may be.
"beneficial owner" has the meaning as defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act.
"Board" means the Board of Governors of the Federal Reserve System of
the United States or any successor.
"Bowen" has the meaning specified in the recitals to this Agreement.
"Bowen Acquisition" means the acquisition of all of the assets of
Bowen.
"Bowen Mexicana" means Bowen Mexicana S.A. De C.V., a Mexican
corporation.
"Business Day" means each day other than a Saturday, a Sunday or any
other day on which banking institutions in the City of New York are authorized
by law, regulation or executive order to remain closed and, if such day relates
to a payment or prepayment of principal of, or interest on, or an Interest
Period for, the Interim Notes on which the interest rate is determined by the
Applicable LIBOR Rate, any day which is also a day on which dealings in dollar
deposits are carried out in the London interbank markets.
"Businesses" has the meaning specified in Section 2.18.
"Capital Lease Obligations" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Market Transaction" has the meaning specified in Section
3.6(a).
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cardwell" has the meaning specified in the recitals to this
Agreement.
"Cardwell Acquisition" means the acquisition of all of the issued and
outstanding capital stock and certain related assets of Cardwell.
3
<PAGE> 10
"Cardwell Employment Agreement" means the employment agreement dated
as of March 31, 1997 between Cardwell and A.C. Teichgraeber (and joined by the
Company as a guarantor) pursuant to which Cardwell has agreed to pay A.C.
Teichgraeber an annual salary equal to $250,000 per year and, in the sole
discretion of Cardwell, an annual bonus of up to $600,000, in each case, at such
times and under the terms set forth therein.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of not more than six months from
the date of acquisition, bankers' acceptances with maturities of not more than
six months from the date of acquisition and overnight bank deposits, in each
case with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or one of the two highest ratings from Standard
& Poor's with maturities of not more than six months from the date of
acquisition.
"CD Assessment Rate" means, for the purpose of calculation of the
Base CD Rate on any day, the annual assessment rate in effect on such day which
is payable by a member of the C/D Bank Insurance Fund maintained by the Federal
Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. Section 327.3(d) (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the United
States.
"CD Reserve Percentage" means, for the purpose of calculation of the
Base CD Rate on any day, that percentage (expressed as a decimal) which is in
effect on such day, as prescribed by the Board, for determining the maximum
reserve requirement for a Depositary Institution (as defined in Regulation D of
the Board as in effect from time to time) in respect of new non-personal time
deposits in Dollars having a maturity of 30 days or more.
"Change of Control" means the occurrence of any of the following: (i)
the consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any Person, other than the
Principal and his Related Parties, becomes the beneficial owner (except that a
Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 40% of the Voting Stock of the
Parent (measured by voting power rather than number of shares), (ii) the first
day on which a majority of the members of the board of directors of the Company
or the Parent are not Continuing Directors, (iii) the first day on which the
Parent ceases to own 100% of the outstanding Capital Stock and other Equity
Interests of the Company, (iv) the Parent or the Company consolidates with, or
merges with or into, any Person, or any Person consolidates with or merges with
or into the Parent or the Company, in any such event pursuant to a transaction
in which any of the outstanding Voting Stock of the Parent or the Company is
converted into or exchanged for cash, securities or other property, other than
any such transaction where the Voting Stock of the Parent or the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock of the surviving or transferee Person constituting a majority
of the outstanding shares of such Voting Stock of such surviving or transferee
Person (immediately after giving effect to such conversion or exchange) or (v)
the Principal ceases to be
4
<PAGE> 11
the beneficial owner of 51% or more of the total voting power of all classes of
Voting Stock of the Parent calculated on a fully-diluted basis.
"Change of Control Offer" has the meaning specified in Section 4.21.
"Change of Control Payment" has the meaning specified in Section
4.21.
"Change of Control Payment Date" has the meaning specified in Section
4.21.
"Closing" has the meaning specified in Section 5.1.
"Closing Date" has the meaning specified in Section 5.1.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulation promulgated thereunder.
"Commitment Letter" means the commitment letter among Strategic
Resources Partners, the Parent and the Company dated January 20, 1997.
"Company" has the meaning specified in the preamble to this
Agreement.
"Consolidated Net Income" means, for any period, the net earnings (or
loss) after taxes of the Company and its Subsidiaries on a consolidated basis,
determined for such period in conformity with GAAP.
"Consolidated Net Interest Expense" means, for any period, total
interest expense (including the interest component of Capital Lease Obligations)
of the Company and its Subsidiaries on a consolidated basis, determined for such
period in conformity with GAAP, including, without limitation, all commissions,
discounts and other fees and charges owed with respect to any financings or
letters of credit and net costs under Hedging Obligations.
"Continuing Director" means, as of any date of determination, any
member of the board of directors of a Person who (i) was a member of such board
of directors on the date of this Agreement or (ii) was nominated for election or
elected to such board of directors with the approval of a majority of the
members described in clause (i) of such board.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Debt Registration Rights Agreement" means the registration rights
agreement among the Parent, the Company, the Guarantors and the Interim Lenders
pursuant to which the Rollover Notes are required to be registered for public
sale, in the form attached as Exhibit A.
"Default" means any event that is, or after the passage of time or
the giving of notice (or both) would be, an Event of Default.
"Determination Date" means, with respect to any Interest Period, the
day that is two Business Days prior to the first Business Day of such Interest
Period.
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"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part on, or prior to, the date that is 91 days after the maturity
date of the Rollover Notes.
"Domestic Subsidiary" means any Subsidiary of the Parent or the
Company organized under the laws of any jurisdiction within the United States.
"EBITDA" means, for any period, Consolidated Net Income for such
period (excluding extraordinary gains and losses), plus (i) Consolidated Net
Interest Expense, plus (ii) all charges in such period for income taxes, plus
(iii) all charges in such period for amortization of intangibles, depletion and
depreciation, in each case to the extent reflected in Consolidated Net Income,
plus or minus, as the case may be, (iv) non-cash items decreasing or increasing
such Consolidated Net Income for such period (including, without limitation,
foreign exchange translation adjustments), plus (v) all non-recurring fees and
expenses incurred or paid by the Company in connection with the Acquisitions and
the transactions contemplated by the Transaction Documents, the Engagement
Letter and the Senior Credit Facility.
"Engagement Letter" means the engagement letter among Lehman
Brothers, the Parent and the Company dated January 20, 1997.
"Environmental Laws" means any and all foreign, federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Entity or other requirements of law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning the protection of human health or the
environment, as now or may at any time be in effect.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Registration Rights Agreement" means the registration rights
agreement between the Parent and the Interim Lenders pursuant to which the
Warrants and the Warrant Shares are required to be registered for public sale,
in the form attached as Exhibit B.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any regulation promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company or any Subsidiary of the
Company within the meaning of Section 414(b), 414(c) or 414(m) of the Code.
"ERISA Event" means (i) a Reportable Event with respect to a
Qualified Plan or a Multiemployer Plan; (ii) a withdrawal by the Company or any
ERISA Affiliate from a Qualified Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA); (iii) a complete or partial withdrawal by the Company or
any ERISA Affiliate from a Multiemployer Plan; (iv) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to
terminate a Qualified Plan or Multiemployer Plan subject to Title IV of ERISA;
(v) a failure to make required contributions to a Qualified Plan or
Multiemployer Plan; (vi) the
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imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Company or any
ERISA Affiliate; (vii) an application for a funding waiver or an extension of
any amortization period pursuant to Section 412 of the Code with respect to any
Qualified Plan; (viii) the Company or ERISA Affiliate engages in a nonexempt
prohibited transaction or otherwise become liable with respect to a nonexempt
prohibited transaction, the consequences of which, in the aggregate, have a
Material Adverse Effect; or (ix) a violation of the applicable requirements of
Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a)
of the Code by the Company or any ERISA Affiliate with respect to any Qualified
Plan for which the Company or any of its Subsidiaries may be liable, the
consequences of which, in the aggregate, have a Material Adverse Effect.
"ERISA Schedule" has the meaning specified in Section 2.25.
"Escrow Agent" means The Bank of New York, a New York banking
corporation.
"Escrow Agreement" means the escrow agreement between the Parent, the
Company and the Escrow Agent, in the form attached as Exhibit C.
"Eurodollar Reserve Percentage" means the maximum percentage
(expressed as a decimal) specified from time to time by the Board for
determining the maximum reserve requirements (including, but not limited to,
supplemental, marginal and emergency reserves) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of a member bank
in the Federal Reserve System. The Applicable LIBOR Rate shall be adjusted on
the effective date of any change in the Eurodollar Reserve Percentage, as of
such effective date.
"Event of Default" means any event specified in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Debt" means the Indebtedness identified on Schedule 1E of
the Parent, the Company and each of their respective Subsidiaries.
"Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published, the average of the quotations for the day of such
transactions received by Citibank N.A. from three federal funds brokers of
recognized standing selected by it.
"Financial Statements" has the meaning specified in Section 2.10.
"Foreign Subsidiary" means any Subsidiary of the Parent or the
Company organized under the laws of any jurisdiction outside the United States.
"fully-diluted" means, with respect to any series of Capital Stock of
a Person, all of the shares of such series of Capital Stock that have been
issued or reserved for future issuance, calculated assuming that all Equity
Interests and any other rights convertible or exchangeable into such Capital
Stock or exercisable for such Capital Stock have been converted, exchanged or
exercised, regardless of whether such Equity Interests and rights are then
entitled to be or have been converted, exchanged or exercised, or are subject to
a future contingency or the passage of time or any other condition that
currently prevents or may in the future prevent such conversion, exchange or
exercise.
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<PAGE> 14
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, the statements and
pronouncements of the Financial Accounting Standards Board and such other
statements by such other entities as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Governmental Entity" means any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantors" means the Parent and any Domestic Subsidiary of the
Company that executes the Related Party Guarantee in accordance with the
provisions of Section 10.4, and their respective successors and assigns.
"Hazardous Material" means any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products or any hazardous or toxic
substances, materials or wastes, defined or regulated as such in or under any
Environmental Law, including, without limitation, asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"High Yield Notes" has the meaning specified in Section 4.4(b).
"Holder" means each Interim Lender and each other Person, if any, in
whose name an Interim Note is registered on the Note Register.
"incur" has the meaning specified in Section 4.9.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
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"Indemnified Party" has the meaning specified in Section 11.1.
"Indemnifying Party" has the meaning specified in Section 11.1
"Intellectual Property" has the meaning specified in Section 2.13.
"Interest Payment Date" means the last day of each Interest Period,
the Maturity Date and the date of any redemption or prepayment of the Interim
Notes.
"Interest Period" means, in the case of the first Interest Period,
the date commencing on and including the Closing Date and ending on and
including June 30, 1997, and, for each subsequent Interest Period, the date
commencing on the last day of the preceding Interest Period and ending on the
three-month anniversary of such date; provided, that if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended until the next succeeding Business Day unless the next Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day. Notwithstanding the foregoing, no
Interest Period may extend beyond the Maturity Date and each Interest Period
which would otherwise commence before and end after the Maturity Date shall end
on the Maturity Date.
"Interim Lenders" has the meaning specified in the preamble to this
Agreement.
"Interim Notes" has the meaning specified in the recitals to this
Agreement. The form of Interim Note is attached as Exhibit D.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including Guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Parent, the Company or any of their respective Subsidiaries sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Parent or the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a direct or indirect Subsidiary of the
Parent or the Company, the Parent or the Company, as the case may be, shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"Lehman Brothers" means Lehman Brothers Inc., a Delaware corporation.
"Lenders" means the banks and other lending institutions named in the
Senior Credit Facility as lenders.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
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"Liquidated Damages" means any and all liquidated damages then owing
pursuant to any of the Transaction Documents.
"Material Contracts" has the meaning specified in Section 2.4.
"Material Adverse Effect" means any circumstance or event that (i)
has, or may be reasonably expected to have, any materially adverse effect upon
the validity or enforceability of this Agreement or any of the other Transaction
Documents (ii) is, or may be reasonably expected to be, materially adverse to
the consolidated financial condition, business, operations, assets, liabilities,
management, prospects or value of the Parent, the Company or the Acquired
Businesses (including any event which, in the opinion of the Interim Lenders, is
reasonably likely to result in such a material adverse change), (iii) materially
impairs the ability of the Company to pay its Obligations under this Agreement
or the Interim Notes or (iv) materially impairs the ability of any Guarantor to
pay its Obligations under its Related Party Guarantee.
"Maturity Date" has the meaning specified in Section 3.2.
"Multiemployer Plan" means a "multiemployer plan" (within the meaning
of Section 4001(a)(3) of ERISA) and to which the Company or any ERISA Affiliate
makes, is making, or is obligated to make contributions or has made, or been
obligated to make, contributions.
"Net Cash Proceeds" means the aggregate cash proceeds received
(including any cash payments received by way of deferred payment of principal
pursuant to a promissory note or installment receivable or otherwise, but only
as and when received) from any Capital Market Transaction, net of (i) all
commissions (including any underwriter's discounts) and (ii) other ordinary and
reasonable fees and expenses (including legal fees and expenses) incurred as a
consequence of such Capital Market Transaction.
"Note Register" means the register maintained by the Company pursuant
to Section 6.3.
"Obligations" means any principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Parent, the Company or their
Subsidiaries whether or not a claim for post-filing interest is allowed in such
proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement
obligations, damages (including Liquidated Damages), guarantees and other
liabilities or amounts payable under the documentation governing any
Indebtedness or in respect thereof.
"Offering Documents" means an offering memorandum or prospectus
together with such other documents, instruments and agreements as Lehman
Brothers may request in its sole discretion in connection with the issuance of
High Yield Notes pursuant to Section 4.4.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of
either the Parent or the Company by two Officers of the Parent or the Company,
as the case may be, one of whom must be the principal executive officer, a vice
chairman, the principal financial officer, the treasurer or the principal
accounting officer of the Parent or the Company, as the case may be, that meets
the requirements of Section 12.4.
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"Opinion of Counsel" means an opinion from legal counsel of the
Parent or the Company that is reasonably acceptable to the Interim Lenders that
meets the requirements of Section 12.4.
"Parent" has the meaning specified in the preamble to this Agreement.
"Payment Blockage Notice" has the meaning specified in Section
8.3(b).
"Payment Default" has the meaning specified in Section 7.1(g).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any of its functions under ERISA.
"Permanent Securities" means securities issued by either the Parent
or the Company that the Parent or the Company intends to either register with
the SEC and sell pursuant to a registration statement in a public offering or
privately place or otherwise sell in an offering exempt from registration with
the SEC in connection with the mandatory redemption provisions of Sections 3.6
and 4.3.
"Permits" has the meaning specified in Section 2.19.
"Permitted Investments" means (i) any Investment in the Company or in
a Wholly Owned Subsidiary of the Company that is a Guarantor, (ii) Investments
in Foreign Subsidiaries of the Company not exceeding in the aggregate $1.0
million at any one time outstanding, (iii) any Investment in Cash Equivalents,
(iv) extensions of trade credit in the ordinary course of business, and (v)
loans and advances to employees of the Company and its Subsidiaries for travel,
entertainment and relocation expenses in the ordinary course of business in an
aggregate amount for the Company and its Subsidiaries not to exceed $500,000 at
any one time outstanding.
"Permitted Liens" means (i) Liens on assets of the Company or any of
the Guarantors to secure Senior Debt permitted by this Agreement to be incurred;
(ii) Liens on assets of the Company or any of the Guarantors to secure Hedging
Obligations permitted by this Agreement to be incurred; (iii) Liens in favor of
the Company; (iv) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds, deposits to secure the performance of
bids, trade contracts, licenses or leases (other than financing leases) or other
obligations of a like nature incurred in the ordinary course of business; (v)
Liens existing on the Closing Date and listed on Schedule 1P; (vi) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently prosecuted, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (vii) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations not overdue for a period in excess of 60 days
or which are being contested in good faith by appropriate proceedings promptly
instituted and diligently prosecuted, provided that any reserve or other
appropriate provision as shall be required in accordance with GAAP shall have
been made therefor; (viii) easements, rights-of-way, zoning and similar
restrictions and other similar encumbrances or title defects incurred, or leases
or subleases granted to others, in the ordinary course of business, which do not
in any case materially detract from the value of the property subject thereto or
do not interfere with or adversely affect in any material respect the ordinary
conduct of the business of the Company and its Subsidiaries taken as a whole;
(ix) Liens upon real and/or tangible personal property acquired after the
Closing Date (by purchase, construction or otherwise) by the Company or any of
its Subsidiaries, each of which Liens was created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or refund
100% of the cost (including the cost of construction) of such property to the
extent such
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Indebtedness is permitted by Section 4.9 (viii) and provided the Liens cover
only such property so acquired or constructed and no other property and such
Liens are created within three months after such acquisition or construction;
(x) pledges or deposits in connection with workers' compensation, unemployment
insurance and other social security legislation; (xi) Liens in favor of customs
and revenue authorities to secure payment of customs duties in connection with
the importation of goods in the ordinary course of business and other similar
Liens arising in the ordinary course of business; (xii) permitted exception
enumerated in the mortgages or deeds of trust by any Relevant Party in favor of,
or for the benefit of the Administrative Agent for the benefit of the lenders
under the Senior Credit Facility; and (xiii) Liens created under ERISA and under
Environmental Laws that are being contested in good faith and as to which
adequate reserves have been established to the extent required by GAAP and
secure obligations not in excess of $500,000; provided that the Company and its
Subsidiaries shall take all reasonable actions to terminate such Liens.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Parent, the Company or any of their Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund the Senior Credit Facility; provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued and unpaid interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded and (iii) such Indebtedness is incurred either by
the Parent or the Company (and may be Guaranteed by a Subsidiary that is a
Guarantor of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded).
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other entity.
"Plan" means any "employee benefit plan" as defined in Section 3(3)
of ERISA (A) which the Company or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, within the five years prior
to the Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur any
liability and (B) which covers any employee or former employee of the Company or
any ERISA Affiliate (with respect to their relationship with such entities).
"Prepayment Date" has the meaning specified in Section 3.10.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by Citibank N.A. as its prime rate in effect at its principal
office in New York City (such rate of interest not necessarily the lowest rate
of interest charged by Citibank N.A. in connection with extensions of credit).
"Principal" means Hushang Ansary.
"Properties" has the meaning specified in Section 2.18.
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"Qualified Plan" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the Code and which
the Company or any ERISA Affiliate sponsors, maintains, or to which it makes or
is obligated to make contributions, or in the case of a multiple employer plan
(as described in Section 4064(a) of ERISA) has made contributions at any time
during the immediately preceding period covering at least five (5) plan years,
but excluding any Multiemployer Plan.
"Record Date" means the fifteenth day of the calendar month preceding
an Interest Payment Date.
"Related Documents" means the Rollover Notes, the Rollover Note
Indenture, the Debt Registration Rights Agreement, the Escrow Agreement, the
Warrant Agreement, the Equity Registration Rights Agreement, the Stockholders
Agreement, the Engagement Letter and the documents contemplated in those
agreements.
"Related Party" means, with respect to the Principal, (A) any spouse
or immediate family member (in the case of an individual) of such Principal or
(B) a trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"Related Party Guarantee" means the Guarantee by the Guarantors of
the Interim Notes pursuant to Article X.
"Relevant Parties" means the Parent, the Company, the Guarantors and
each of their respective Subsidiaries.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, a withdrawal from a plan
described in Section 4063 of ERISA or a cessation of operations described in
Section 4062(e) of ERISA.
"Representative" means the indenture trustee or other trustee, agent
or representative designated as such in connection with the issuance of any
Senior Debt.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Payments" has the meaning specified in Section 4.10.
"Rollover Fee" means a fee payable to each Holder on the Maturity
Date equal to 3% of the aggregate principal amount of Interim Notes held by such
Holder as of such date.
"Rollover Note Indenture" means, with respect to the Rollover Notes,
an indenture among the Parent, the Company, the Guarantors and The Bank of New
York, as trustee, in the form attached as Exhibit E.
"Rollover Notes" means the Senior Subordinated Rollover Notes of the
Company placed into escrow on the Closing Date, to be issued in exchange for the
Interim Notes pursuant to Section 3.3, in the form attached as an exhibit to the
Rollover Note Indenture.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means Bowen, Teichgraeber Family Limited Partnership L.P.,
Arthur C. Teichgraeber Charitable Remainder Trust, A.C. Teichgraeber, Greenwood
Pipe and Threading Company, and Edco Drilling Company Inc.
"Senior Credit Facility" means the Credit Agreement dated as of March
31, 1997 among the Parent, the Company, the financial institutions named
therein, the Administrative Agent and Lehman Commercial Paper Inc., as Advisor,
Arranger and Syndication Agent, and any related notes, collateral documents,
letters of credit and guarantees, including appendices, exhibits or schedules to
any of the foregoing, as such agreements may be amended, modified, supplemented
or restated from time to time thereafter, including any appendices, exhibits or
schedules to any of the foregoing, as the same may be in effect at any time, in
each case, as such agreements may be amended, modified, supplemented or restated
from time to time, or refunded, refinanced, replaced, renewed or extended from
time to time (whether with the original agents and lenders or other agents and
lenders or otherwise, and whether provided under the original credit agreement
or other credit agreements or otherwise), provided that such refunded,
refinanced, replaced, renewed or extended agreements constitute Permitted
Refinancing Indebtedness.
"Senior Debt" means (i) all Indebtedness of the Company or any of the
Guarantors outstanding at any time under or in respect of the Senior Credit
Facility and all Hedging Obligations with respect thereto, and (ii) any other
Indebtedness that is permitted to be incurred by the Company pursuant to this
Agreement unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Interim Notes, and (iii) all Obligations of the Company or any of
the Guarantors with respect to the foregoing. Without expanding the foregoing,
Senior Debt will not include (v) any Obligation of the Company to any Subsidiary
of the Company or any other Affiliates, (w) any liability for federal, state,
local or other taxes owed or owing by the Company (other than such taxes owing
or owed under the Senior Credit Facility), (x) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (y)
any Obligations in respect of Capital Stock of the Company or (z) that portion
of any Indebtedness which at the time of incurrence is incurred in violation of
this Indenture.
"Senior Guarantees" means the Guarantees issued by the Guarantors
pursuant to the Senior Credit Facility.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Solvent" means, with respect to the Parent or the Company on a pro
forma basis immediately after the consummation of the Acquisitions, that (a) the
fair value of each of the Parent's and the Company's assets exceeds its stated
liabilities, including all contingent liabilities, (b) the present fair saleable
value of each of the Parent's and the Company's assets exceeds that amount that
will be required to pay its probable liability on its debts as they become
absolute and mature, (c) neither the Parent nor the Company will have incurred
debts beyond its ability to pay such debts as they mature, and (d) the then
remaining assets of each of the Parent and the Company will not constitute an
unreasonably small capital for the business in which each of the Parent and the
Company is engaged.
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"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders Agreement" means the stockholder agreement among the
Interim Lenders, the Parent and each of the other parties listed therein, in the
form attached as Exhibit F.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such Person or (b) the only general partners of which are such Person
or of one or more entities described in clause (i) and related to such Person
(or any combination thereof).
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so reported
on such day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 A.M., New York City time,
on such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by Citibank N.A. from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it.
"Transaction Documents" means this Agreement, the Interim Notes and
the Related Documents.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Unfunded Pension Liabilities" means the excess of a Plan's accrued
benefits, as defined in Section 3(23) of ERISA, over the current value of that
Plan's assets, as defined in Section 3(26) of ERISA.
"Voting Stock" means, with respect to any Person at any time, the
Capital Stock of such Person that is at such time entitled to vote in the
election of the board of directors of such Person.
"Warrant Agent" means The Bank of New York, a New York banking
corporation.
"Warrant Agreement" means the warrant agreement between the Parent
and the Warrant Agent, in the form attached as Exhibit G.
"Warrant Shares" has the meaning specified in Section 4.4(a).
"Warrants" means the warrants to purchase common stock of the Parent
to be issued pursuant to the Warrant Agreement.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" means (i) a Subsidiary, 100 percent of the
Capital Stock and other Equity Interests of which is owned directly or
indirectly by the Company and (ii) Bowen Mexicana.
"Withdrawal Liabilities" means, as of any determination date, the
aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA
if the Company and each ERISA Affiliate made a complete withdrawal from all
Multiemployer Plans and any increase in contributions pursuant to Section 4243
of ERISA.
Section 1.2 Interpretation. In this Agreement, the singular includes
the plural and the plural includes the singular; words implying any gender
include the other genders; references to any section, exhibit or schedule are to
sections, exhibits or schedules hereto unless otherwise indicated; references to
statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; references to
"writing" include printing, typing, lithography and other means of reproducing
words in a visible form; "including" following a word or phrase shall not be
construed to limit the generality of such word or phrase; and an accounting term
not otherwise defined has the meaning assigned to it in accordance with GAAP as
in effect from time to time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
As of the date hereof and as of the Closing Date (after giving pro
forma effect to the Acquisitions, the Senior Credit Facility, the Transaction
Documents, the issuance of the Interim Notes and the application of the proceeds
thereof, and the transactions contemplated hereby and thereby), the Parent and
the Company hereby agree with, and represent and warrant to, the Interim Lenders
and any subsequent Holder as follows:
Section 2.1 Representations and Warranties in the Acquisition
Agreements and the Senior Credit Facility. The representations and warranties of
the Relevant Parties contained in the Senior Credit Facility and, to the best of
the Parent's and Company's knowledge, representations and warranties of the
Sellers contained in the Acquisition Agreements are true and correct in all
material respects and are hereby incorporated herein by reference.
Section 2.2 Organization; Good Standing. Each of the Relevant Parties
has been duly incorporated, duly organized or duly constituted and is a validly
existing corporation, limited partnership, or limited liability company in good
standing under the laws of its jurisdiction of organization, with corporate,
partnership or other necessary power and authority to own, lease and operate its
properties and conduct its business as it is being conducted and is duly
qualified to do business and is in good standing as a foreign corporation,
limited partnership, or limited liability company in all jurisdictions in which
it owns, leases or operates substantial properties or in which the conduct of
its business requires such qualification except where the failure to so qualify
will not cause a Material Adverse Effect.
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Section 2.3 Due Authorization and Enforceability. (a) Each of the
Acquisition Agreements, the Senior Credit Facility and the Transaction Documents
(i) has been duly authorized, executed and delivered by each Relevant Party to
the extent a party thereto and (ii) constitutes a valid and binding obligation
of such Relevant Party enforceable against it in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforceability
of creditors' rights generally and by general principles of equity (whether
arising under a proceeding at law or in equity).
(b) The Interim Notes have been duly authorized by the Company and,
when executed and delivered pursuant to the terms of this Agreement against
payment thereof by the Interim Lenders, will be valid and binding obligations of
the Company, enforceable against it in accordance with their terms, except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforceability
of creditors' rights generally and by general principles of equity (whether
arising under a proceeding at law or in equity).
(c) The Related Party Guarantee has been duly authorized by each of
the Guarantors and, when the Interim Notes have been delivered pursuant to the
terms of this Agreement against payment thereof by the Interim Lenders, the
Related Party Guarantee will be a valid and binding obligation of each of the
Guarantors, enforceable against each of them in accordance with its terms,
except as enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally and by general principles of
equity (whether arising under a proceeding at law or in equity).
(d) The Warrants have been duly authorized by the Parent and, when
executed and authenticated pursuant to the terms of the Warrant Agreement and
delivered to the Escrow Agent pursuant to the provisions of this Agreement, will
be valid and binding obligations of the Parent, enforceable against it in
accordance with its terms, except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforceability of creditors' rights generally and by general
principles of equity (whether arising under a proceeding at law or in equity).
(e) The Warrant Shares to be issued upon exercise of the Warrants
have been duly authorized and reserved for issuance by the Parent and will be
issued at the times and in the manner required by the Warrant Agreement and,
upon due exercise of a Warrant, the Warrant Shares issued will be validly
issued, fully paid and nonassessable.
Section 2.4 No Conflicts. (a) Neither the execution and delivery of
the Acquisition Agreements, the Senior Credit Facility or the Transaction
Documents nor the consummation of any of the transactions contemplated hereby or
thereby nor compliance with the terms and provisions hereof or thereof (i)
violates or will violate any law or regulation or any order or decree of any
court or Governmental Entity applicable to the Relevant Parties or by which any
of their respective properties or assets may be bound, (ii) constitutes or will
constitute a breach or a violation of, any of the terms or provisions of, or a
default under, the organizational documents (including any certificate of
incorporation or bylaws) or any other corporate restriction of any of the
Relevant Parties or (iii) conflicts with or will result in the breach of, or
constitutes a default under, any material contract, lease, indenture, loan
agreement (including the Senior Credit Facility), mortgage, deed of trust or
other agreement or instrument (each, a "Material Contract") to which a Relevant
Party is a party or by which any of them or any of their respective assets may
be bound.
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(b) No consent, approval, authorization or order of, or any
registration or filing with, any Governmental Entity is or will be required in
connection with (i) the execution and delivery of the Acquisition Agreements,
the Senior Credit Facility or the Transaction Documents by the Relevant Parties
or the consummation of the transactions contemplated hereby or thereby, or (ii)
the issuance and delivery of the Warrants or the Warrant Shares by the Parent,
other than (A) such authorizations, approvals, consents, exemptions,
registrations or filings as shall have been made or secured by the date hereof
and as may be required in connection with registration of the Rollover Notes
pursuant to the Debt Registration Rights Agreement and the registration of the
Warrants and the Warrant Shares pursuant to the Equity Registration Rights
Agreement, and approval of the Cardwell Acquisition by the U.S. Department of
Justice under the Hart-Scott-Rodino Antitrust Act of 1976, (B) informational
filings with the SEC and certain "blue sky" administrators which have no bearing
on the validity or enforceability of the Warrants or the Warrant Shares and (C)
such actions as may be required after the date hereof in connection with any
transfer of the Warrants or the Warrant Shares.
Section 2.5 No Violations; Material Contracts. (a) There does not
currently exist with respect to any Relevant Party (i) any violation of any law
or regulation or any order or decree of any court or Governmental Entity
applicable to such Relevant Party or (ii) any conflict or violation of any terms
or provisions of its organization documents (including any certificate of
incorporation or bylaws) and any other corporate restriction.
(b) None of the Relevant Parties is a party to any agreement or
instrument or subject to any corporate or other restriction that, individually
or in the aggregate, has had or could have a Material Adverse Effect. Each
Material Contract to which a Relevant Party (except Cardwell) is a party or by
which such Relevant Party or any of its properties or assets are or may be bound
as of the Closing Date is listed on Schedule 2.5 and true and correct copies of
all such Material Contracts have been delivered to the Interim Lenders and to
Latham & Watkins, special counsel to the Interim Lenders.
(c) As of the Closing Date, each Material Contract is in all material
respects valid, binding and in full force and effect and is enforceable by each
Relevant Party that is a party thereto in accordance with its terms. As of the
Closing Date, each Relevant Party has performed in all material respects all
obligations required to be performed by it to date under all of its Material
Contracts and is not (with or without the lapse of time or the giving of notice,
or both) in breach or default in any material respect thereunder and, to the
knowledge of the Parent or the Company, no other party to any of the Material
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default or in any material respect thereunder. As of the
Closing Date, neither the Parent nor the Company, nor, to the knowledge of the
Parent or the Company, any other party to any Material Contract, has given
notice of termination of, or taken any action inconsistent with the continuation
of, any Material Contract. As of the Closing Date, none of such other parties
has any presently exercisable or future right to terminate any Material
Contract, including any right to terminate any Material Contract on account of
the execution, delivery or performance of the Senior Credit Facility, the
Acquisition Agreements, or the Transaction Documents.
Section 2.6 Capital Stock; Subsidiaries. (a) All shares of Capital
Stock and other Equity Interests of the Acquired Businesses after the
Acquisitions will be duly authorized, validly issued, fully paid and
non-assessable and owned by the Company or one of its Wholly Owned Domestic
Subsidiaries (other than Bowen-Mexicana) beneficially and of record, free and
clear of any Lien, other than under the Senior Credit Facility. After the Bowen
Acquisition, 95% of the Capital Stock and other Equity Interests of
Bowen-Mexicana will be owned by the Company beneficially and of record. All
shares of Capital Stock and other Equity Interests of the Company are duly
authorized, validly issued, fully paid and non-assessable and owned by the
Parent beneficially and of record, free and clear of any Lien. All shares
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of Capital Stock and other Equity Interests of the Parent are duly authorized,
validly issued, fully paid and non-assessable, owned free and clear of any Lien.
Ninety-one percent of the Capital Stock and other Equity Interests of the Parent
is owned by Energy Services International Limited, a British Virgin Islands
corporation ("BVI"), beneficially and of record. All shares of Capital Stock and
other Equity Interests of BVI are duly authorized, validly issued, fully paid
and non-assessable, owned free and clear of any Lien. One-hundred percent of the
Capital Stock and other Equity Interests of BVI is owned by the Principal, his
immediate family members (i.e. his spouse and his children) and trusts for the
benefit of his immediate family members beneficially and of record. BVI has no
significant liabilities of any kind and has no assets other than its interests
in the Parent.
(b) There are (i) no outstanding subscriptions, warrants, options,
calls or commitments of any character related to or entitling any Person to
purchase or otherwise acquire any shares of BVI's, the Parent's or the Company's
Capital Stock or the Capital Stock of any Subsidiary of the Parent or the
Company, (ii) no obligations or securities convertible into or exchangeable for
shares of any Capital Stock of BVI, the Parent, the Company or any such
Subsidiary or any commitments of any character relating to or entitling any
Person to purchase or otherwise acquire any such obligations or securities,
other than the Warrant Agreement and (iii) no preemptive or similar rights to
subscribe for or to purchase any Capital Stock of BVI, the Parent, the Company
or any such Subsidiary, except (A) those that are currently owned or that will
be owned after the Acquisitions, beneficially and of record by the Company and
(B) those contemplated by the Warrant Agreement.
(c) Neither the Parent nor the Company owns, directly or indirectly,
any stock, partnership interest, joint venture or other equity investment or
interest in any other corporation, organization or entity other than the
Subsidiaries set forth on Schedule 2.6. Schedule 2.6 is a true and complete list
of the record and beneficial owners of all outstanding Capital Stock of, and
other Equity Interests in, the Parent, the Company and each of their respective
Subsidiaries listed by name, number of shares and percentage ownership.
Section 2.7 Senior Credit Facility; Liens. At the Closing: (i) all
Indebtedness represented by the Interim Notes will be subordinated in right of
payment only to Indebtedness incurred pursuant to the Senior Credit Facility and
(ii) there will be no Liens on any assets of the Parent or the Company or any of
their respective Subsidiaries except Permitted Liens.
Section 2.8 No Violation of Regulations of Board of Governors of
Federal Reserve System. None of the transactions contemplated by this Agreement
(including without limitation the use of the proceeds from the sale of the
Interim Notes and the Permanent Securities) will violate or result in a
violation of Section 7 of the Exchange Act, or any rule or regulation issued
pursuant thereto, including, without limitation, Regulations G, T, U and X of
the Board of Governors of the Federal Reserve System.
Section 2.9 Governmental Regulations. None of the Relevant Parties is
or will be subject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as amended, the Federal
Power Act, the Interstate Commerce Act or to any other Federal or state statute
or regulation limiting its ability to incur Indebtedness for borrowed money.
Section 2.10 Financial Statements; No Undisclosed Liabilities. (a)
The financial statements that have been delivered to the Interim Lenders
pursuant to Sections 5.2(i) and (j) and attached as Schedule 2.10 (the
"Financial Statements"), comply with the requirements of Sections 5.2(i) and
(j). Except as set forth in the notes thereto, the Financial Statements have
been prepared from, and are consistent with, the books and records of the
Relevant Parties and fairly present the historical results of operations and
financial position of the Relevant Parties for the periods and as of the dates
set forth
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therein, in each case in accordance with GAAP consistently applied during the
periods involved (except as otherwise specifically indicated therein). The pro
forma income statement delivered pursuant to Section 5.2(j) fairly presents the
estimated consolidated income of the Company assuming the consummation of the
Acquisitions and the financings contemplated hereby (including borrowings under
the Senior Credit Facility) as if such transactions had occurred on the first
day of such period, and the financial condition of the Company on the Closing
Date does not differ in any material respect from the information therein set
forth.
(b) None of the Relevant Parties has any liability (absolute or
contingent) except those shown on the Financial Statements or those incurred in
the ordinary course of business since the date of the last Financial Statements
that do not, in the aggregate, exceed 5% of the total assets of the Relevant
Parties.
(c) Each Relevant Party maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Section 2.11 Full Disclosure. No information, report, Financial
Statement or certificate delivered or to be delivered to the Interim Lenders in
connection with the Transaction Documents contains or will contain any untrue
statement of material fact or omitted or omits or will omit to state a material
fact necessary to make such statements not misleading in light of the
circumstances in which such statements were made. It is understood, however,
that to the extent any such information, report, Financial Statement or
certificate includes projections, such projections are based upon good faith
estimates and assumptions believed to be reasonable at the time made and are not
to be viewed as facts. Actual results during the period or periods covered by
such projections may differ from the projected results.
Section 2.12 Private Offering; Rule 144A Matters. (a) Based in part
on the accuracy of the representations of the Interim Lenders in Section 6.1,
the sale of the Interim Notes hereunder and the issuance of the Rollover Notes
and the Warrants are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act. Neither the Parent nor the Company
has issued or sold Interim Notes, Rollover Notes or Warrants to anyone other
than the Interim Lenders. No securities of the same class as the Interim Notes
or the Warrants have been issued or sold by the Company or the Parent, as the
case may be, within the six-month period immediately prior to the date hereof.
The Parent and the Company agree that neither of them, nor anyone acting on
their behalf, will offer the Interim Notes, the Rollover Notes or the Warrants
so as to bring the issuance and/or sale of the Interim Notes, the Rollover Notes
or Warrants within the provisions of Section 5 of the Securities Act nor offer
any similar securities for issuance or sale to, or solicit any offer to acquire
any of the same from, or otherwise approach or negotiate with respect thereto
with, anyone if the issuance or sale of the Interim Notes, the Rollover Notes or
the Warrants or any such securities would be integrated as a single offering for
the purposes of the Securities Act, including without limitation, Regulation D
thereunder. Each Interim Note, Rollover Note and Warrant shall have a legend
setting forth the restrictions on transferability and sale imposed by Regulation
D under the Securities Act for at least so long as such restrictions apply.
(b) In the case of each offer, sale or issuance of the Interim Notes,
Rollover Notes and Warrants, no form of general solicitation or general
advertising was or will be used by the Parent or the
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Company or their representatives, including, but not limited to, advertisements,
articles, notices or other communications published in any newspaper, magazine
or similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.
(c) The Interim Notes, the Rollover Notes and the Warrants will be
eligible for resale pursuant to Rule 144A under the Securities Act. When the
Interim Notes, the Rollover Notes and the Warrants are issued and delivered
pursuant to this Agreement, they will not be of the same class (within the
meaning of Rule 144A(d)(3) under the Securities Act) as any security of the
Parent or the Company that is listed on a national securities exchange
registered under Section 6 of the Exchange Act or that is quoted in a United
States automated interdealer quotation system. The issuance of the Interim Notes
and the execution, delivery and performance of the Transaction Documents (other
than the Debt Registration Rights Agreement) will not require the qualification
of an indenture under the Trust Indenture Act of 1939, as amended.
Section 2.13 Proprietary Matter. Each of the Relevant Parties owns,
possesses or has the right to employ all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively, the
"Intellectual Property") now used or proposed to be used in connection with the
businesses conducted by the Relevant Parties. No Relevant Party has received any
notice of infringement of or conflict with asserted rights of others or of any
challenge to the validity or effectiveness with respect to any of the foregoing.
The use of the Intellectual Property in connection with the businesses and
operations of each Relevant Party does not infringe on any rights of any person
and the completion of the Acquisitions will not in any manner impair the
ownership of (or the license to use, as the case may be) any of such
Intellectual Property by any of the Relevant Parties. Schedule 2.13 sets forth a
complete and correct list, as of the Closing Date, of: (i) all patented or
registered Intellectual Property and pending patent applications or applications
for registration of Intellectual Property owned or filed by or on behalf of any
of the Relevant Parties, (ii) all trade names and unregistered trademarks or
service marks owned by or used by any of the Relevant Parties, and (iii) all
licenses of Intellectual Property to which any of the Relevant Parties is a
party, either as licensee or licensor.
Section 2.14 Absence of Proceedings. Except with respect to the
matters disclosed in Schedule 2.14, there is not pending or threatened any
action, suit or proceeding to which any Relevant Party is a party, before or by
any court or Governmental Entity or body (domestic or foreign), that could
reasonably be expected to cause a Material Adverse Effect.
Section 2.15 Absence of Labor Disputes. (a) None of the Relevant
Parties is involved in any material labor dispute nor is any material dispute
threatened which, if such dispute were to occur, could reasonably be expected to
have a Material Adverse Effect.
(b) There is, as of the Closing Date (i) no unfair labor practice
complaint pending against any of the Relevant Parties or threatened against any
of them, before the National Labor Relations Board, (ii) no material grievance
or arbitration proceeding arising out of or under any collective bargaining
agreement pending against any of the Relevant Parties or threatened against any
of them, (iii) no union representation question existing with respect to the
employees of any of the Relevant Parties and (iv) no union organizing activities
are taking place, except (with respect to any matter specified in clause (i)
through (iii) above) such as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
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Section 2.16 Taxes. The Relevant Parties have duly and timely filed
all required tax returns and reports and paid prior to delinquency all taxes,
assessments, and governmental levies except those not in process of enforcement
and being contested in good faith and by appropriate proceedings.
Section 2.17 Absence of Employment Law Violations, Etc. None of the
Relevant Parties has violated any safety or similar law applicable to its
business, nor any federal, state or foreign law relating to discrimination in
the hiring, promotion or pay of employees nor any applicable federal, state or
foreign wages and hours laws, or the rules and regulations promulgated
thereunder, which in each case could reasonably be expected to have a Material
Adverse Effect.
Section 2.18 Environmental Laws. Except as described on Schedule
2.18: (a) the real property owned, leased or operated by any of the Relevant
Parties (collectively, the "Properties") do not contain any Hazardous Material
in amounts or concentrations or under circumstances which (i) constitute or
constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law, except in either case insofar as such violation or liability,
or any aggregation thereof, could not reasonably be expected to have a Material
Adverse Effect.
(b) The Properties and all operations at the Properties are in
material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated or
proposed to be operated by any of the Relevant Parties (the "Businesses") which
could reasonably be expected to materially interfere with the continued
operation of the Properties. None of the Relevant Parties has assumed any
liability of any other Person under any of the Environmental Laws.
(c) None of the Relevant Parties has received or is aware of any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the Businesses, nor does any of the
Relevant Parties have knowledge or reason to believe that any such notice will
be received or is being threatened, except insofar as such notice or threatened
notice, or any aggregation thereof, does not involve a matter or matters that
could reasonably be expected to have a Material Adverse Effect.
(d) Hazardous Materials have not been transported or disposed of from
the Properties in violation of, or in a manner or to a location which could
reasonably be expected to give rise to liability under, any Environmental Law,
nor have any Hazardous Materials been generated, treated, stored or disposed of
at, on or under any of the Properties in violation of, or in a manner that could
give rise to liability under, any applicable Environmental Law, except insofar
as any such violation or liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to have a Material Adverse
Effect.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Parent or the Company, threatened, under
any Environmental Law to which any of the Relevant Parties is or, to the
knowledge of the Parent or the Company, will be named as a party with respect to
the Properties or the Businesses, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law
with respect to the Properties or the Businesses, except insofar as such
proceeding, action, decree, order or other requirement, or any aggregation
thereof, could not reasonably be expected to have a Material Adverse Effect.
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(f) There has been no release or threat of release of Hazardous
Materials at or from the Properties, or arising from or related to the
operations of the Relevant Parties in connection with the Properties or
otherwise in connection with the Businesses, in violation of or in amounts or in
a manner that could give rise to liability under Environmental Laws, except
insofar as any such violation or liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to have a Material Adverse
Effect.
Section 2.19 Permits. Each of the Relevant Parties has such material
permits, licenses, franchises, consents, approvals and authorizations of
Governmental Entities ("Permits") as are necessary to own, lease and operate its
respective properties and to conduct its business as presently conducted. Each
of the Relevant Parties has fulfilled and performed all of its material
obligations with respect to such Permits, and, to the best of their knowledge,
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination by the issuer thereof or which results in any
other material impairment of the rights of any of such Relevant Parties with
respect to any such Permits. Such Permits contain no restrictions that are
materially burdensome to any of the Relevant Parties, and the Parent and the
Company have no knowledge that any Governmental Entity is considering limiting,
suspending or revoking any such Permit. Neither the Parent nor the Company has
any knowledge of the facts or circumstances that would reasonably allow it to
conclude that any Permit necessary in the future to conduct the businesses of
the Relevant Parties will not be granted upon application.
Section 2.20 Properties; Leases. The Relevant Parties have good and
marketable title to their respective properties and assets, free and clear of
all Liens, claims, encumbrances and restrictions, except Permitted Liens. All
real property leases to which any Relevant Party is a party are valid and
binding, and neither the Parent nor the Company has any knowledge of any facts
or circumstances that would reasonably allow it to conclude that a default has
occurred or is continuing thereunder. The Relevant Parties enjoy peaceful and
undisturbed possession under all such leases to which any of them is a party as
lessee with such exceptions as do not materially interfere with the use made by
them.
Section 2.21 Insurance. The Relevant Parties maintain commercially
reasonable insurance for the businesses in which they are engaged. All such
policies are in full force and effect, all premiums due and payable thereon have
been paid and no notice of cancellation or termination has been received with
respect to any such policy which has not been replaced. The activities and
operations of the Relevant Parties have been conducted in a manner so as to
conform in all material respects to the applicable provisions of such insurance
policies.
Section 2.22 Financial Condition; Solvency. (a) (i) The fair value of
the assets of each Relevant Party will exceed the debts and liabilities, direct,
subordinated, contingent or otherwise, of such Relevant Party; (ii) the present
fair salable value of the property of such Relevant Party will be greater than
the amount that will be required to satisfy any probable liability of such
Relevant Party on its debts and other liabilities, direct, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (iii) such Relevant Party will be able to pay its debts and
liabilities, direct, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (iv) such Relevant Party will not
have unreasonably small capital with which to conduct the businesses in which it
is engaged as such business is now conducted and is proposed to be conducted, in
each case, following the Closing Date.
(b) Each Relevant Party does not intend to incur debts beyond its
ability to pay such debts as they mature, taking into account the timing and
amounts of cash to be received by it and the timing and amounts of cash to be
payable on or in respect of its Indebtedness.
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Section 2.23 Foreign Corrupt Practices Act. None of the Relevant
Parties, nor any director, officer, agent, employee or other person associated
with or acting on behalf of any of the Relevant Parties, (i) has used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.
Section 2.24 No Material Adverse Change. There has been no material
adverse change in the consolidated financial condition, business, operations,
assets, liabilities, management, prospects or value of any of the Relevant
Parties or, to the best of the Parents and the Company's knowledge, Cardwell or
Bowen (including any event which, in the opinion of the Interim Lenders, is
reasonably likely to result in such a material adverse change) since March 31,
1996.
Section 2.25 ERISA. (a) Schedule 2.25 (the "ERISA Schedule") lists
all Plans maintained or sponsored by the Company or to which the Company or any
ERISA Affiliate is obligated to contribute, and separately identifies Plans
intended to be Qualified Plans and Multiemployer Plans.
(b) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other applicable federal or state
law.
(c) Each Qualified Plan has been determined by the IRS to qualify
under Section 401 of the Code, and the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the
Code, and to the best knowledge of the Company nothing has occurred which would
cause the loss of such qualification or tax-exempt status.
(d) Except as set forth in ERISA Schedule, there is no outstanding
material liability under Title IV of ERISA with respect to any Plan maintained
or sponsored by the Company or any ERISA Affiliate (as to which the Company is
or may be liable), nor with respect to any Plan to which the Company or any
ERISA Affiliate (wherein the Company is or may be liable) contributes or is
obligated to contribute.
(e) Except as set forth on ERISA Schedule, none of the Qualified
Plans subject to Title IV of ERISA has any material Unfunded Pension Liability
as to which the Company is or may be liable.
(f) Except as set forth in ERISA Schedule, no Plan maintained or
sponsored by the Company or any ERISA Affiliate provides medical or other
welfare benefits or extends coverage relating to such benefits beyond the date
of a participant's termination of employment with the Company or such ERISA
Affiliate, except to the extent required by Section 4980B of the Code and at the
sole expense of the participant or the beneficiary of the participant to the
fullest extent permissible under such Section of the Code. The Company and each
ERISA Affiliate have complied in all material respects with the notice and
continuation coverage requirements of Section 4980B of the Code.
(g) Except as set forth in ERISA Schedule, no ERISA Event has
occurred or, to the best knowledge of the Company, is reasonably expected to
occur with respect to any Plan maintained or sponsored by the Company or to
which the Company or any ERISA Affiliate is obligated to contribute.
(h) There are no pending or, to the best knowledge of the Company,
threatened claims, actions or lawsuits, other than routine claims for benefits
in the usual and ordinary course, asserted or instituted against (i) any Plan
maintained or sponsored by the Company or any ERISA Affiliate, (ii) the Company
or any ERISA Affiliate with respect to any Qualified Plan, or (iii) any other
fiduciary with respect to any
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Plan for which the Company may be directly or indirectly liable, through
indemnification obligations or otherwise.
(i) Except as set forth in ERISA Schedule, the Company has not
incurred nor reasonably expects to incur (i) any material liability (and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such material liability) under Section 4201 or 4243 of ERISA
with respect to a Multiemployer Plan or (ii) any material liability under Title
IV of ERISA (other than premiums due and not delinquent under Section 4007 of
ERISA) with respect to any Plan.
(j) Except as set forth in ERISA Schedule, neither the Company nor
any ERISA Affiliate has transferred any Unfunded Pension Liability to an entity
other than an ERISA Affiliate or otherwise engaged in a transaction that could
be subject to Section 4069 or 4212(c) of ERISA.
(k) Neither the Company nor any ERISA Affiliate has engaged, directly
or indirectly, in a prohibited transaction (as defined in Section 4975 of the
Code or Section 406 of ERISA) for which no statutory or administrative exemption
is applicable in connection with any Plan the consequences of which, in the
aggregate, have a reasonable likelihood of having a Material Adverse Effect.
ARTICLE III
SALE AND REPAYMENT
Section 3.1 Sale of the Interim Notes. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to the Interim Lenders,
and the Interim Lenders agree to purchase from the Company Interim Notes in an
aggregate principal amount of $31.0 million, at an aggregate purchase price
equal to 100% of such principal amount, payable by wire transfer on the Closing
Date as provided in Section 5.1.
Section 3.2 Maturity. Each Interim Note will mature on March 31,
1998, (the "Maturity Date").
Section 3.3 Mandatory Exchange; Issuance of Rollover Notes and
Warrants. On the Maturity Date, (i) the Escrow Agent shall deliver to each
Holder of Interim Notes, in such names and as such Holder shall request, such
Holder's pro rata share of Warrants representing 5% of the fully-diluted common
stock of the Parent, such pro rata share to be equal to such Holder's pro rata
share of the aggregate principal amount of Interim Notes outstanding on such
date and (ii) the Escrow Agent shall deliver to each Holder of Interim Notes, in
exchange for such Interim Notes, a Rollover Note (or Rollover Notes), in such
names as such Holder shall request, in an aggregate principal amount equal to
the unpaid principal amount of the Interim Notes delivered by such Holder to the
Escrow Agent; provided, however, that no Holder shall be required to accept
Rollover Notes in exchange for Interim Notes (in which case the principal of,
premium, if any, and accrued and unpaid interest on the Interim Notes shall be
due and payable immediately) unless the following conditions shall have been
satisfied (or are concurrently satisfied) as of the Maturity Date or waived by
all the Holders:
(i) no Default or Event of Default shall have occurred and be
continuing under this Agreement and no payment default shall have occurred
and be continuing under the Engagement Letter;
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(ii) the Company shall have paid the Rollover Fee to each Holder
in immediately available funds and shall have paid all accrued and unpaid
interest with respect to the Interim Notes in accordance with the terms
thereof;
(iii) pursuant to the Debt Registration Rights Agreement, the
Shelf Registration Statement (as defined in the Debt Registration Rights
Agreement) with respect to the Rollover Notes shall have been declared
effective by the SEC; and
(iv) pursuant to the Equity Registration Rights Agreement, the
Shelf Registration Statement (as defined in the Equity Registration Rights
Agreement) with respect to the Warrants and the Warrant Shares shall have
been declared effective by the SEC.
Section 3.4 Interest on the Interim Notes. (a) Subject to Section
3.4(d), interest on each Interim Note shall be payable in cash by wire transfer
pursuant to Section 3.11 on each Interest Payment Date for the Interest Period
then ended. Subject to Sections 3.4(c) and 3.12, interest on the Interim Notes
shall be calculated and shall accrue on a daily basis for each day during each
Interest Period at a rate per annum equal to the Applicable LIBOR Rate for such
Interest Period plus the Applicable Spread for such day. Accrued interest on
each Interim Note for each Interest Period shall be calculated on the basis of
the actual number of days elapsed and a 360-day year (or, in the case of
interest accruing at the Base Rate determined by reference to the Prime Rate, a
365-day or 366-day year as appropriate).
(b) Interest on the Interim Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Closing Date. Interest shall accrue with respect to principal on each Interim
Note to, but not including, the date of repayment of such principal; provided,
however, that if such repayment occurs after 12:00 noon, New York City time,
interest shall be deemed to accrue until the following Business Day.
(c) Notwithstanding anything contained in this Agreement to the
contrary, the interest rate on the Interim Notes for any Interest Period shall
not exceed an annual rate equal to the lesser of (i) 18% and (ii) the maximum
interest rate permitted by law.
(d) To the extent that the interest rate on the Interim Notes for any
Interest Period exceeds an annual rate equal to 14%, the Company shall have the
option to pay to the Holders, pro rata, all incremental interest accruing during
such Interest Period at a rate in excess of 14% per annum in the form of
additional Interim Notes having a principal amount equal to the amount of such
incremental interest provided, that such additional Interim Notes shall be in
denominations of $1,000 and integral multiples thereof and that any difference
between such incremental interest owing and such additional Interim Notes shall
be paid in cash by wire transfer pursuant to Section 3.11. In the event that the
Company elects to pay any interest in the form of additional Interim Notes, it
will:
(i) deliver by hand or by overnight courier to each Holder an
additional authorized, executed and authenticated Interim Note in a
principal amount equal to the amount of such incremental interest, payable
to the order of such Holder, dated the date of the applicable Interest
Payment Date, to the address of such Holder shown on the Note Register,
(ii) deliver by hand or by overnight courier duly authorized,
executed and authenticated Rollover Notes to the Escrow Agent, dated the
Maturity Date, unregistered as to payee or registered in blank, in an
aggregate principal amount equal to the aggregate principal amount of the
Interim Notes so delivered in accordance with clause (i) above, and
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(iii) deliver an Officers' Certificate setting forth the calculation
of such incremental interest, resolutions of the board of directors of the
Company, the Parent and the Guarantors authorizing, as appropriate, the
issuance of such additional Interim Notes and Rollover Notes and each
Related Party Guarantee with respect to such additional Interim Notes and
Rollover Notes, and an Opinion of Counsel as to the validity and
enforceability of such Interim Notes, Rollover Notes and Related Party
Guarantees, each such Officer's Certificate, resolutions and Opinion of
Counsel to be reasonably satisfactory to each of the Holders.
Section 3.5 Default Interest. Interest will accrue on any overdue
amount (whether interest or principal), to the extent lawful, at a rate per
annum equal to 2% over the then current interest rate on the Interim Notes until
such amount (plus all accrued and unpaid interest) is paid in full. The Company
shall pay such default interest and all interest accruing on any overdue
installment of interest or principal on demand from time to time.
Section 3.6 Mandatory Redemption. (a) The Parent and the Company
shall cause the Interim Notes to be redeemed with (i) the Net Cash Proceeds of
(x) any direct or indirect public offering or private placement of High Yield
Notes, subordinated debt or equity securities of the Company or the Parent or
(y) the incurrence of any other Indebtedness by the Company, the Parent or any
Subsidiary of the Parent or the Company (other than Indebtedness permitted to be
incurred under Section 4.9) or (ii) any net proceeds from an Asset Sale by the
Company, the Parent or any Subsidiary of the Parent or the Company (other than
an Asset Sale permitted under Section 4.12) (each, a "Capital Market
Transaction"), subject, in the case of clauses (i) (y) and (ii) only, to the
required prior repayment of any amount outstanding under the Senior Credit
Facility. The Company shall, not later than the second Business Day following
any Capital Market Transaction, redeem Interim Notes pursuant to this Section
3.6 at a redemption price equal to 100% of the principal amount of the Interim
Notes redeemed, plus accrued and unpaid interest to the date of the redemption,
provided, however, that the Company shall redeem the Interim Notes at a
redemption price equal to 103% of the principal amount of the Interim Notes
redeemed, plus accrued and unpaid interest to the date of redemption, if the
Interim Notes are redeemed with, or in anticipation of, proceeds from any
transaction in which Lehman Brothers did not or will not act as exclusive
placement agent or sole underwriter to the Parent or the Company or any of their
respective Subsidiaries (unless it shall otherwise have agreed in writing prior
to such repayment date not to so act) other than the proceeds of a borrowing
under the Tranche B Term Loan (as such term is defined in the Senior Credit
Facility) under the Senior Credit Facility.
(b) Subject to and in accordance with Section 4.21, in the event of
any Change of Control, the Company shall offer to repurchase Interim Notes
pursuant to Section 4.21.
Section 3.7 Optional Prepayment. The Company may, upon five Business
Days' prior written notice to each of the Holders, redeem the Interim Notes at
any time in whole or in part, on a pro rata basis, by paying to each Holder an
amount equal to 100% of such Holder's pro rata share of the aggregate principal
amount of Interim Notes to be redeemed, plus accrued and unpaid interest thereon
to the Prepayment Date; provided, however, that the Company shall pay each
Holder 103% of such Holder's pro rata share of the aggregate principal amount of
Interim Notes to be redeemed, plus accrued and unpaid interest thereon to the
Prepayment Date, if the Interim Notes are redeemed with, or in anticipation of,
proceeds from any transaction in which Lehman Brothers did not or will not act
as exclusive placement agent or sole underwriter to the Parent or the Company or
a Subsidiary (unless it shall otherwise have agreed in writing prior to such
repayment date not to so act) other than the proceeds of a borrowing under the
Tranche B Term Loan under the Senior Credit Facility. The Interim Notes shall be
presumed to be prepaid with cash flow from operations unless the Parent, the
Company or one
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of their Subsidiaries has recently or simultaneously completed a financial
transaction generating at least the applicable amount of net proceeds.
Section 3.8 Rollover Fee. On the Maturity Date the Company shall pay
to the Holder of each Interim Note outstanding on the Maturity Date the Rollover
Fee.
Section 3.9 Indemnity. The Parent and the Company jointly and
severally agree to indemnify each Holder and to hold each Holder harmless from
any loss or expense which such Holder may sustain or incur as a consequence of
(a) the failure by the Company to issue the Interim Notes on the Closing Date
after the Company has given a notice with respect thereof in accordance with
Section 5.1, (b) default by the Company in making any prepayment or redemption
after the Company has given a notice thereof in accordance with the provisions
of Section 3.10 or (c) the making of a prepayment or redemption of the Interim
Notes on a day which is not the last day of an Interest Period. Such
indemnification may include an amount equal to (a) such Affected Party's actual
loss and expenses incurred (excluding lost profits) in connection with, or by
reason of, any of the foregoing events and (b) the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of Interim
Notes not so issued or the principal amount of Interim Notes so prepaid or
redeemed from the date of such proposed issuance or prepayment or redemption, as
the case may be, in the case of a failure to issue Interim Notes, to the last
day of the Interest Period that would have commenced on the proposed date of
such issuance, or, in the case of any such prepayment or redemption, to the last
day of the Interest Period in which such repayment or redemption occurred, in
each case at the applicable rate of interest for such Interim Notes provided for
herein (excluding, however, the Applicable Spread included therein, if any) over
(ii) the amount of interest (as reasonably determined by such Holder) which
would have accrued to such Holder on such amount by placing such amount on
deposit for a period comparable to such Interest Period or remaining Interest
Period in the case of prepayment or redemption with leading banks in the
interbank eurodollar market. A certificate as to any amounts payable pursuant to
this Section 3.9 submitted to the Company by any Holder shall be conclusive in
the absence of manifest error. This covenant shall survive the termination of
this Agreement and the payment of the Interim Notes and all other amounts
payable hereunder.
Section 3.10 Effect of Notice of Prepayment. The Company shall notify
the Holders in writing at their addresses shown in the Note Register of any date
set for redemption, prepayment or repurchase (each such day, a "Prepayment
Date") of Interim Notes. Once such notice is sent or mailed, the Interim Notes
called for redemption, prepayment or repurchase shall become due and payable on
the Prepayment Date set forth in such notice. Such notice may not be
conditional.
Section 3.11 Method of Payment. Except as provided in Section 3.4(e)
with respect to the payment of certain interest in the form of additional
Interim Notes, the principal of, premium, if any, and interest on each Interim
Note and all other Obligations arising under the Transaction Documents shall be
payable by wire transfer in immediately available funds to the account of the
Holder thereof, designated in a written notice to the Company at least three
Business Days prior to the due date therefor.
Section 3.12 Inability to Determine Interest Rate; Interest Periods
Less Than Three Months. If prior to the first day of any Interest Period Lehman
Brothers shall have determined (which determinations shall be conclusive and
binding upon the Company and each of the Holders) that (a) by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Applicable LIBOR Rate for such Interest Period,
or (b) the Applicable LIBOR Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to a Holder of
holding such Interim Note during such Interest Period, then Lehman Brothers
shall give facsimile or telephone notice thereof to the Company and the Holders
as soon as practicable thereafter.
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If such notice is given, the interest rate on each Interim Note for such
Interest Period and for each subsequent Interest Period until Lehman Brothers
gives notice to the Holders and the Company otherwise shall equal the Base Rate
plus the Applicable Spread.
Except in the case of optional and mandatory prepayment or redemption
pursuant to Sections 3.6 and 3.7, if any Interest Period will have a duration of
less than three months, the interest rate for such Interest Period shall equal
the Base Rate plus the Applicable Spread.
Section 3.13 Payment on Business Days. If any payment to be made
hereunder or under any Interim Note shall be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day (and such
extension of time shall be included in computing interest in connection with
such payment); provided, however, that if such succeeding Business Day could
fall in the next calendar month, such payment shall be made on the next
preceding Business Day.
Section 3.14 Partial Redemption. In the event that less than all of
the Interim Notes are to be repurchased or redeemed (including pursuant to an
offer to repurchase), the Company shall redeem or repurchase (or offer to
repurchase) a pro rata portion of the Interim Notes held by each Holder.
ARTICLE IV
COVENANTS
So long as the principal of or interest on the Interim Notes or any
other Obligation in respect of the Interim Notes shall be unpaid, the Parent and
the Company and each of the Guarantors covenants and agrees with the Interim
Lenders and each Holder as follows:
Section 4.1 Use of Proceeds. The Parent and the Company shall use the
proceeds received by the Company from the sale of the Interim Notes solely to
finance the purchase price of the Acquisitions and to pay fees and expenses
related thereto.
Section 4.2 Notice of Default on Interim Notes and Related Matters.
The Company shall furnish to the Holders written notice, promptly upon any
Officer of the Parent or the Company becoming aware of the existence thereof,
of:
(a) any condition or event that constitutes a Default, specifying the
nature and period of existence thereof and the action that the
Company is taking or proposes to take with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any Person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Entity, against or affecting the Parent, the Company or
any of their respective Subsidiaries that, if adversely determined,
would reasonably be expected to result in individually or in the
aggregate, a Material Adverse Effect; and
(c) any development that, individually or in the aggregate, has
resulted in, or could reasonably be expected to have, a Material
Adverse Effect.
Section 4.3 Offering. (a) The Parent, the Company and the Guarantors
shall use their best efforts to cause Permanent Securities to be issued and sold
no later than the 270th day following the
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Closing Date in such amounts as will yield Net Cash Proceeds sufficient to
prepay in full the principal amount of the Interim Notes, all accrued and unpaid
interest and premium, if any, thereon and all other Obligations incurred in
connection with the Interim Notes and this Agreement.
(b) The Parent and the Company have engaged Lehman Brothers as their
exclusive placement agent or sole managing underwriter in connection with the
private placement or public offering of the Permanent Securities in accordance
with the provisions of the Engagement Letter. The Parent and the Company and
each of the Guarantors hereby covenant, for the benefit of each of the Holders,
to comply with each of its agreements set forth in the Engagement Letter.
Section 4.4 Issuance of High Yield Notes and Warrants. (a) Escrow of
Warrants. If the Interim Notes remain outstanding on December 26, 1997, the
Parent shall, no later than the close of business in New York City on such date:
(1) execute and deliver to the Escrow Agent fully authenticated
Warrants, unregistered or registered in blank, representing the right
to purchase at any time prior to March 31, 2007 10% of the
fully-diluted common stock of the Parent (the "Warrant Shares"),
calculated after giving effect to the issuance and exercise of such
Warrants, at an exercise price of $.01 per share; and
(2) deliver to the Holders an Opinion of Counsel addressed to
them and dated the date the Warrants are issued, stating (i) that the
Warrants have been duly authorized, executed and delivered and that
they constitute valid and binding obligations of the Parent,
enforceable against it in accordance with their terms and (ii) that
the Warrant Shares have been duly authorized and reserved for
issuance and (iii) as to such other matter as the Holders may
reasonably request.
(b) Issuance of High Yield Notes. If the Interim Notes remain
outstanding on December 26, 1997, the Company shall be obligated to issue, and
the Parent and the other Guarantors shall be obligated to guarantee, senior
unsecured debt securities (the "High Yield Notes") having an aggregate principal
amount of up to $100.0 million (as specified by Lehman Brothers in its sole
discretion) with a fixed coupon (as specified by Lehman Brothers in its sole
discretion) not exceeding the then prevailing interest rate on the Interim Notes
and having such covenants, default and subordination provisions, registration
rights and other terms as are customary for new issuances of high yield senior
unsecured debt securities of this type, all as determined by Lehman Brothers, in
its sole discretion. The High Yield Notes shall be unconditionally Guaranteed by
the Parent and the other Guarantors on a senior unsecured basis (or subordinated
basis in the event that the High Yield Notes are subordinated as contemplated by
Section 4.4(d)).
(c) The proceeds from the issuance of the High Yield Notes shall be
used to prepay the Interim Notes pursuant to Section 3.6. Any remaining proceeds
shall be applied to repay Senior Debt of the Company and for such other purposes
as may be mutually agreed by Lehman Brothers and the Company.
(d) To the extent that the Lenders under the Senior Credit Facility
require, the High Yield Notes will be subordinated to borrowings under the
Senior Credit Facility on terms substantially identical to the subordination
provisions contained in the Rollover Note Indenture.
(e) The Relevant Parties shall use their best efforts to do all
things required in the opinion of Lehman Brothers, in its sole discretion, in
connection with the sale of the High Yield Notes, including, but not limited to
(i) no later than October 27, 1997, commencing the preparation of a Rule 144A
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offering memorandum or registration statement under the Securities Act with
respect to the High Yield Notes, and other documentation (including an
indenture), all as deemed necessary by Lehman Brothers, in its sole discretion,
to effect the offering of High Yield Notes, (ii) no later than October 27, 1997,
delivering to Lehman Brothers such unaudited consolidated and pro forma
financial information, projections as to future operations and such other
financial information relating to the Parent, the Company, the Acquired
Businesses, their Subsidiaries and all other completed or probable acquisitions,
if any, as may be reasonably requested by Lehman Brothers, (iii) no later than
November 27, 1997, finalizing the Offering Documents in form and substance
satisfactory to Lehman Brothers, in its sole discretion including, if
applicable, filings of a registration statement under the Securities Act, (iv)
no later than December 19, 1997, making appropriate Officers of the Company and
the Acquired Businesses available to Lehman Brothers for meetings with
prospective purchasers of the High Yield Notes and preparing and presenting to
potential investors road show material in a manner consistent with other new
issuances of high yield debt securities and (v) executing an underwriting or
purchase agreement substantially in the form of Lehman Brothers' standard
underwriting or purchase agreement, as the case may be, modified as appropriate
to reflect the terms of the transactions contemplated thereby and containing
such terms, covenants, conditions, representations, warranties and indemnities
as are customary in similar transactions and providing for the delivery of legal
opinions, comfort letters, and Officers' Certificates, all in form and substance
satisfactory to Lehman Brothers and its counsel, as well as such other terms and
conditions as Lehman Brothers and its counsel may in their reasonable discretion
consider appropriate in light of then prevailing market conditions applicable to
similar financings or in light of any aspect of the transactions contemplated
hereby that requires such other terms or conditions.
(f) In connection with the issuance of the High Yield Notes, at the
request of Lehman Brothers, the Parent will issue to the purchasers of the High
Yield Notes, on the date of such sale and without additional charge, warrants to
purchase the Capital Stock of the Parent pursuant to a warrant agreement in the
form specified by Lehman Brothers (which form will be substantially identical to
the Warrant Agreement attached as Exhibit G, which request Lehman Brothers may
make if it determines that such issuance of Warrants is advisable or necessary
in order for the Company to issue High Yield Notes). In connection therewith,
the Parent covenants to do all things necessary or convenient in the opinion of
Lehman Brothers, in its sole discretion, including, without limitation,
executing such warrant agreement and an equity registration rights agreement and
a stockholders agreement, in each case in form and substance satisfactory to
Lehman Brothers, in its sole discretion. Each Person that purchases warrants
privately shall become party to such equity registration rights agreement and
such stockholders agreement by executing a joinder agreement. The total amount
of warrants issued pursuant to this Section 4.4(f) shall not entitle the holders
thereof to purchase more than an aggregate of 5% of the fully-diluted common
stock of the Parent without the consent of the Parent.
Section 4.5 Additional Subsidiary Guarantees. If the Parent, the
Company or any of their respective Subsidiaries shall acquire or create a
Domestic Subsidiary after the date of this Agreement, then such newly acquired
or created Domestic Subsidiary shall become a party to this Agreement as a
Guarantor by executing a joinder to this Agreement and shall deliver to each of
the Holders an Opinion of Counsel, in a form reasonably satisfactory to the
Holders. Upon execution of such joinder, such Domestic Subsidiary shall be bound
by, and become a party to, this Agreement as a Guarantor and shall agree to
perform each and every obligation and covenant of a Guarantor hereunder.
Section 4.6 Merger and Sale. The Parent and the Company shall not,
and shall not permit any of their respective Subsidiaries to, consolidate or
merge with or into, or sell, convey or transfer or lease all or substantially
all of its assets (in one or more related transactions, including by way of
liquidation or dissolution), or assign any of its respective obligations under
the Transaction Documents,
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to another Person, except that any Subsidiary may merge with or into, or convey
its assets to, the Company or another Wholly Owned Subsidiary that is a
Guarantor.
Section 4.7 Information; SEC Reports; Compliance Certificates. (a) The
Parent and the Company shall, and shall cause each of their respective
Subsidiaries to, promptly provide such information concerning the business,
properties or financial condition of the Parent, the Company and such
Subsidiaries as any Holder may from time to time reasonably request. The Parent
and the Company shall, and shall cause each of their Subsidiaries to, keep
proper books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to its business and
activities, and shall permit the Holders or their representatives to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective executive officers and,
subject to the right of the Parent's, the Company's or any such Subsidiary's
representatives to participate in any such discussion, independent public
accountants, all upon reasonable notice and at such reasonable times and as
often as may reasonably be desired.
(b) The Parent and the Company shall furnish to the Holders (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Parent and the
Company were required to file such financial information, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Parent and the Company and any consolidated Subsidiaries and, with respect
to the annual information only, a report thereon by the Parent's and the
Company's certified independent public accountants (who shall be firm(s) of
established national reputation) and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports. In addition, the Parent and the Company shall, and shall
cause their Subsidiaries to, furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. All such
information and reports shall be delivered to each Holder on or prior to the
dates on which such filing would have been required to be made had the Parent
and the Company been subject to the rules and regulations of the SEC.
(c) The Parent and the Company shall deliver to the Holders, within 30
days after the end of each fiscal quarter of the Parent and the Company, an
Officers' Certificate stating that a review of the activities of the Parent, the
Company and their Subsidiaries during the preceding fiscal quarter has been
performed with a view to determining whether the Parent and the Company and
their respective Subsidiaries have kept, observed, performed and fulfilled their
respective Obligations under this Agreement, and further stating that (i) the
Parent and the Company and their respective Subsidiaries have kept, observed,
performed and fulfilled each and every covenant contained in this Agreement and
are not in default in the performance or observance of any of the terms,
provisions or conditions hereof or under any other mortgage, indenture or debt
instrument (or, if a Default, Event of Default or default under any such
mortgage, indenture or debt instrument shall have occurred, describing all such
Defaults, Events of Default or defaults and what action the Parent and the
Company are taking or propose to take with respect thereto) and (ii) no event
has occurred and remains in existence which prohibits the Company or any
Guarantor to make payments on account of the principal of or interest, if any,
on the Interim Notes and if such event has occurred, a description of the event
and the action the Parent and the Company are taking or propose to take with
respect thereto.
(d) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to paragraph (b) above shall be accompanied by a
written statement of the Parent's and the Company's certified independent
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public accountants (who shall be from a firm of established national reputation
reasonably satisfactory to the majority of the Holders) that, solely in making
the examination necessary for certification of such financial statements and
without independent investigation or inquiry, nothing has come to their
attention that would lead them to believe that the Parent, the Company or any of
their Subsidiaries has violated any provisions of Article IV of this Agreement
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation.
Section 4.8 Authorizations and Approvals. The Parent and the Company
shall, and shall cause each of their respective Subsidiaries to, promptly
obtain, from time to time, all such Permits, consents and approvals as may be
required to enable the Parent, the Company and each of such Subsidiaries to
comply with their respective obligations under the Transaction Documents and the
Interim Notes.
Section 4.9 Limitation on Incurrence of Additional Indebtedness and
Issuance of Preferred Stock. The Parent and the Company shall not, and shall not
permit any of their respective Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) or issue any shares of preferred stock except for:
(i) the incurrence by the Company of revolving credit Indebtedness
and indebtedness under letters of credit (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and its Subsidiaries thereunder) under the Senior Credit
Facility (and the Guarantees thereof by the Guarantors); provided that the
aggregate principal amount of all revolving credit Indebtedness and letters
of credit outstanding at any one time under the Senior Credit Facility after
giving effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (i), does not exceed an amount equal to
$25.0 million;
(ii) the incurrence by the Company of term Indebtedness under the
Senior Credit Facility (and the Guarantees thereof by the Guarantors);
provided that the aggregate principal amount of all term Indebtedness
outstanding under the Senior Credit Facility after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (ii), does not exceed an amount equal to (a) $65.0 million or (b)
$53.0 million if the Cardwell Acquisition is not completed on or prior to
June 30, 1997, in each case, less the aggregate amount of all repayments,
optional or mandatory, of the principal of any term Indebtedness under the
Senior Credit Facility that have been made since the date of this Agreement;
(iii) the Interim Notes and the incurrence of the Related Party
Guarantees by the Guarantors;
(iv) the issuance of the Rollover Notes to the Escrow Agent in
accordance with Section 3.3;
(v) Permitted Refinancing Indebtedness;
(vi) the incurrence of Indebtedness (i) by the Company to a Wholly
Owned Subsidiary that is a Guarantor (ii) by a Domestic Wholly Owned
Subsidiary to the Company or any other Subsidiary that is a Guarantor and
(iii) by any direct or indirect Foreign Subsidiary to the Company or any
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Subsidiary that is a Guarantor in an aggregate principal amount at any time
outstanding (with respect to all Foreign Subsidiaries) not to exceed $1.0
million;
(vii) Indebtedness of the Parent, the Company or their respective
Subsidiaries incurred in respect of Hedging Obligations entered into in
order to fix or cap the interest rate on Indebtedness permitted to be
incurred by this Agreement or to protect against loss from changes in
currency exchange rates incurred pursuant to clauses (i) or (ii) of this
Section 4.9;
(viii) the incurrence by the Parent, the Company or any of their
respective Subsidiaries of additional Indebtedness to finance the
acquisition of fixed or capital assets (whether pursuant to a loan, a
financing, lease or otherwise) in an aggregate principal amount at any time
outstanding not to exceed $5.0 million; and
(ix) Existing Debt.
For purposes of determining compliance with this Section 4.9 accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness.
Section 4.10 Restricted Payments. The Parent and the Company shall not,
and shall not permit any of their respective Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of their respective Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Parent or the Company) to the direct or indirect holders of any of their
respective Equity Interests (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Parent or payable to the
Company or a Wholly Owned Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Parent or the Company)
any Equity Interests of the Company or the Parent or any of their respective
Affiliates (other than any such Equity Interests owned by the Company or any
Wholly Owned Subsidiary of the Company); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is pari passu with or subordinated to the Interim
Notes or any of the Related Party Guarantees, except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments").
Notwithstanding the foregoing, provided that no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof, the Company may pay dividends to the Parent for the purpose of (i)
permitting the Parent to satisfy its federal, state and local income tax
obligations to the extent such obligations are actually due and owing and are a
direct result of the net income of the Company being included on a consolidated,
combined or unitary income tax return filed by the Parent or otherwise being
attributed to the Parent for tax purposes; (ii) permitting the Parent to pay the
necessary fees and expenses to maintain its corporate existence and good
standing (in an aggregate amount not to exceed $250,000 per annum); and (iii)
permitting the Parent to comply with the Transaction Documents (in an aggregate
amount not to exceed $250,000 per annum).
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Holders an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
amount of such Restricted Payment is derived.
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Section 4.11 Limitation on Restrictions on Distributions from
Subsidiaries. The Parent and the Company shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary of the Company to (i)(a) pay dividends or make any
other distributions to the Company or any of its Subsidiaries (1) on its Capital
Stock or other Equity Interests or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any Indebtedness owed
to the Company or any of its Subsidiaries, (ii) make loans or advances to the
Company or any of its Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) this Agreement or the Senior
Credit Facility as in effect on the date hereof, (b) the Interim Notes, (c)
applicable law, (d) restrictions of the nature described in clause (iii) above
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices or (e) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired.
Section 4.12 Limitation on Sales of Assets and Subsidiary Stock. The
Parent and the Company shall not, and shall not permit any of their respective
Subsidiaries to, enter into an agreement with respect to or consummate any Asset
Sale, except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business having a fair market value not to exceed, in
the aggregate, $1.0 million in any period of twelve consecutive months;
(b) the sale or other disposition of any property (other than inventory
and obsolete or worn out property) in the ordinary course of business,
provided that the aggregate book value of all such property so sold or
disposed of in any period of twelve consecutive months shall not exceed $1.0
million provided, further, that the net proceeds therefrom are applied
within one Business Day of receipt to permanently repay Indebtedness under
the Senior Credit Facility or to redeem or repurchase Interim Notes; and
(c) the sale of inventory in the ordinary course of business.
Section 4.13 Limitation on Transactions with Affiliates. The Parent and
the Company shall not, and shall not permit any of their respective Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or Guarantee with, or for the benefit of, any Affiliate of any such
Person (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Parent, the
Company or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Parent, the Company or such Subsidiary with an
unrelated Person and (ii) the Parent or the Company, as the case may be,
delivers to the Holders (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$250,000, a resolution of its board of directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of its board of directors, and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $500,000, an opinion as to the fairness to
the Holders of such Affiliate Transaction from a financial point of view issued
by an investment banking firm (or, if an investment banking firm is generally
not qualified to give such an opinion, by an appraisal firm) of national
standing; provided that (x) any employment agreement entered into by the Parent,
the Company or such Subsidiary in the ordinary course of business
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and consistent with the past practices of the Parent, the Company or such
Subsidiary, as the case may be, (y) transactions between or among any of the
Parent, the Company and/or any Wholly Owned Subsidiary of the Company that is a
Guarantor and (z) Restricted Payments that are permitted by Section 4.10 in each
case, shall not be deemed Affiliate Transactions.
Section 4.14 Line of Business. The Parent and the Company shall not, and
shall not permit any of their respective Subsidiaries to, directly or
indirectly, engage in any line of business other than the businesses conducted
on the Closing Date and businesses reasonably related thereto. The Parent shall
not create or acquire any direct or indirect Subsidiary and shall not engage in
any activity other than the holding of the stock of the Company. The Parent
shall own, directly, 100% of the issued and outstanding Voting Stock and other
Equity Interests of the Company.
Section 4.15 Capitalization; Restrictions on Certain Amendments. (a) The
Company shall not, and shall not permit any of its Subsidiaries to, issue or
agree to issue any Capital Stock (including treasury shares) or other Equity
Interests except to the Company or a Wholly Owned Subsidiary of the Company that
is a Guarantor.
(b) The Parent and the Company shall not, and shall not permit any of
their respective Subsidiaries to, amend, or suffer to be amended, their
organizational documents (including any certificate of incorporation or bylaws)
or any terms of their Capital Stock or any Material Contract (other than the
Senior Credit Facility) to which it is a party if any such amendment could
reasonably be expected to have a Material Adverse Effect.
Section 4.16 Liens. The Parent and the Company shall not, and shall not
permit any of their respective Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
Section 4.17 No Senior Subordinated Indebtedness. Notwithstanding any
other provision hereof, (i) the Company will not incur, create, issue, assume,
guarantee or otherwise become directly or indirectly liable for any Indebtedness
that is subordinate or junior in right of payment to any Indebtedness under
Senior Debt and senior in any respect in right of payment to the Interim Notes
and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to the Senior Guarantee and senior in any respect in right of payment to
any Related Party Guarantee.
Section 4.18 Corporate Existence; Compliance with Laws; Taxes;
Maintenance of Insurance. (a) The Parent and the Company shall, and shall cause
each of their respective Subsidiaries to, do or cause to be done all things
necessary to preserve and keep in full force and effect their respective
corporate, partnership or other existence in accordance with their respective
organizational documents and their respective rights (charter and statutory),
licenses and franchises; provided, however, that neither the Parent nor the
Company shall be required to preserve any such right, license or franchise, or
such corporate, partnership or other existence of any of their respective
Subsidiaries if the relevant board of directors shall determine that the
preservation thereof is no longer desirable in the conduct of their respective
businesses taken as a whole, and that the loss thereof could not reasonably be
expected to have a Material Adverse Effect.
(b) The Parent and the Company shall, and shall cause each of their
respective Subsidiaries to, comply in all material respects with all statutes,
laws, ordinances, or government rules and regulations to which it is subject.
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(c) The Parent and the Company shall, and shall cause each of their
respective Subsidiaries to, pay prior to delinquency all taxes, assessments, and
governmental levies except those contested in good faith and by appropriate
proceedings.
(d) The Parent and the Company shall, and shall cause their respective
Subsidiaries to, (a) keep insurable properties insured in accordance with
industry standards at all times by financially sound and reputable insurers; (b)
maintain such other insurance, to such extent and against such risks, including
(i) fire and other risks insured against by extended coverage, as is customary
with companies in the same or similar businesses operating in the same or
similar location, (ii) public liability insurance against claims for personal
injury or death or property damage occurring upon, in, about or in connection
with the use of any properties owned, occupied or controlled by them and (iii)
business interruption insurance; and (c) maintain such other insurance as may be
required by law.
Section 4.19 Liquidation. The Parent and the Company shall not, and
shall not permit any of their respective Subsidiaries to, adopt a plan of
liquidation or dissolution.
Section 4.20 Stay, Extension and Usury Laws. The Parent and the Company
covenant (to the extent that they may lawfully do so) that they shall not, and
shall not permit any of their respective Subsidiaries to, at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants in or the performance of this
Agreement; and the Parent and the Company waive, and shall cause each of their
respective Subsidiaries to waive (to the extent that they may lawfully do so),
all benefit or advantage of any such law, and covenant that they shall not, and
shall not permit their respective Subsidiaries to, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Holders, but shall suffer and permit, and shall cause their respective
Subsidiaries to suffer and permit, the execution of every such power as though
no such law has been enacted.
Section 4.21 Change of Control. (a) Upon the occurrence of a Change of
Control, each Holder will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Interim Notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated Damage
thereon, if any, to the date of purchase (the "Change of Control Payment").
Within ten days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offer to repurchase Interim Notes on the date specified in
such notice, which date shall be no earlier than 30 days and no later than 45
days from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures set forth below. Prior to purchasing any Interim
Notes in a Change of Control Offer, but in any event within 30 days following a
Change of Control, the Company shall either repay all outstanding Senior Debt or
obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Interim Notes pursuant to
this Section 4.21.
(b) Notice of a Change of Control Offer shall be mailed by the Company
to the Holders at their addresses set forth in the Note Register. The Change of
Control Offer shall remain open from the time of mailing until the Change of
Control Payment Date. The notice shall be accompanied by a copy of each of the
most recent reports furnished pursuant to Section 4.7(b) (i) and (ii). The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Interim Notes pursuant to the Change of Control Offer. The
notice, which shall govern the terms of the Change of Control Offer, shall
state:
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(1) that the Change of Control Offer is being made pursuant to this
Section 4.21, that Interim Notes may be surrendered in whole or in part (in
denominations of $1,000 and integral multiples thereof), and that all
Interim Notes will be accepted for payment;
(2) the purchase price and the Change of Control Payment Date;
(3) that any Interim Note not tendered will continue to accrue
interest;
(4) that any Interim Note (or part thereof) accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after
the Change of Control Payment Date;
(5) that Holders electing to have an Interim Note purchased pursuant
to a Change of Control Offer will be required to surrender the Interim Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Interim Note completed, to the Company at the address specified in
the notice prior to 5:00 p.m., New York City time, on the Change of Control
Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Company receives not later than 5:00 p.m., New York City time, on the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Interim Notes
such Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Interim Notes purchased; and
(7) that Holders whose Interim Notes are purchased only in part will
be issued new Interim Notes equal in principal amount to the unpurchased
portion of the corresponding Interim Notes surrendered.
(c) On the Change of Control Payment Date, the Company shall accept for
payment all Interim Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, pay the purchase price of each Interim Note surrendered
for purchase to the related Holder and deliver to each Holder a new Interim Note
equal in principal amount (excluding premiums, if any) to any unpurchased
portion of the corresponding Interim Note surrendered. The Company will notify
the remaining Holders of the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
(d) The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Interim Notes as a result of a Change of Control.
ARTICLE V
CONDITIONS TO THE INTERIM LENDERS' OBLIGATIONS
Section 5.1 Closing. Upon satisfaction of the conditions set forth
herein, the Interim Lenders shall pay the purchase price set forth in Section
3.1 of the Interim Notes by wire transfer of immediately available funds to the
account designated by the Company in New York, New York, against delivery to the
Interim Lenders of Interim Notes in the names and denominations specified by the
Interim Lenders (the "Closing"). The Company shall give the Interim Lenders at
least two Business Days' notice of the
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expected date of such Closing (the "Closing Date"). The Closing shall take place
at such place as shall be agreed upon by the Interim Lenders and the Company.
Section 5.2 Conditions of the Interim Lenders' Obligations. The
obligation of the Interim Lenders to purchase and pay for the Interim Notes to
be purchased by them hereunder on the Closing Date is several and not joint and
is subject to the prior or concurrent satisfaction on the Closing Date of each
of the following conditions:
(a) Representations and Warranties; Agreements; No Default. The
representations and warranties of the Parent and the Company set forth in or
incorporated by reference in this Agreement shall be true and correct at and as
if repeated on and as of the Closing Date after giving effect to the
transactions occurring simultaneously with the Closing. The Company shall have
performed all agreements on its part to be performed pursuant to this Agreement
on or prior to the Closing Date and there shall exist no Default or Event of
Default.
(b) Fees. All fees and expenses due to any Interim Lender or Lehman
Brothers on or before the Closing Date in connection with the Interim Notes, the
Engagement Letter and the Commitment Letter or otherwise shall have been paid in
full.
(c) Opinions; Reliance Letters. The Interim Lenders shall have received
(i) the legal opinion of Jones, Day, Reavis & Pogue, special counsel for the
Parent and the Company, addressed to the Interim Lenders and dated as of the
Closing Date, in the form attached as Exhibit H, and (ii) a reliance letter, or
reliance letters permitting the Interim Lenders to rely on all of the opinions
of counsel rendered in connection with the Senior Credit Facility and the
Acquisition Agreements.
(d) Closing Papers. The Interim Lenders shall have received the
following, dated as of the Closing Date and in form and substance reasonably
satisfactory to them and to their special counsel, Latham & Watkins:
(i) a certificate of the Secretary of each Relevant Party certifying
as to the attached copy of the resolutions adopted by the board of directors
of such Relevant Party, authorizing, to the extent applicable, the
execution, delivery and performance of each of this Agreement, the Senior
Credit Facility, the Acquisition Agreements, the Related Documents and each
of the other agreements, instruments and transactions contemplated hereby
and thereby;
(ii) a certificate of the Secretary of each Relevant Party certifying
as to attached copies of the certificate of incorporation and by-laws of
such Relevant Party, as in effect on the Closing Date;
(iii) a certificate of the Secretary of each Relevant Party, dated
the Closing Date, as to the incumbency and signatures of the Officers of
such Relevant Party, authorized, to the extent applicable, to act with
respect to this Agreement, the Senior Credit Facility, the Acquisition
Agreements, the Related Documents and all instruments and agreements
contemplated hereby and thereby; and
(iv) an Officers' Certificate signed by the President and Chief
Financial Officer of the Parent and the Company certifying as to the matters
set forth in Sections 5.2(a) and 5.2(l).
(e) Related Documents. The Interim Lenders shall have received executed
copies of the Rollover Note Indenture, the Debt Registration Rights Agreement,
the Equity Registration Rights
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Agreement, the Warrant Agreement, the Stockholders Agreement and the Escrow
Agreement. All such documents shall have been duly authorized, executed and
delivered by each of the parties thereto, and the Interim Lenders shall have
received a certificate from the Escrow Agent, satisfactory to the Interim
Lenders in their sole discretion, to the effect that the Escrow Agent has
received, and is holding in escrow for the benefit of the Holders, the Rollover
Note Indenture and authenticated, executed and delivered Rollover Notes dated as
of the Maturity Date in an aggregate principal amount equal to at least $31.0
million.
(f) Concurrent Transactions.
(i) Each of the Relevant Parties and each of the financial
institutions party thereto shall have entered into the Senior Credit
Facility. All conditions precedent to borrowings under the Senior Credit
Facility shall have been satisfied or, with the prior approval of each of
the Interim Lenders, waived and the Company shall have borrowed funds under
the Senior Credit Facility, which, together with the proceeds from the sale
of the Interim Notes will be sufficient to consummate the Acquisitions and
pay all related fees and expenses. After giving effect to the consummation
of the transaction contemplated hereby, the amount undrawn and available to
the Company under the Senior Credit Facility shall be at least $10.0
million.
(ii) The terms of the Senior Credit Facility and the Acquisition
Agreements shall be satisfactory in all respects to each of the Interim
Lenders and to their special counsel, Latham & Watkins. There shall not
exist (pro forma for the Acquisitions and the financing thereof) any default
or event of default under the Senior Credit Facility, the Interim Notes,
this Agreement, or under any other material Indebtedness or agreement of the
Parent, the Company or any of their Subsidiaries.
(iii) The total purchase price for the Bowen Acquisition shall be
approximately $75.0 million and the total purchase price for the Cardwell
Acquisition (including the refinancing of all of the existing debt of
Cardwell) shall be approximately $15.25 million. The Acquisitions shall be
financed with (x) $65.0 million of borrowings by the Company under the
Senior Credit Facility and (y) the issuance by the Company of $31.0 million
in aggregate principal amount of Interim Notes to the Interim Lenders.
(iv) The Bowen Acquisition shall have been consummated concurrently
with or prior to the issuance of the Interim Notes pursuant to the
provisions of the acquisition agreements related thereto in the forms
previously delivered to Lehman Brothers and all conditions precedent to the
consummation of the Bowen Acquisition set forth in the acquisition
agreements related thereto shall have been satisfied or, with the prior
approval of each of the Interim Lenders, waived.
(v) The agreement entered into in connection with the Cardwell
Acquisition shall have been executed by the appropriate parties in the forms
previously delivered to Lehman Brothers.
(g) Documentation, Legal Matters, etc. All matters relating to the
transactions contemplated by this Agreement, the Related Documents, the
Acquisition Agreements, the Senior Credit Facility and the transactions
contemplated hereby and thereby shall be satisfactory to the Interim Lenders in
their sole discretion, and the Interim Lenders shall have received such
additional certificates, legal and other opinions (including with respect to
solvency) and documentation as they shall request.
(h) Solvency Matters. The Interim Lenders shall have received an
Officer's Certificate from the President and the Chief Financial Officer of each
of the Parent and the Company in form and
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substance satisfactory to the Interim Lenders certifying that after giving
effect to the Acquisitions and the transactions contemplated in this Agreement,
the Parent and the Company are Solvent.
(i) Financial Statements. The Interim Lenders shall have received all
audited and unaudited historical financial statements of the Parent, the
Company, the other Guarantors and Cardwell (including pro forma financial
statements giving effect to all other completed or probable acquisitions)
meeting the requirements of Regulations S-X for a Form S-1 registration
statement, and all such financial statements shall be satisfactory in form and
substance to the Interim Lenders. Such financial statement shall show actual
consolidated EBITDA of the Company for the twelve-month period ended December
31, 1996 of not less than $22.1 million. The Interim Lenders shall have received
all historical financial statements of Bowen that would be required under
Regulation S-X for a Form S-1 registration statement (although such financial
statements may be unaudited), which shall be satisfactory in form and substance
to the Interim Lenders.
(j) Pro Forma Financial Statements. The Interim Lenders shall have
received a satisfactory pro forma consolidated income statement of the Company
meeting the requirements of Regulation S-X for a Form S-1 registration statement
for the period of four consecutive fiscal quarters most recently ended prior to
the Closing Date, adjusted to give effect to the consummation of the
Acquisitions, and the financings contemplated by this Agreement and the Senior
Credit Facility as if such transactions had occurred on the first day of such
period, and such pro forma consolidated income statement shall show consolidated
EBITDA for such four-quarter period of not less than $27.2 million.
(k) Absence of Certain Capital Market Events. There shall not have
occurred and be continuing as of the Closing Date any of the following
conditions: (i) trading on the New York Stock Exchange ("NYSE"), the NASDAQ
National Market or the American Stock Exchange ("AMEX") shall have been wholly
suspended; (ii) minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities other than in connection with program
trading shall have been imposed, on the NYSE, the NASDAQ National Market or the
AMEX or by order of the Commission or any other governmental authority having
jurisdiction; (iii) a banking moratorium shall have been declared by federal or
New York authorities; or (iv) an outbreak of major hostilities or other national
or international calamity (financial or other) or any other material adverse
change in the financial markets since the date hereof, or any event the effect
of which, in the opinion of Lehman Brothers, is likely to be materially adverse
to the financial markets or, in the opinion of Lehman Brothers, will make it
impracticable or inadvisable to proceed with the marketing of the Permanent
Securities or the High Yield Notes.
(l) Absence of Certain Changes. No material adverse change in the
consolidated financial condition, business, operations, assets, liabilities,
management, prospects or value of the Parent, the Company or the Acquired
Businesses (including any event which, in the opinion of the Interim Lenders, is
reasonably likely to result in such a material adverse change) shall have
occurred since March 31, 1996. Except as set forth on Schedule 5.2(l), the
Parent, the Company and the Acquired Businesses shall have no liabilities
(absolute or contingent) except those set forth on the Financial Statements,
those incurred under the Senior Credit Facility and the Transaction Documents or
those incurred in the ordinary course of business since the date of the last
Financial Statements delivered pursuant to Section 5.2(i) that do not, in the
aggregate, exceed 5% of their total assets.
(m) Net Capital. There shall not have occurred any change in law,
regulation or interpretation thereof that could result in any Interim Lender's
commitment to provide, or any Interim Lender's providing, the financing
contemplated by this Agreement being a charge to the net capital of any Affected
Party.
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(n) Environmental Audit. The Interim Lenders shall have received
satisfactory environmental information with respect to the real property owned
or leased by the Parent, the Company, any of their respective Subsidiaries and
the Acquired Businesses from a firm satisfactory to the Interim Lenders, in
their sole respective discretion.
(o) Capitalization; Corporate Structure. The capitalization and
corporate and ownership structure of the Company before and after the
transactions contemplated hereby and the financing thereof shall be satisfactory
to the Interim Lenders in all material respects.
(p) Approvals and Consents. All governmental, quasi-governmental,
shareholder, and material third-party approvals and consents necessary or
desirable in connection with the Acquisitions (except for approval of the
Cardwell Acquisition by the U.S. Department of Justice under the
Hart-Scott-Rodino Antitrust Act of 1976) and the transactions contemplated
hereby and the financing thereof shall have been received and shall be in full
force and effect.
(q) Due Diligence. The Interim Lenders and their counsel shall have
completed their due diligence review of the Parent and the Company and their
respective operations (including the operations of the Acquired Businesses), and
each of them shall be satisfied with the results thereof. Such review may
include, among other things, an examination of (i) accounting, litigation,
regulatory, tax, labor, insurance, pension and environmental liabilities, actual
or contingent, (ii) material contracts, leases and debt agreements and (iii) the
general business, operations, financial conditions, management, prospects and
value of the Parent, the Company and the Acquired Businesses.
(r) Litigation, etc. There shall not exist any action, suit,
investigation, litigation or proceeding pending or threatened in any court or
before any arbitrator or Governmental Entity that, in the opinion of any of the
Interim Lenders, affects the transactions contemplated hereby, or that could
reasonably be expected to have a Material Adverse Effect (including any such
action, suit, investigations, litigation or proceeding which, in the reasonable
opinion of any of the Interim Lenders is reasonably likely to result in such a
Material Adverse Effect) or any of the transactions contemplated by any of the
Transaction Documents.
The sale of Interim Notes by the Company on the Closing Date shall
constitute a representation and warranty by the Parent and the Company to the
effect that the applicable conditions precedent set forth in this Article V are
satisfied on the Closing Date.
ARTICLE VI
TRANSFER OF THE INTERIM NOTES; REPRESENTATIONS OF INTERIM LENDERS
Section 6.1 Transfer of the Interim Notes. Each Interim Lender
represents and agrees that it is purchasing Interim Notes for its own account or
for the account of its beneficial owners and that it will not, directly or
indirectly, transfer, sell, assign, pledge or otherwise dispose of the Interim
Notes unless such transfer, sale, assignment, pledge or other disposition is
made (i) pursuant to an effective registration statement under the Securities
Act or (ii) pursuant to an available exemption from registration under, or
otherwise in compliance with, the Securities Act. Each of the Interim Lenders
also represents and warrants to the Company that it is an "accredited investor"
(as that term is defined in Rule 501 of Regulation D under the Securities Act).
Each of the Interim Lenders acknowledges that the Interim Notes will bear a
legend restricting the transfer thereof for so long as may be required by the
Securities Act.
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Subject to the provisions of the previous paragraph, each of the
Relevant Parties agrees that (i) each Interim Lender and each subsequent Holder
will be free to sell or transfer all or any part of the Interim Notes to any
third party and to pledge any or all of the Interim Notes to any commercial bank
or other institutional lender, provided, however, that, in the case of such sale
or transfer, each Holder shall first give the Company a one Business Day
opportunity to purchase such Interim Notes on the same terms as are being
offered by such third party and (ii) Strategic Resource Partners will be free to
sell or transfer all or any part of the Interim Notes to any of its beneficial
owners.
Section 6.2 Registration of Transfer or Exchange. Upon surrender of any
Interim Note by a Holder for registration of transfer or exchange, the Company
will execute and deliver in exchange therefor a new Interim Note or Interim
Notes of the same aggregate tenor and principal amount, registered in such names
and in such denominations as such Holder may request. The Company may require
certificates of transferors and transferees of Interim Notes, or an Opinion of
Counsel, in order to establish compliance with the Securities Act. The Company
may require payment by such Holder of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer.
Section 6.3 Register. The Company shall maintain a register of the
Holders of all the Interim Notes issued pursuant to this Agreement. The Company
will allow any Holder of an Interim Note to inspect and copy such register at
the Company's principal place of business during normal business hours.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default. An "Event of Default" with respect to the
Interim Notes occurs if:
(a) any representation or warranty made or deemed made by the Parent or
the Company or any of their Subsidiaries herein or in the Senior Credit
Facility or that is contained in any certificate, document or financial or
other statement furnished by any of them at any time under this Agreement or
shall prove to have been incorrect in any material respect on or as of the
date made or deemed made; provided that any incorrect statement made in
Section 2.6 shall be material;
(b) the Company defaults in the payment of the principal of or premium
on any of the Interim Notes, when the same shall become due and payable,
whether at stated maturity, upon acceleration, upon redemption, or
otherwise, and whether or not such payment is prohibited by Article VIII;
(c) the Company defaults in the payment of any interest upon any of the
Interim Notes, when the same becomes due and payable, whether or not such
payment is prohibited by Article VIII, and such default continues for five
calendar days;
(d) the Company defaults in the payment of any other amounts payable
under this Agreement and such default continues for five calendar days;
(e) the Parent, the Company or any of their respective Subsidiaries
fails to observe or perform any of its covenants or agreements in Article IV
(excluding Sections 4.8 and 4.18) or the Parent, the Company or any of their
respective Subsidiaries fails to observe or perform any of its covenants or
agreements contained in Section 4.8 or 4.18 and such failure continues for a
period of 30 days.
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(f) the Parent, the Company or any of their respective Subsidiaries
fails to observe or perform any of its covenants or agreements (other than
those set forth in clause (e) above) contained in any of the Transaction
Documents or the Interim Notes, and such failure continues for a period of
20 Business Days following the earlier of (i) written notice to the Parent
or the Company of such failure by any Holder of outstanding Interim Notes or
(ii) the date on which such failure is discovered by the Parent, the Company
or such Subsidiary;
(g) a default occurs under any agreement, mortgage, indenture or
instrument under which there is or may be issued or by which there is or may
be secured or evidenced any Indebtedness for money borrowed by the Parent,
the Company or any of their respective Subsidiaries (or the payment of which
is Guaranteed by the Parent, the Company or any of their respective
Subsidiaries), whether such Indebtedness or Guarantee now exists or shall be
created hereafter, which default (i) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness or Guarantee prior
to the expiration of the grace period provided in such Indebtedness or
Guarantee (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness or Guarantee prior to its express maturity and, in each case,
the principal amount of such Indebtedness or Guarantee, together with the
principal amount of any other Indebtedness or Guarantee as to which there
has been a Payment Default or the maturity of which has been so accelerated,
aggregates $1.0 million or more;
(h) the Parent, the Company or any Subsidiary of the Parent or the
Company pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it in an
involuntary case;
(iii) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(iv) makes a general assignment for the benefit of its creditors; or
(v) generally is not paying, or admits its inability to pay, its
debts as the same become due;
or takes any comparable action under foreign laws relating to insolvency;
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Parent, the Company or any Subsidiary
of the Parent or the Company in an involuntary case or proceeding;
(ii) appoints a Custodian of the Parent, the Company or any
Subsidiary of the Parent or the Company or for all or substantially all of
the property of the Parent, the Company or any such Subsidiary; or
(iii) orders the winding up or liquidation of the Parent, the Company
or any Subsidiary of the Parent or the Company;
or any similar relief is granted under any foreign laws relating to insolvency,
and such order, decree or similar relief remains unstayed and in effect for 60
days;
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(j) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Parent, the
Company or any of their respective Subsidiaries and such judgment or judgments
remain undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, if the aggregate of all such undischarged
judgments exceeds $1.0 million; or
(k) except as permitted by this Agreement, any Related Party Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Related Party Guarantee; or
(l) the Company or any ERISA Affiliate shall fail to pay when due, after
the expiration of any applicable grace period, any installment payment with
respect to its withdrawal liability under a Multiemployer Plan; (ii) the Company
or any ERISA Affiliate shall fail to satisfy its contribution requirements under
Section 412(c)(11) of the Code, whether or not it has sought a waiver under
Section 412(d) of the Code; (iii) in the case of an ERISA Event involving the
withdrawal from a Plan of a "substantial employer" (as defined in Section
4001(a)(2) or Section 4062(e) of ERISA), the withdrawing employer's
proportionate share of that Plan's Unfunded Pension Liabilities is more than
$2,000,000; (iv) in the case of an ERISA Event involving the complete or partial
withdrawal from a Multiemployer Plan, the withdrawing employer has incurred a
withdrawal liability in an aggregate amount exceeding $2,000,000; (v) in the
case of an ERISA Event not described in clause (iii) or (iv), the Unfunded
Pension Liabilities of the relevant Plan or Plans exceed $2,000,000; (vi) a Plan
that is intended to be qualified under Section 401(a) of the Code shall lose its
qualification, and with respect to such loss of qualification, the Company or
any ERISA Affiliate can reasonably be expected to be required to pay (for
additional taxes, payments to or on behalf of Plan participants, or otherwise)
an aggregate amount exceeding $2,000,000; or (vii) the occurrence of any
combination of events listed in clauses (iii) through (vi) that involves a net
increase in aggregate Unfunded Pension Liabilities and unfunded liabilities in
excess of $5,000,000;
Section 7.2 Acceleration. If an Event of Default (other than an Event of
Default specified in Sections 7.1(h) and (i)) occurs and is continuing, the
Holders of at least 25% in principal amount of the then outstanding Interim
Notes by written notice to the Company may declare the unpaid principal of and
any accrued interest on all the Interim Notes to be due and payable. Upon such
declaration the principal and interest shall be due and payable immediately. If
an Event of Default specified in Section 7.1(h) or (i) occurs, such an amount
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of any Holder.
Section 7.3 No Avoidance. In the case of any Event of Default occurring
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Parent or the Company with the intention of avoiding payment of
the premium that the Company would have had to pay upon redemption or prepayment
of the Interim Notes pursuant to Section 3.6 or 3.7, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Interim Notes in accordance with Section 7.2.
Section 7.4 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent or subsequent assertion or employment of any other
appropriate right or remedy.
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Section 7.5 Delay or Omission Not Waiver. No delay or omission by any
Holder to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Holders may be exercised from time to time, and as often as may
be deemed expedient, by the Holders.
Section 7.6 Waiver of Past Defaults. Subject to Section 12.3, the
Holders of a majority in aggregate principal amount of the then outstanding
Interim Notes by written notice to the Company may rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
Section 7.7 Rights of Holders To Receive Payment. Notwithstanding
anything to the contrary contained in this Agreement, the right of any Holder to
receive payment of principal of and interest on the Interim Notes held by such
Holder, on or after the respective due dates expressed in the Interim Notes, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
ARTICLE VIII
SUBORDINATION OF INTERIM NOTES
Section 8.1 Agreement to Subordinate. The Company agrees, and each
Holder by accepting an Interim Note agrees, that the Obligations with respect to
the Interim Notes are subordinated in right of payment, to the extent and in the
manner provided in this Article VIII, to the prior payment in full in cash, of
all Obligations of the Company under the Senior Debt and that the Subordination
is for the benefit of the holders of the Senior Debt.
Section 8.2 Liquidation, Dissolution, Bankruptcy. Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities:
(a) holders of Senior Debt shall be entitled to receive payment in full
in cash of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified
in the applicable Senior Debt, whether or not an allowable claim) before the
Holders shall be entitled to receive any payment with respect to the Interim
Notes; and
(b) until all Obligations with respect to Senior Debt (as provided in
subsection (a) above) are paid in full in cash, any distribution to which
the Holders would be entitled but for this Article VIII, shall be made to
holders of Senior Debt, as their interests may appear.
Section 8.3 Default on Senior Credit Facility. The Company may not make
any payment or distribution to the Holders in respect of the Interim Notes or
the Obligations related thereto and may not acquire from the Holders any Interim
Notes for cash or property (other than Net Cash Proceeds) until all principal
and other Obligations with respect to the Senior Debt have been paid in full if:
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(a) a default in the payment of any principal or other Obligations with
respect to the Senior Debt occurs or any other default on Senior Debt occurs
and the maturity of such Senior Debt is accelerated in accordance with its
terms; or
(b) a default, other than a payment default, on the Senior Debt occurs
and is continuing that then permits holders of Indebtedness under the Senior
Debt to accelerate its maturity and the Holders receive a written notice of
the default (a "Payment Blockage Notice"). If the Holders receive any such
Payment Blockage Notice, no subsequent Payment Blockage Notice shall be
effective for purposes of this Section 8.3 unless and until (i) at least 360
days shall have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Interim Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Company shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Company may and shall resume payments on and distributions in
respect of the Interim Notes and may acquire them upon the earlier of:
(1) the date upon which the default under the Senior Debt is cured or
waived and, in the case of Senior Debt that has been accelerated, such
acceleration has been rescinded, or
(2) in the case of a default referred to in Section 8.3(b) hereof, 179
days pass after a Payment Blockage Notice is received if the maturity of the
Senior Debt has not been accelerated,
if this Article VIII otherwise permits such payment, distribution or
acquisition.
Section 8.4 When Distribution Must Be Paid Over. In the event that any
Holder receives any payment with respect to the Interim Notes or any Obligations
related thereto that because of this Article VIII should not have been made to
such Holder, such payment shall be held by such Holder in trust for the benefit
of, and shall be paid forthwith over and delivered, upon written request, to,
the holders of Senior Debt as their interests may appear or their Representative
under the indenture or other agreement (if any) pursuant to which Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of all Obligations with respect to Senior Debt remaining unpaid
to the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the benefit of the holders of Senior Debt.
Section 8.5 Subrogation. After all Senior Debt is paid in full in cash,
and until the Interim Notes are paid in full, the Holders shall be subrogated
(equally and ratably with all other Indebtedness ranking pari passu with the
Interim Notes) to the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Holders have been applied to the payment of Senior Debt. A distribution made
under this Article VIII to holders of Senior Debt that otherwise would have been
made to the Holders is not, as between the Company and the Holders, a payment by
the Company on the Senior Debt.
Section 8.6 Relative Rights. This Article VIII defines the relative
rights of the Holders and holders of Senior Debt. Nothing in this Agreement
shall:
(1) impair, as between the Company and the Holders, the obligation of
the Company, which is absolute and unconditional, to pay principal of and
premium and interest on the Interim Notes in accordance with their terms,
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(2) affect the relative rights of Holders and other creditors of the
Company other than the Holders' rights in relation to holders of Senior
Debt, or
(3) prevent any Holder from exercising its available remedies upon a
Default, subject to the rights of holders of Senior Debt under this Article
VIII to receive distributions and payments otherwise payable to the Holders.
If the Company fails because of this Article VIII to pay principal of
or interest on an Interim Note on the due date, such failure after any
applicable grace period provided for in Section 7.1 is still an Event of
Default.
Section 8.7 Subordination May Not Be Impaired by Company. No right of
any holder of Senior Debt to enforce the subordination of the Indebtedness
evidenced by the Interim Notes shall be impaired by any act or failure to act by
the Company or by its failure to comply with this Agreement.
Section 8.8 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to the Administrative Agent or
other Representative.
Section 8.9 Holders Entitled to Rely. Upon any payment or distribution
pursuant to this Article VIII, the Holders shall be entitled to rely (i) upon
any order or decree of a court of competent jurisdiction and (ii) upon a
certificate of the representative or of the liquidating trustee or agent or
other Person making any distribution to the Holders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article VIII.
Section 8.10 Acceleration of Interim Notes. If payment of the Interim
Notes is accelerated because of an Event of Default, the Company shall promptly
notify holders of Senior Debt of the acceleration. If any Senior Debt is
outstanding, the Company may not make any payment in respect of the Interim
Notes until five Business Days after the Administrative Agent receives such
notice, and, thereafter, only if this Article VIII otherwise permits.
Section 8.11 Reliance by Holders of Senior Debt on Subordination
Provisions. Each Holder by accepting an Interim Note acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of the Interim
Notes, to acquire and continue to hold such Senior Debt and such holder of
Senior Debt shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold such Senior Debt.
Section 8.12 Amendments. The provisions of this Article VIII shall not
be amended or modified without the written consent of the holders of Senior
Debt.
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ARTICLE IX
TERMINATION
Section 9.1 Termination. The Interim Lenders, by notice to the Company,
may terminate this Agreement at any time after March 31, 1997 if the Closing has
not occurred on or prior to such date.
Section 9.2 Liability. If this Agreement is terminated pursuant to this
Article IX, such termination shall be without liability of any party to any
other party, except that, whether or not the transactions contemplated by this
Agreement are consummated, (i) the Company shall reimburse the Interim Lenders
for all their reasonable out-of-pocket expenses pursuant to Section 12.1 and the
Engagement Letter and (ii) the indemnity provisions contained in Article XI
shall remain operative and in full force and effect.
ARTICLE X
RELATED PARTY GUARANTEES
Section 10.1 Related Party Guarantees. Each of the Guarantors jointly
and severally unconditionally guarantees to each Holder irrespective of the
validity and enforceability this Agreement, the Interim Notes and the
obligations of the Company hereunder or thereunder that: (a) the principal of,
premium, if any, and interest, if any, on the Interim Notes shall be promptly
paid in full when due, whether at maturity, by acceleration, redemption or
otherwise, and (to the extent permitted by law) interest on the overdue
principal of, premium, if any, and interest, if any, on the Interim Notes
(including all reasonable costs of collection and enforcement thereof and
interest thereon which would be owing by the Company but for the effect of any
Bankruptcy Law, if any, and all other Obligations of the Company to the Holders
under this Agreement and the Interim Notes shall be promptly paid in full when
due or performed, all in accordance with the terms of this Agreement and the
Interim Notes; and (b) in case of any extension of time of payment or renewal of
any Interim Notes, or the issuance of Rollover Notes or any of such other
Obligations, that the same shall be promptly paid in full when due or performed
in accordance with their terms whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally and
unconditionally obligated to pay the same immediately whether or not such
failure to pay has become an Event of Default which could cause acceleration
pursuant to Section 7.2. Each Guarantor agrees that this is a continuing
guarantee of payment and not merely a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release in
respect of any Obligation of the Company under this Agreement or the Interim
Notes, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to this Agreement,
the Interim Notes or any of the Transaction Documents;
(iii) any release, non-perfection or invalidity of any direct or
indirect security for, or any other guarantee of, any of the Obligations
guaranteed by this Article X;
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(iv) any change in the corporate existence, structure or ownership of
the Company, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company or its assets or any resulting release or
discharge of any Obligation of the Company contained in this Agreement or
the Interim Notes;
(v) the existence of any claim, set-off or other rights which any
Guarantor may have at any time against the Company or any other Person,
whether in connection herewith or with any unrelated transactions, provided
that nothing herein shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against the
Company for any reason of this Agreement or the Interim Notes, or any
provision of applicable law or regulation purporting to prohibit the payment
by the Company of the principal of or interest on the Interim Notes or any
other amount payable by it under this Agreement or the Interim Notes;
(vii) any other act or omission to act or delay of any kind by the
Company or any other Person or any other circumstance whatsoever which
might, but for the provisions of this paragraph, constitute a legal or
equitable discharge of any Guarantor's obligations hereunder; or
(viii) any exchange of Interim Notes for Rollover Notes or any issuance
of additional Interim Notes or Rollover Notes pursuant to Section 3.4.
Each Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that, subject to this Article X,
this Related Party Guarantee shall not be discharged except by complete
performance of all Obligations on and with respect to the Interim Notes and this
Agreement.
If any Holder is required by any court or otherwise to return to the
Company or any of the Guarantors, or any custodian, trustee, liquidator or other
similar official acting in relation to either the Company or any of the
Guarantors, any amount paid to the Holder, this Related Party Guarantee, to the
extent of the amount so returned, shall be reinstated in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any Obligations guaranteed
hereby until payment in full of all Obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders, on the other hand, (x) the maturity of the Obligations guaranteed
hereby may be accelerated as provided in Section 7.2 notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby and (y) in the event of any declaration of
acceleration of such Obligations as provided in Section 7.2, such Obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Related Party Guarantee. The Guarantors shall
have the right to seek contribution from any non-paying Guarantor so long as the
exercise of such right does not impair the rights of the Holders under this
Related Party Guarantee.
Section 10.2 Subordination of Related Party Guarantees. The Obligations
of each Guarantor under its Related Party Guarantee pursuant to this Article X
shall be junior and subordinated to the Senior Guarantee of such Guarantor on
the same basis as the Interim Notes are junior and subordinated to Senior Debt
of the Company under Article VIII hereof.
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Section 10.3 Limitation on Guarantor Liability. Each Guarantor, and by
its acceptance of Interim Notes, each Holder, hereby confirms that it is the
intention of all such parties that this Related Party Guarantee not constitute a
fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to this Related Party
Guarantee. To effectuate the foregoing intention, the Holders and the Guarantors
hereby irrevocably agree that the obligations of each Guarantor under this
Related Party Guarantee shall be limited to the maximum amount as will, after
giving effect to such maximum amount and all other contingent and fixed
liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under this Related Party Guarantee, result
in the Obligations of such Guarantor under the Related Party Guarantee not
constituting a fraudulent transfer or conveyance.
Section 10.4 Execution and Delivery of Related Party Guarantees. To
further evidence this Related Party Guarantee, each Guarantor hereby agrees that
a notation of such Related Party Guarantee shall be endorsed by an Officer of
such Guarantor on each Interim Note and that this Agreement shall be executed on
behalf of such Guarantor by a duly authorized Officer of such Guarantor.
Each Guarantor hereby agrees that this Related Party Guarantee shall
remain in full force and effect notwithstanding any failure to endorse on each
Interim Note a notation of such Related Party Guarantee.
If an Officer of any Guarantor who endorses a notation of this Related
Party Guarantee on an Interim Note no longer holds that office after such
Interim Note is issued, this Related Party Guarantee shall be valid nevertheless
with respect to such Guarantor.
The delivery of any Interim Note by the Company shall constitute due
delivery of this Related Party Guarantee with respect to such Interim Note as
set forth in this Agreement on behalf of the Guarantors.
In the event that the Parent, the Company or any Subsidiary of the
Parent or the Company creates or acquires a new Domestic Subsidiary subsequent
to the date of this Agreement, the Parent, the Company or such Domestic
Subsidiary, as the case may be, shall cause such new Domestic Subsidiary to
execute this Related Party Guarantee by joining this Agreement as if it were an
original party hereto and acknowledging its obligations under the Related Party
Guarantee with respect to all outstanding Interim Notes.
Section 10.5 Stay of Acceleration. In the event that acceleration of the
time for payment of this Related Party Guarantee is stayed upon insolvency,
bankruptcy or reorganization of the Company, all such amounts otherwise subject
to acceleration under the terms of this Agreement and the Interim Notes shall
nonetheless by payable by each Guarantor forthwith on demand by each Holder.
Section 10.6 Consolidation or Merger of Guarantors. Without limiting the
provisions of Section 4.6, no Guarantor may consolidate with or merge with or
into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless such corporation, person or entity is a Guarantor.
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ARTICLE XI
INDEMNITY
Section 11.1 Indemnification. The Parent, the Company and each Guarantor
(each, an "Indemnifying Party" and, collectively, the "Indemnifying Parties")
jointly and severally agree to indemnify and hold harmless Lehman Brothers, the
Interim Lenders and the Holders, each of their respective controlling persons
and each director, officer, employee, affiliate and agent thereof (each, an
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, to which any Indemnified Party may become subject
relating to or arising out of or in connection with the transactions
contemplated by this Agreement (including the use of the proceeds from the sale
of the Interim Notes) or any related transaction, and to reimburse each
Indemnified Party, promptly upon demand, for expenses (including reasonable
counsel fees and expenses) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatened loss,
claim, damage or liability, or any litigation, proceeding or other action in
respect thereof, including any amount paid in settlement of any litigation,
proceeding or other action (commenced or threatened) to which the Indemnifying
Parties shall have consented in writing (such consent not to be unreasonably
withheld) whether or not any Indemnified Party is a party and whether or not
liability resulted; provided, however, that the indemnity contained in this
Article XI will not apply to any Indemnified Party with respect to losses,
claims, damages, liabilities or related expenses arising from the willful
misconduct or gross negligence of such Indemnified Party.
Section 11.2 Notice of Action. (a) Promptly after receipt by an
Indemnified Party of written notice with respect to the commencement of any
investigation, claim, litigation, proceeding or other action (collectively, an
"Action") with respect to which such Indemnified Party may seek indemnification
hereunder, such Indemnified Party shall notify the Indemnifying Parties in
writing of such Action; but the omission so to notify the Indemnifying Party
shall not relieve the Indemnifying Parties from any liability that the
Indemnifying Parties may have hereunder to such Indemnified Party, except to the
extent that the Indemnifying Party shall have been materially prejudiced
thereby.
(b) Upon receipt of such notice by an Indemnifying Party, the
Indemnifying Party will be entitled to participate in any Action and, to the
extent it wishes, to assume the defense thereof, and after notice from the
Indemnifying Party to such Indemnified Party of its election to assume the
defense thereof, the Indemnifying Party will not be liable to such Indemnified
Party under this indemnity for any legal expenses subsequently incurred by such
Indemnified Party in connection with such defense; provided, however, that such
Indemnified Party will have the right to employ its own counsel in any such
Action, and the fees and expenses of such counsel will be at the expense of such
Indemnified Party; provided, further, that if (i) the employment of such counsel
has been authorized by such Indemnifying Party in connection with the defense of
such Action, which authorization shall not be unreasonably withheld, or (ii) the
named parties in any such Action (including any impleaded parties) include any
Indemnified Party and such Indemnifying Party and such Indemnified Party will
have been advised by such counsel that there may be one or more legal defenses
available to such Indemnified Party which are different from or additional to
those available to the Indemnifying Party (in which case the Indemnifying Party
will not have the right to assume the defense of such Action on behalf of such
Indemnified Party) or (iii) the Indemnifying Party shall not have assumed the
defense of such Action and employed counsel therefor reasonably satisfactory to
such Indemnified Party within a reasonable time after notice of commencement of
such action, such fees and expenses will be borne by the Indemnifying Party, it
being understood that the Indemnifying Party will not, in connection with any
one such Action, be liable for the fees and expenses of more than one firm of
attorneys in any one jurisdiction.
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Section 11.3 Indemnity not Available. If indemnification were for reason
of public policy not to be available, the Indemnifying Party and the Holders
agree to contribute (in proportion to their respective commitments in the case
of the Holders) to the losses, claims, damages, liabilities or expenses (or
Actions in respect thereof) for which such indemnification is held unavailable
in such proportion as is appropriate to reflect the relative benefits to the
Indemnifying Party, on the one hand, and the Holders, on the other hand, in
connection with the matter giving rise to such losses, claims, damages,
liabilities or expenses (or actions in respect thereof).
Section 11.4 Indemnity for Taxes, Reserves and Expenses. If after the
date hereof, the adoption of any law or guideline or any amendment or change in
the administration, interpretation or application of any existing or future law
or guideline by any Governmental Entity charged with the administration,
interpretation or application thereof, or the compliance with any request or
directive of any Governmental Entity (whether or not having the force of law):
(a) subjects an Affected Party to any tax or changes the basis of
taxation with respect to this Agreement or the Interim Notes or payments of
amounts due hereunder or thereunder or with respect to this Agreement or the
Related Documents, (including, without limitation, any sales, gross
receipts, general corporate, withholding, personal property, privilege or
license taxes, and including claims, losses and liabilities arising from any
failure to pay or delay in paying any such tax (unless such failure or delay
results solely from such Affected Party's gross negligence or willful
misconduct), but excluding federal, state or local taxes based on income or
franchise taxes imposed in lieu of income taxes) incurred by such Affected
Party arising out of or as a result of this Agreement, the Interim Notes or
the Related Documents;
(b) imposes, modifies or deems applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar requirement against
assets held by, credit extended by, deposits with or for the account of, or
other acquisition of funds by, an Affected Party;
(c) shall change the amount of capital maintained or requested or
directed to be maintained by an Affected Party; or
(d) imposes upon an Affected Party any other condition or expense
(including, without limitation, (i) loss of margin and (ii) attorneys' fees
and expenses, expenses incurred by officers or employees of an Affected
Party (or any successor thereto) and expenses of litigation or preparation
therefor in contesting any of the foregoing) with respect to this Agreement
or the Related Documents or the purchase, maintenance or funding of the
purchase of the Interim Notes by an Affected Party,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, reduce the rate of return on capital of, or impose any
expense (including loss of margin) upon, an Affected Party with respect to this
Agreement, the obligations hereunder, the Related Documents or the funding of
the purchase of the Interim Notes hereunder, the Affected Party may notify the
Indemnifying Party of the amount of such increase, reduction, or imposition, and
the Indemnifying Parties shall pay to the Affected Party the amount the Affected
Party deems necessary to compensate the Affected Party for such increase,
reduction or imposition. Any Affected Party claiming additional compensation
under this Section 11.4 shall deliver to the Company a certificate setting forth
any additional amounts that such Affected Party is entitled to receive,
including a calculation thereof in reasonable detail, such certificate to be
conclusive absent manifest error. Such amounts shall be due and payable by the
Indemnifying Parties 5 Business Days after such certificate is delivered.
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Section 11.5 Indemnification for Underwriting Services. Each
Indemnifying Party agrees that if such Indemnifying Party and Lehman Brothers
execute an underwriting agreement or placement agreement relating to the
Permanent Securities or the High Yield Notes, such agreement shall contain
customary indemnification and contribution provisions.
Section 11.6 Survivorship of Indemnification. The provisions contained
in this Article XI shall remain in full force and effect whether or not any of
the transactions contemplated hereby are consummated and notwithstanding the
termination of this Agreement. The amounts payable by any Indemnifying Party
under this Article XI shall be payable whether or not any of the transactions
contemplated under this Agreement are consummated.
Section 11.7 Liability Not Exclusive; Payments. The agreements of each
Indemnifying Party in this Article XI shall be in addition to any liability that
each may otherwise have. All amounts due under this Article XI shall be payable
as incurred upon written demand therefor.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses; Documentary Taxes. The Parent, the Company and
the Guarantors jointly and severally agree to pay (a) all reasonable
out-of-pocket expenses (including, without limitation, expenses incurred in
connection with due diligence of the Interim Lenders) associated with the
preparation, execution and delivery, administration, waiver, enforcement or
modification and enforcement of the documentation contemplated hereby and (b)
the reasonable fees and disbursements of legal counsel to the Interim Lenders in
connection with the transactions contemplated herein; provided, however, legal
fees in connection with the preparation of Commitment Letter and this Agreement
shall not exceed $250,000 in the aggregate, plus reasonable disbursements,
unless either the Parent or the Company shall agree to a higher amount. The
Parent, the Company and the Guarantors jointly and severally agree to indemnify
the Interim Lenders against any transfer taxes, documentary taxes, assessments
or charges made by any Governmental Entity by reason of the execution and
delivery, or the terms, of this Agreement or the Interim Notes.
Section 12.2 Notices. All notices and other communications pertaining to
this Agreement or any Interim Note shall be in writing and shall be delivered in
person, with receipt acknowledged, or by facsimile and confirmed immediately in
writing by a copy mailed by registered or certified mail, return receipt
requested, postage prepaid, addressed as hereafter set forth, or mailed by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(i) If to the Interim Lenders, to them at:
Strategic Resource Partners Fund
3 World Financial Center
New York, New York 10285
Attention: Michael Konigsberg
Facsimile No.: (212) 526-4827
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with a copy to:
Lehman Brothers, Inc.
3 World Financial Center
New York, New York 10285
Attention: Michael Konigsberg
Facsimile No.: (212) 526-3738
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Kirk A. Davenport, Esq.
Facsimile No.: (212) 751-4864
(ii) If to the Company or the Parent, to it at:
c/o IRI International Corporation
First Interstate Bank Plaza
Houston, Texas 77002
Attention: Chief Financial Officer
Facsimile No.: (713) 659-1526
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Michael R. Bassett
Facsimile No.: (212) 755-7306
or to such other person or address as shall be furnished to the other party in
compliance with this Section.
Section 12.3 Consent to Amendments and Waivers. (a) Except as provided
in Section 12.3(b), this Agreement and the Interim Notes may be amended or
supplemented with the consent of the Parent, the Company, each of the Guarantors
and the Holders of at least a majority in principal amount of the Interim Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Interim Notes), and
any existing default or compliance with any provision of this Agreement or the
Interim Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Interim Notes (including consents
obtained in connection with a tender offer or exchange offer for Interim Notes).
Interim Notes held by the Parent, the Company or any of their respective
Affiliates will not be deemed to be outstanding for purposes of this Section
12.3.
(b) Without the consent of the Parent, the Company, each Guarantor and
each Holder affected, an amendment or waiver may not (with respect to any
Interim Notes held by a non-consenting Holder): (i) reduce the principal amount
of any Interim Note, (ii) change the fixed maturity of any Interim Note, (iii)
reduce the rate of or change the time for payment of interest on any Interim
Note, (iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest or premium
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on the Interim Notes (except a rescission of acceleration of the Interim Notes
by the Holders of at least a majority in aggregate principal amount of the
Interim Notes in accordance with Section 7.6 and a waiver of the payment default
that resulted from such acceleration), (v) make any Interim Note payable in
money other than that stated in the Interim Note, (vi) make any change in the
provisions of this Agreement relating to the rights of Holders to receive
payments of principal of or premium, if any, or interest on the Interim Notes,
(vii) alter or amend the prepayment, repurchase or redemption provisions of this
Agreement or any Interim Note or waive any prepayment, repurchase or redemption
payment with respect to any Interim Note or (viii) make any change in the
foregoing amendment and waiver provisions. Notwithstanding the foregoing, any
amendment to the provisions of Sections 3.6 and 4.21 and Article VIII shall
require the consent of the Holders of at least 75% in aggregate principal amount
of the Interim Notes then outstanding if such amendment would adversely affect
the rights of any Holder.
(c) Neither the Parent, the Company nor any Guarantor shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment permitted by Section 12.3(a) unless such
consideration is offered to be paid or is paid to all Holders that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Section 12.4 Statements Required in Officers' Certificate and Opinion.
Each Officers' Certificate and Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Agreement shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in such Person's opinion, such condition
or covenant has been complied with.
Section 12.5 Parties. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and each subsequent Holder and each of their
respective successors and assigns. Except as expressly provided in Article VIII
or XI, nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any Person, other than Lehman Brothers, the parties hereto and
their respective successors and assigns, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
Except as expressly provided in Article VIII or XI, this Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of Lehman Brothers, the parties hereto and the affiliates and beneficial
owners of the Interim Lenders, and any subsequent Holder of a Interim Note and
their respective successors and assigns, and for the benefit of no other person.
Section 12.6 New York Law; Submission to Jurisdiction; Waiver of Jury
Trial. THIS AGREEMENT AND THE INTERIM NOTES SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
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DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT
OF OR RELATING TO THE INTERIM NOTES, THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE INTERIM NOTES, THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 12.7 Replacement Interim Notes. If any Interim Note becomes
mutilated and is surrendered by the Holder thereof to the Company, or if the
Holder thereof claims that any Interim Note has been lost, destroyed or
wrongfully taken, the Company shall execute and deliver to such Holder a
replacement Interim Note, upon the delivery by such Holder of an indemnity to
the Company to save it and any agent of it harmless in respect of such loss,
destruction or wrongful taking with respect to such Interim Note.
Section 12.8 Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants and agreements of the
Parent, the Company, the Guarantors, and the Interim Lenders and any subsequent
Holder in this Agreement or any Interim Note shall bind their respective
successors and assigns. Neither the Parent, the Company, nor any Guarantor may
assign or transfer any of its rights or obligations hereunder (by operation of
law or otherwise) without the prior written consent of the Holders of at least a
majority in principal amount of Interim Notes then outstanding.
Section 12.9 Severability Clause. In case any provision in this
Agreement or any Interim Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby and such
provision shall be ineffective in such jurisdiction only to the extent of such
invalidity, illegality or unenforceability.
Section 12.10 Representations, Warranties and Agreements To Survive
Delivery. All representations, warranties and agreements contained in or
incorporated into this Agreement, or contained in Officers' Certificates
submitted pursuant hereto, shall remain operative and in full force and effect
until the Interim Notes have been repaid in full, regardless of any
investigation made by or on behalf of the Interim Lenders or any controlling
person of the Interim Lenders, or by or on behalf of the Parent or the Company,
and shall survive delivery of the Interim Notes.
Section 12.11 No Adverse Interpretation of Other Agreements. This
Agreement may not be used to interpret another indenture, loan or debt agreement
of the Parent, the Company or any of their respective Subsidiaries or any other
Person. No such indenture, loan or debt agreement may be used to interpret this
Agreement.
Section 12.12 Limitation of Liability. Strategic Resource Partners is a
Delaware business trust whose Certificate of Trust is on file with the Secretary
of State of the State of Delaware. All persons dealing with Strategic Resource
Partners, because it is a Delaware statutory business trust, must look solely to
the series (within the meaning given to such term by Section 3806(b)(2) of the
Delaware Business Trust Act) of ownership interests in Strategic Resource
Partners evidencing ownership by
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Strategic Resource Partners of Interim Notes for the enforcement of any claims
against Strategic Resource Partners arising by reason of or in connection with
such interest. None of the manager, the adviser, the trustee, the beneficial
owners or other agents of Strategic Resource Partners assumes any personal
liability in connection with the business of Strategic Resource Partners or for
obligations entered into on behalf of Strategic Resource Partners.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Senior
Subordinated Increasing Rate Note Purchase Agreement as of the date first above
written.
IRI INTERNATIONAL CORPORATION
By:_________________________________
Name:
Title:
ENERGY SERVICES INTERNATIONAL LTD.
By:_________________________________
Name:
Title:
STRATEGIC RESOURCE PARTNERS FUND
By: LEHMAN BROTHERS TB INC.
By:_______________________________
Name:
Title:
59
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SCHEDULE 1E
EXISTING DEBT
60
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SCHEDULE 1P
PERMITTED LIENS
61
<PAGE> 68
SCHEDULE 2.5
MATERIAL CONTRACTS
62
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SCHEDULE 2.6
SUBSIDIARIES; PERCENTAGE OWNERSHIP
63
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SCHEDULE 2.10
FINANCIAL STATEMENTS
64
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SCHEDULE 2.13
INTELLECTUAL PROPERTY
65
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SCHEDULE 2.14
PROCEEDINGS
66
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SCHEDULE 2.18
ENVIRONMENTAL
67
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SCHEDULE 2.25
ERISA SCHEDULE
68
<PAGE> 75
SCHEDULE 5.2(l)
ADDITIONAL LIABILITIES
69
<PAGE> 1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
by and among
BOWEN TOOLS, INC.-Delaware,
BOWEN TOOLS, INC.,
AIR LIQUIDE AMERICA CORPORATION
and
IRI INTERNATIONAL CORPORATION
Dated as of January 20, 1997
<PAGE> 2
TABLE OF CONTENTS
Section Page
ARTICLE I PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF LIABILITIES........................... 1
1.1. Purchase of Assets....................................... 1
1.2. Payment of Purchase Price................................ 4
1.3. Closing Date Net Assets Schedule......................... 4
1.4. Assumption of Certain Liabilities........................ 6
1.5. Closing.................................................. 6
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF SELLERS AND ALAC................................. 7
2.1. Organization of Sellers, ALAC and the Subsidiaries....... 7
2.2. Ownership of Sellers' Shares............................. 7
2.3. Authorization, Etc....................................... 7
2.4. No Consent............................................... 8
2.5. No Violation............................................. 8
2.6. Subsidiaries............................................. 8
2.7. Financial Statements..................................... 9
2.8. No Undisclosed Liabilities, Etc.......................... 9
2.9. Absence of Certain Changes............................... 10
2.10. Taxes.................................................... 11
2.11. Title to Assets.......................................... 12
2.12. Properties............................................... 13
2.13. Patents, Trademarks, Etc................................. 13
2.14. Contracts, Etc........................................... 13
2.15. Employees and Employee Benefit Plans..................... 14
2.16. Litigation; Compliance with Laws......................... 16
2.17. Environmental and Safety Laws............................ 16
2.18. Finders.................................................. 18
2.19. Effect of Certain Representations........................ 18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER............. 19
3.1. Power and Authority...................................... 19
3.2. Governmental Consents.................................... 19
3.3. No Violation............................................. 19
3.4. Litigation............................................... 20
3.5. Finders.................................................. 20
ARTICLE IV COVENANTS................................................ 20
4.1. Preservation of the Business............................. 20
4.2. Sale or Encumbrance of Assets; Sellers' Shares........... 20
- i -
<PAGE> 3
Section Page
4.3. Approvals and Consents................................... 21
4.4. Investigations........................................... 21
4.5. Books and Records; Personnel............................. 21
4.6. Excluded Liabilities..................................... 21
4.7. Employee Plans and Other Matters......................... 22
4.8. Insurance Policies....................................... 23
4.9. Prorations; Agreement as to Other Adjustments............ 24
4.10. Assignment of Name....................................... 24
4.11. Transfer Tax Obligations................................. 25
4.12. Buyer's Assumption of Liabilities........................ 25
4.13. Patent Assignment........................................ 25
4.14. Allocation of Purchase Price............................. 25
4.15. Best Efforts............................................. 25
4.16. ALAC Guarantee........................................... 26
4.17. Schedules and Exhibits................................... 26
ARTICLE V CONDITIONS TO OBLIGATIONS OF BUYER
CONSUMMATE THE TRANSACTION.......................... 26
5.1. Accuracy of Representations and Warranties;
Compliance with Covenants........................... 26
5.2. Financial Results........................................ 26
5.3. No Injunction............................................ 27
5.4. Opinion of Counsel....................................... 27
5.5. Consents................................................. 27
5.6. No Material Adverse Effect............................... 27
5.7. Resolutions of the Boards of Directors................... 27
5.8. Delivery of Bills of Sale................................ 27
5.9. Delivery of Real Property Deeds.......................... 27
5.10. Actual or Threatened Actions............................. 27
5.11. Insurable Title to Real Property......................... 27
5.12. Transfer Taxes........................................... 28
5.13. Assignment and Assumption of Agreements.................. 28
5.14. Allocation of Purchase Price............................. 28
5.15. Reliance Letters......................................... 28
ARTICLE VI CONDITIONS TO OBLIGATIONS OF SELLERS AND
ALAC TO CONSUMMATE THE TRANSACTION.................. 28
6.1. Accuracy of Representations and Warranties;
Compliance with Covenants........................... 28
6.2. No Injunction............................................ 28
6.3. Opinion of Counsel....................................... 29
6.4. Consents................................................. 29
- ii -
<PAGE> 4
Section Page
6.5. Allocation of Purchase Price............................. 29
ARTICLE VII TERMINATION PRIOR TO CLOSING............................. 29
7.1. Termination.............................................. 29
ARTICLE VIII INDEMNIFICATION.......................................... 30
8.1. Scope of Indemnity....................................... 30
8.2. Claims and Litigation.................................... 31
8.3. Making of Claims......................................... 31
8.4. Attorneys' Fees, Interest, Penalties, Costs and
Expenses............................................... 31
8.5. Survival of Representations and Warranties and
Indemnities............................................ 31
8.6. General Provisions....................................... 32
8.7. Tax Treatment............................................ 32
ARTICLE IX MISCELLANEOUS............................................ 32
9.1. Entire Agreement......................................... 32
9.2. Successors and Assigns................................... 32
9.3. Identical Counterparts................................... 32
9.4. Headings................................................. 33
9.5. Use of Certain Terms..................................... 33
9.6. Modification and Waiver.................................. 33
9.7. Schedules, Etc........................................... 33
9.8. Notices.................................................. 33
9.9. Governing Law............................................ 34
9.10. Invalid Provisions....................................... 34
9.11. Expenses................................................. 34
9.12. Third Party Beneficiaries................................ 34
9.13. Exclusive Remedies....................................... 35
9.14. Number and Gender of Words............................... 35
9.15. Actions.................................................. 35
9.16. Nondisclosure............................................ 35
9.17. Acquisition Proposals.................................... 35
9.18. Tax Agreements........................................... 35
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 20th day of January, 1997 by and among Bowen Tools,
Inc.-Delaware, a Delaware corporation (the "Parent Corporation"), Bowen Tools,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Parent
Corporation (the "Operating Company" and, together with the Parent Corporation,
"Sellers"), Air Liquide America Corporation, a Delaware corporation ("ALAC"),
and IRI International Corporation, a Delaware corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, the business currently conducted by Sellers and the subsidiaries
of the Operating Company other than Sanstorm, Inc. (the "Subsidiaries") as a
going concern (the "Business"), including substantially all the property and
assets of Sellers, on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, ALAC, as the owner of all of the issued and outstanding
capital stock of the Parent Corporation, desires to cause such purchase and sale
to be effected, on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements hereinafter set forth, the parties,
intending to be legally bound hereby, agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF LIABILITIES
1.1. Purchase of Assets.
(a) On the terms and subject to the conditions set forth herein,
at the Closing (as defined in Section 1.5 hereof) Sellers shall sell, transfer,
convey, assign and deliver to Buyer all of Sellers' right, title and interest in
and to all of the property and assets of Sellers used in the Business, including
Sellers' right, title and interest in and to the properties and assets of every
kind, nature and description, real, personal or mixed, tangible or intangible,
and wherever situated, owned, possessed or held by Sellers on the Closing Date
(as defined in Section 1.5 hereof), other than the Excluded Assets (as defined
in Section 1.1(c) hereof) (collectively, the "Assets"). Without limiting the
generality of the foregoing, and subject to Section 1.1(c) hereof, the Assets
shall include all of the issued and outstanding shares of capital stock of each
of the Subsidiaries, all accounts receivable, the name "Bowen Tools" or any
variant thereof, all patents,
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trademarks, trade names, service marks, copyrights and logos, and all pending
applications therefor and interests thereunder, all real estate and interests
therein (including, but not limited to, fee interests, reversions and
leaseholds), buildings, construction in progress, vehicles, machinery,
equipment, computers and related software, inventories of raw materials, work in
process, finished products on hand and in transit, fixtures, rights under
contracts and agreements, purchase and sale contracts, financial and commercial
books and records of Sellers and the Subsidiaries in any form, administrative
guidelines, employee manuals, internal procedural guides and memoranda,
personnel records, warranty records, purchase and supply forms, sales
literature, customer lists and good will. In addition to the foregoing, the
Assets shall include all of the right, title and interest of Big Three
International, Inc., a corporation organized under the laws of the U.S. Virgin
Islands (the "ALAC FSC"), in and to the trade receivables relating to the
Business held by the ALAC FSC on the Closing Date (the "Trade Receivables") and,
at the Closing, ALAC shall cause the ALAC FSC to sell, transfer, convey, assign
and deliver to Buyer the Trade Receivables.
(b) Each such sale, conveyance, assignment, transfer and delivery
will be effected by delivery at the Closing by Sellers to Buyer of (i) a duly
executed bill of sale in the form of Exhibit 1.1(b)(i) hereto, (ii) duly
executed limited warranty deeds containing a covenant against grantor's acts (or
substantially the equivalent thereof) in such form as may be appropriate for the
jurisdiction in which the real properties constituting part of the Assets are
located, (iii) certificates representing all of the issued and outstanding
capital stock of the Subsidiaries, together with duly executed stock powers
executed in blank in such form as may be appropriate for the jurisdiction in
which each such Subsidiary is organized, and (iv) such other good and sufficient
instruments of conveyance, transfer and assignment as shall be reasonably
necessary to vest in Buyer all of Sellers' right, title and interest in and to
the Assets to be purchased by Buyer from Sellers pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Sellers are
not selling to Buyer and Buyer is not purchasing from Sellers any of the assets
set forth on Exhibit 1.1(c) hereto or any other assets of Sellers which are
expressly excluded pursuant to the terms hereof (collectively, the "Excluded
Assets"). In addition, to the extent that Buyer shall have provided notice to
Sellers pursuant to Section 1.1(d) hereof on or before the date which is two
business days prior to the Closing Date that Buyer has determined that any of
the real properties set forth on Schedule 1.1(c) hereto (the "Post-Closing
Properties") does not constitute an Approved Property (as defined in Section
1.1(e) hereof), Sellers shall hold, and shall not otherwise dispose of, such
Post-Closing Property pending the possible subsequent sale to Buyer in
accordance with Section 1.1(d) and, until such time, if any, as each such
Post-Closing Property is sold by Sellers to Buyer in accordance with Section
1.1(d) hereof, such Post-Closing Property shall constitute an Excluded Asset and
the liabilities associated therewith shall constitute Excluded Liabilities (as
defined in Section 1.4(c) hereof). If, with respect to any Post-Closing
Property, Buyer shall not have notified Sellers at least two business days prior
to the Closing Date pursuant to Section 1.1(d) that Buyer has determined that
such Post-Closing Property does not constitute an Approved Property, such
Post-Closing Property shall constitute an Approved Property and shall be
included in the Assets and shall be transferred to Buyer pursuant to Section
1.1(a) and 1.1(b) hereto.
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<PAGE> 7
(d) During the period commencing on the date hereof and ending on
the date which is two business days prior to the Closing Date, Buyer shall
promptly identify to Sellers by notice in writing any Post-Closing Property
which Buyer has determined does not constitute an Approved Property and Buyer
shall include in such written notice Buyer's good faith basis for such
determination. Any Post-Closing Property which has not been so identified to
Sellers by Buyer prior to the date which is two business days prior to the
Closing Date shall be deemed to be an Approved Property. Upon receipt by Sellers
of any such written notice by Buyer that any Post-Closing Property does not
constitute an Approved Property, Sellers shall use economically reasonable
efforts, at Sellers' expense, to cause each such Post-Closing Property to become
an Approved Property as promptly as practicable.
(e) Within five business days of the date on which Buyer shall
notify Sellers in writing that any Post-Closing Property has become an Approved
Property, Sellers shall sell to Buyers, and Buyers shall purchase from Sellers,
such Post-Closing Property at the purchase price set forth opposite the name of
such Post-Closing Property on Schedule 1.1(c) hereto by delivery by Sellers to
Buyer of a deed in accordance with the provisions of Section 1.1(b)(ii) hereof
and by wire transfer of such purchase price in immediately available funds by
Buyer to Sellers' account designated in writing to Buyer. If any Post-Closing
Property shall not have become an Approved Property on or prior to June 30,
1997, Buyer shall have no further rights to purchase from Sellers, and Sellers
shall have no further obligations to sell to Buyer, such Post-Closing Property.
For purposes of this Agreement, an "Approved Property" shall mean any
Post-Closing Property as to which Buyer determines, acting in good faith and in
a commercially reasonable manner, that it has received (i) evidence reasonably
satisfactory to it that a reputable title insurance company will issue at
ordinary rates a title insurance policy insuring such title to such Post-Closing
Property as may be reasonably acceptable to Buyer, and (ii) such reports from
environmental consultants or engineers relating to such Post-Closing Property as
may be reasonably acceptable to Buyer.
(f) Subject to Buyer's rights under Article V hereof and subject
to the provisions of Sections 1.1(d) and (e) hereof respecting the Post-Closing
Properties, any property or asset of Sellers otherwise constituting an Asset and
any contract, lease or other instrument, document or agreement to be assigned or
otherwise transferred to Buyer hereunder, the assignment or other transfer or
the attempted assignment or other transfer of which would be invalid or
ineffective or would constitute a breach or default of an agreement or
commitment to which either of Sellers is a party or is bound, unless the consent
or approval of another person or entity to such assignment or other transfer
shall have first been obtained, shall not be assigned or otherwise transferred
under this Agreement, and the provisions of this Agreement shall not constitute
an attempt to assign or transfer, unless and until such consents shall have been
obtained; provided that each of Sellers shall use their respective best efforts
to obtain such consents or approvals, and, until such consents or approvals
shall have been obtained, such property, asset, contract, lease or other
instrument, document or agreement, or the net proceeds thereof, shall be held
and/or received by Sellers for the benefit and account of Buyer. Each of Sellers
hereby designates Buyer to act as the attorney-in-fact and agent for Sellers, in
the name of Sellers, or otherwise as Buyer deems appropriate, in order to obtain
for Buyer the net benefits flowing from ownership of such
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<PAGE> 8
property, asset, contract, lease or other instrument, document or agreement, and
each of Sellers shall, without further consideration therefor, pay, assign and
remit to Buyer promptly all monies, rights and other consideration received in
respect thereof. Each of Sellers shall exercise or exploit the rights and
options under each such property, asset, contract, lease or other instrument,
document or agreement only as reasonably directed in writing by Buyer and at
Buyer's sole expense and shall indemnify and hold harmless Buyer against any
losses, claims, damages or expenses arising out of, resulting from, or relating
to, any actions taken by Sellers in connection therewith which Buyer did not so
direct. If and when any such consent shall be obtained or such property, asset,
contract, lease or other instrument, document or agreement shall otherwise
become assignable, each of Sellers shall promptly assign all its rights and
obligations thereunder to Buyer without payment of further consideration and
Buyer shall, without the payment of any further consideration therefor, assume
such rights and obligations. Buyer agrees to reimburse Sellers for amounts paid
by Sellers pursuant to the terms of any contract, lease or other instrument,
document or agreement which relates to Sellers' ownership or other rights to
such property, asset, contract, lease, or other instrument, document or
agreement until such time as the same shall be properly transferred to Buyer in
accordance with the terms of this Agreement.
1.2. Payment of Purchase Price. In consideration for the sale of the
Assets, Buyer shall pay to Sellers on the Closing Date, in immediately available
funds, by wire transfer to the account or accounts designated by Sellers not
later than three days prior to the Closing Date, an aggregate of $75,000,000
less the aggregate of the purchase prices set forth opposite the name of each
Post-Closing Property on Schedule 1.1(c) which, as of the Closing Date, does not
constitute an Approved Property (the "Purchase Price"). To the extent that a
portion of the Purchase Price is attributable to the Trade Receivables assigned
to Buyer by the ALAC FSC, Sellers are authorized to receive such portion of the
Purchase Price as custodian for the ALAC FSC.
1.3. Closing Date Net Assets Schedule.
(a) Within thirty (30) days after the Closing Date, Sellers shall
prepare and deliver to Buyer a schedule of the Assets and Assumed Liabilities as
of the Closing Date, substantially in the form of Schedule 1.3(a) hereto (the
"Closing Date Net Assets Schedule"). The Closing Date Net Assets Schedule shall
be prepared by Sellers by utilizing the audited consolidated and combined
balance sheet of Sellers, the Subsidiaries and Sellers' related portion of the
ALAC FSC as of September 30, 1996 (the "September 30, 1996 Audited Balance
Sheet") and (i) creating a schedule of Assets and Assumed Liabilities as of
September 30, 1996 (the "September 30, 1996 Net Assets Schedule") by deleting
therefrom the Excluded Assets and the Excluded Liabilities, including, without
limitation, the liabilities identified with an asterisk (*) on Schedule 1.3(a)
hereto, and including, without limitation, any amounts reflected on the
September 30, 1996 Audited Balance Sheet in respect of shareholder's equity and
(ii) reflecting all changes with respect to the Assets and Assumed Liabilities
that have occurred since October 1, 1996 through the Closing Date on the Closing
Date Net Assets Schedule, all in accordance with United States generally
accepted accounting principles as applied consistently in the September 30, 1996
Audited Balance Sheet except that there will be no change from the September 30,
1996 Audited Balance
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<PAGE> 9
Sheet in the last-in-first-out (LIFO) reserve for inventory for the period from
October 1, 1996 through the Closing Date.
(b) If Buyer disagrees with any of the items or amounts set forth
on the Closing Date Net Assets Schedule, it may, within thirty (30) days after
the delivery of the Closing Date Net Assets Schedule, deliver a notice to
Sellers (the "Disagreement Notice"), specifying, in reasonable detail, those
items or amounts set forth in the Closing Date Net Assets Schedule as to which
Buyer disagrees and the reasons for such disagreement. Buyer shall be deemed to
have agreed with all other items and amounts contained in the Closing Date Net
Assets Schedule other than those specified in such Disagreement Notice. If Buyer
does not file a Disagreement Notice with Sellers within such thirty (30)-day
period, the Closing Date Net Assets Schedule shall become final and binding upon
Buyer and Sellers for all purposes, including, without limitation, the
determination of Net Assets (as defined below) and the Assumed Liabilities
pursuant to this Section 1.3 and Section 1.4 hereof, respectively.
(c) If a Disagreement Notice is delivered to Sellers pursuant to
this Section 1.3, the parties shall use their best efforts to reach agreement on
the disputed items or amounts, which in no event shall be more favorable to
Sellers than reflected in the Closing Date Net Assets Schedule or more favorable
to Buyer than reflected in the Disagreement Notice. If the parties do not
resolve all disputed liabilities within twenty (20) business days after delivery
of the Disagreement Notice, this Agreement and the disputed items or amounts
will be submitted to an independent nationally recognized accounting firm
without any material financial relationship to either Buyer or its Affiliates or
Sellers or their respective Affiliates, as mutually selected by Sellers and
Buyer (the "Independent Accountants") for resolution pursuant to this Section
1.3. The written report of the Independent Accountants (the "Report") shall be
delivered to Sellers and Buyer promptly, but in no event later than thirty (30)
days after such disputed items or amounts are submitted to the Independent
Accountants, and shall be final, conclusive and binding upon the parties. The
procedures for resolution of disputes concerning the Closing Date Net Assets
Schedule set forth in Section 1.3(d) hereof and this Section 1.3(e) are intended
to be final and exclusive of any other contest or appeal in relation thereto, so
that if (i) Buyer shall have failed to give the Disagreement Notice or (ii)
having given the Disagreement Notice, Buyer subsequently reaches agreement with
Sellers on the disputed items or amounts or (iii) no such agreement is reached
and the matter is submitted to the Independent Accountants and they issue the
Report, then, in all such cases, neither party shall be entitled to subject such
agreement or the Report, or any dispute relating thereto, to appeal to any court
or tribunal. The fees and expenses of the Independent Accountants shall be borne
equally by Sellers, on the one hand, and Buyer, on the other hand.
Notwithstanding anything to the contrary contained herein, Buyer shall not have
the right to dispute any item or amount set forth on the September 30, 1996
Balance Sheet.
(d) From the Closing Date until the final determination by the
Independent Accountants, Sellers and the Independent Accountants, if any, will
have access to the Business, the respective books and records and the respective
employees who are responsible for financial matters, at reasonable times and
upon reasonable prior written notice, in order to assist in such determination.
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<PAGE> 10
(e) If the Net Assets (defined as the Assets less the Assumed
Liabilities) as set forth on the Closing Date Net Assets Schedule as finally
determined pursuant to Sections 1.3(a), (b) and (c) hereof are:
(i) less than the Net Assets as set forth on the
September 30, 1996 Net Assets Schedule, Sellers will
promptly deliver to Buyer a wire transfer of
immediately available funds in an amount equal to the
difference between the Net Assets set forth on the
September 30, 1996 Net Assets Schedule and the Net
Assets as set forth on the Closing Date Net Assets
Schedule as an adjustment downwards to the Purchase
Price paid at Closing; and
(ii) more than the Net Assets set forth on the September
30, 1996 Net Assets Schedule, Buyer will promptly
deliver to Sellers a wire transfer of immediately
available funds in an amount equal to the difference
between the Net Assets as set forth on the Closing
Date Net Assets Schedule and the Net Assets as set
forth on the September 30, 1996 Net Assets Schedule
as an adjustment upwards to the Purchase Price paid
at Closing.
1.4. Assumption of Certain Liabilities.
(a) At the Closing, Buyer shall assume all of the liabilities
of each of Sellers with respect to the Business of any nature whatsoever
existing on the Closing Date; provided, however, that any liabilities of Sellers
and the Subsidiaries which are (i) not reflected on the Closing Date Net Assets
Schedule, (ii) otherwise expressly assumed pursuant to the terms hereof, or
(iii) liabilities in respect of the Excluded Assets, shall not be assumed by
Buyer but shall remain the obligation of Sellers and the Subsidiaries and any
purported assignment or assumption of such liabilities shall be null and void ab
initio (collectively, the "Assumed Liabilities"). Such assumption of the Assumed
Liabilities will be effected by delivery at the Closing by Buyer to Sellers and
ALAC of an undertaking in the form of Exhibit 1.4(a) hereto.
(b) Notwithstanding the proviso in Section 1.4(a), the Assumed
Liabilities shall include any liabilities in respect of the Assets or the
Business (other than the Excluded Liabilities and liabilities in respect of the
Excluded Assets) (i) first accruing or arising on or after the Closing Date
including, without limitation, any such liabilities first arising under any
contract, lease, commitment or other agreement which is being assigned to Buyer
hereunder as part of the Assets and (ii) all liabilities of Sellers in the
nature of accounts payable which are not reflected on the Closing Date Net
Assets Schedule and which were incurred on or prior to the Closing in the
ordinary course of the Business and which exist as of, or arise after, the
Closing Date but only up to a maximum aggregate amount of all such liabilities
of $75,000.
(c) Notwithstanding anything herein to the contrary, except
for the Assumed Liabilities, Buyer is not assuming any of the liabilities of
Sellers or the Subsidiaries, including without limitation, liabilities with
respect to the environmental condition of the Assets as of the Closing Date
(collectively, the "Excluded Liabilities").
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1.5. Closing. Subject to the conditions set forth in Articles V and VI
hereof, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of ALAC, 2700 Post Oak Boulevard,
Houston, Texas at 10:00 a.m. on the last business day of the calendar month in
which any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), shall have expired or been terminated, or
on such other date as may be mutually agreed upon by the parties hereto (the
"Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND ALAC
Each of Sellers and ALAC represents and warrants to Buyer as follows:
2.1. Organization of Sellers, ALAC and the Subsidiaries. Each of
Sellers, ALAC and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of Sellers and the Subsidiaries has full corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of Sellers and the Subsidiaries is duly licensed or
qualified to do business and in good standing in each jurisdiction in which the
character of its properties or the nature of its business requires it to be so
licensed or qualified, except where the failure to be so licensed or qualified
would not have a material adverse effect on the financial condition, business or
results of operations of the Business, taken as a whole, or on the ability of
Sellers to consummate the transactions contemplated hereby (a "Material Adverse
Effect"). Prior to the date of this Agreement, each of Sellers and the
Subsidiaries has delivered to Buyer true, correct and complete copies of its
Certificate of Incorporation and Bylaws as presently in effect and of the
constitutive documents of the Subsidiaries as presently in effect.
2.2. Ownership of Sellers' Shares. ALAC owns, beneficially and of
record, all of the issued and outstanding capital stock of the Parent
Corporation; the Parent Corporation owns, beneficially and of record, all of the
issued and outstanding capital stock of the Operating Company; and the Operating
Company owns, beneficially and of record, all of the issued and outstanding
shares of capital stock of the Subsidiaries.
2.3. Authorization, Etc. Each of Sellers and ALAC has the power and
authority to enter into this Agreement and all other agreements or instruments
executed and delivered or to be executed and delivered by any of them in
connection with the transactions contemplated hereby (collectively, the
"Collateral Agreements"), all of which are listed in Schedule 2.3 hereto, and to
carry out the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Collateral Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
the respective Boards of Directors of Sellers and by the Executive Committee of
the Board of Directors of ALAC, and by ALAC and the Parent Corporation as the
sole shareholder of the Parent Corporation and the Operating Company,
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<PAGE> 12
respectively, in conformity with applicable law and their respective
Certificates of Incorporation and Bylaws, and no other corporate proceedings on
the part of any of Sellers or ALAC are necessary to authorize the execution or
delivery of this Agreement or the Collateral Agreements or the consummation of
the transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by each of Sellers and ALAC and is a valid and binding
obligation of, and enforceable in accordance with its terms against, each of
Sellers and ALAC, except as such enforceability may be limited by general
principles of equity and subject to bankruptcy or other laws relating to or
affecting the rights of creditors generally. Each of the Collateral Agreements
to which any of Sellers or ALAC is or will be a party has been duly executed and
delivered by each of Sellers and ALAC and is, or upon execution and delivery
thereof will be, a valid and binding obligation of, and enforceable in
accordance with its terms against, each of Sellers or ALAC, as the case may be,
except as such enforceability may be limited by general principles of equity and
subject to bankruptcy or other laws relating to or affecting the rights of
creditors generally.
2.4. No Consent. Except for filings, if any, required under the HSR Act
and except as set forth on Schedule 2.4 hereto, neither the execution, delivery
or performance by Sellers or ALAC of this Agreement or any Collateral Agreement
to which any of them is or will be a party, nor the consummation of the
transactions contemplated hereby or thereby, will require any Permit (as defined
in Section 2.16 hereof) or other order or action of, or notice to, or
declaration, filing or registration with, any third party or any governmental
body, or other regulatory or administrative authority, agency, bureau or
commission, domestic or foreign ("Governmental Agency").
2.5. No Violation. Neither the execution, delivery or performance by
Sellers or ALAC of this Agreement or the Collateral Agreements to which any of
them is or will be a party, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate, conflict with or result in a
breach of any provision of the Certificates of Incorporation or Bylaws of
Sellers, the Subsidiaries or ALAC, or (ii) violate, breach or be in conflict
with, or constitute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or permit the termination of, or
accelerate the performance required by, or cause the acceleration of the
maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any liens, mortgages, charges, security interests or encumbrances
(collectively, "Liens") upon any property or assets of Sellers, the Subsidiaries
or ALAC under, any contract, lease, sublease, loan agreement, note or other
instrument or obligation, or any Permit, in each case to which any of Sellers,
the Subsidiaries or ALAC is a party or by which any of Sellers, the Subsidiaries
or ALAC or any Asset is bound, or (iii) violate any order, writ, injunction,
decree, judgment, ruling, law, statute, rule or regulation of any Governmental
Agency (collectively, "Laws"), applicable to the Business, Sellers, the
Subsidiaries or ALAC or by which Sellers, the Subsidiaries or ALAC or any of
Sellers', the Subsidiaries' or ALAC's properties or assets is bound, excluding
from the foregoing clauses (ii) and (iii) violations, breaches, defaults,
terminations, accelerations and creations which would not have a Material
Adverse Effect.
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<PAGE> 13
2.6. Subsidiaries.
(a) Except for the direct or indirect ownership of the stock of
the Subsidiaries listed on Schedule 2.6 hereto, neither of Sellers nor any of
the Subsidiaries owns, directly or indirectly, any outstanding capital stock of,
or other equity or ownership interest in, or securities convertible into or
exchangeable for, or options, warrants or other rights to purchase or subscribe
to, capital stock or other equity or ownership interests in, any firm,
corporation, limited liability company, joint venture, general or limited
partnership or other entity, and neither of Sellers nor any of the Subsidiaries
has any contracts, commitments, agreements, understandings or arrangements of
any kind relating to the acquisition or purchase of any such capital stock or
other equity or ownership interest or any such convertible or exchangeable
securities, or any such options, warrants or rights. Notwithstanding anything to
the contrary contained herein, the parties agree that the shares of capital
stock or other securities of Sanstorm, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Parent Corporation, shall be retained by the
Parent Corporation and shall be an Excluded Asset for purposes of this Agreement
and nothing contained in this Agreement shall be construed as affecting Sellers'
or ALAC's rights or obligations in connection with the ownership of Sanstorm,
Inc. in any manner whatsoever.
(b) The ownership of the shares of the Subsidiaries listed on
Schedule 2.6 hereto (the "Subsidiary Shares") is as set forth on Schedule 2.6
hereto. The Operating Company owns the Subsidiary Shares set forth on Schedule
2.6 hereto free and clear of any Liens. The Subsidiary Shares together
constitute all of the issued and outstanding capital stock of the Subsidiaries.
The Subsidiary Shares have been duly authorized and validly issued and are fully
paid and non-assessable. There are no agreements or commitments by or with
Sellers, any of the Subsidiaries or any third party for the repurchase, purchase
or sale of any capital stock of any of the Subsidiaries, and there are no
options, warrants or other rights to purchase any capital stock of any of the
Subsidiaries or any securities convertible into such capital stock.
2.7. Financial Statements. Schedule 2.7 hereto sets forth the unaudited
consolidated and combined balance sheet of Sellers and the Subsidiaries, and
Sellers' related portion of the ALAC FSC, at December 31, 1995 ("Sellers'
Balance Sheet"), and the related statements of income and cash flows for the
year then ended (together with Sellers' Balance Sheet, "Sellers' Financial
Statements"). Schedule 2.7 hereto also sets forth the audited consolidated and
combined balance sheet and related footnotes at September 30, 1996 and the
related unaudited statement of income for the nine months then ended (the
"Interim Financial Statements") of Seller, the Subsidiaries and Sellers' related
portion of the ALAC FSC. The Financial Statements and the Interim Financial
Statements have been prepared from the books and records of Sellers, the
Subsidiaries and Sellers' related portion of the ALAC FSC and present fairly the
financial position, results of operations and cash flows for the periods
indicated, in each case in accordance with United States generally accepted
accounting principles consistently applied, during such periods except: (i)
Sellers did not adopt Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS 109"), which is required in order to conform
with generally accepted accounting principles, (ii) the Financial Statements do
not contain all financial statements or footnote disclosures required under
generally accepted accounting principles and (iii) the above
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<PAGE> 14
referenced unaudited statements of income have been prepared based on a
first-in-first-out (FIFO) basis and do not include any adjustments under the
last-in-first-out (LIFO) method of accounting for inventory while the
above-referenced balance sheets have been prepared in accordance with the
last-in-first-out (LIFO) method of accounting. Adjustments arising out of the
preparation of the September 30, 1996 Audited Balance Sheet that do not relate
to either the December 31, 1996 or September 30, 1996 income statement period
are not included in such income statements.
2.8. No Undisclosed Liabilities, Etc. None of Sellers or any of the
Subsidiaries has or will have any liabilities (whether absolute or contingent)
which are not or will not be reflected in the Interim Financial Statements or
the Closing Date Net Assets Schedule, as the case may be, except (i) matters
expressly identified or referred to in any Exhibit or Schedule, (ii) matters
which are not required to be expressly so identified or referred to in any such
Exhibit or Schedule by reason of any express limitation or exclusion in any
representation, warranty, covenant, agreement or undertaking contained in this
Agreement, and (iii) contingent liabilities or obligations arising after
September 30, 1996 in the ordinary course of business of the Business, and not
required, in accordance with United States generally accepted accounting
principles, to be reflected in the Interim Financial Statements or the Closing
Date Net Assets Schedule.
2.9. Absence of Certain Changes.
(a) Since September 30, 1996, (i) there has not been any material
adverse change in any of the relations with any suppliers or customers of the
Business, (ii) there has not been any change or event that would have a Material
Adverse Effect, and (iii) Sellers have conducted the Business in the ordinary
course consistent with past practice, including without limitation billing,
shipping and collection practices, marketing and sales practices, inventory
transactions and payment of accounts payable.
(b) Without limiting the generality or effect of the foregoing,
since September 30, 1996, neither of Sellers nor any Subsidiary has (i)
declared, set aside or paid any dividend or made any distribution on or with
respect to shares of its capital stock; (ii) made any cash payments to any of
its affiliates or subsidiaries; (iii) entered into any agreement or letter of
intent relating to any merger, consolidation, recapitalization or other business
combination or reorganization; (iv) sold, transferred, licensed, failed to keep
in effect or otherwise disposed of any intellectual property; (v) waived,
released, granted or transferred any rights of material value or modified or
changed in any material respect any existing contract or other agreement, other
than in the ordinary course of business consistent with past practice; (vi)
failed to continue its existing practices, or to change such practices if
required to comply with applicable Law, relating to repair and maintenance of
the assets owned, leased or otherwise held by Sellers or any Subsidiary; (vii)
purchased, sold, leased or disposed of, or subjected to Lien, any assets owned,
leased or otherwise held by Sellers or any Subsidiary other than in the ordinary
course of business consistent with past practice; (viii) created, incurred or
assumed any indebtedness for borrowed money; (ix) assumed, guaranteed, endorsed
or otherwise become liable or responsible (whether directly, contingently or
otherwise for the obligations or liabilities of any other person or entity in
excess of $25,000, except for endorsements of negotiable instruments in the
ordinary course
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of business consistent with past practice; (x) except as set forth in Schedule
2.9(b)(x) hereto, granted any severance or termination pay or benefit in excess
of $5,000, other than in accordance with policies or agreements of Sellers or
any of the Subsidiaries in effect on the date hereof; (xi) adopted, enacted,
authorized, ratified, approved, caused or suffered to exist any material
increase in the compensation or benefits of any employee, former employee,
independent contractor, director or former director (other than normal periodic
increases in the ordinary course of business that are made in accordance with
established policies or as required pursuant to any contract or arrangement
listed in Schedule 2.15(a) hereto and other than the contracts listed on
Schedule 2.9(b)(xi) hereto); (xii) adopted, enacted, authorized, ratified,
approved, caused or suffered to exist any material amendment, modification,
implementation or termination of any Benefit Plan (as defined in Section 2.15(b)
hereof) other than any such amendment, modification, implementation or
termination required under applicable Law or the terms of a Benefit Plan or any
collective bargaining agreement set forth on Schedule 2.15(a) hereto; (xiii)
adopted, enacted, authorized, ratified, approved, caused or suffered to exist
any material amendment, modification, implementation or termination of any
collective bargaining agreement set forth in Schedule 2.15(a) hereto, other than
any such amendment, modification, implementation or termination required under
applicable Law or under the terms of any Benefit Plan or such collective
bargaining agreement; (xiv) except as set forth in Schedule 2.9(b)(xiv) hereto,
made commitments for any single capital project which would exceed $25,000 in
capital expenditures; (xv) except as set forth in Schedule 2.9(b)(xv) hereto,
entered into any employment contract with respect to the performance of personal
services which is not terminable at will without liability or penalty; (xvi)
received directly or indirectly any equity contribution; (xvii) entered into any
contract with respect to any of the foregoing; or (xviii) undertaken any action
or activity or failed to take any action which would result in any violation or
breach of any representation, warranty or covenant of Sellers or ALAC contained
herein.
(c) Without limiting the generality or effect of the foregoing,
since December 31, 1995, neither of Sellers has: (i) made any change in any
method of accounting or accounting practice, except as may be required by Law or
by United States generally accepted accounting principles; (ii) made, changed or
revoked any election with respect to taxes except where the election does not
affect Buyer; (iii) made any loans, advances or capital contributions to or
investments in any person or entity, other than to any supplier or customer as
an extension of credit in the ordinary course of business consistent with past
practice; or (iv) entered into any contract or other agreement with respect to
any of the foregoing.
2.10. Taxes.
(a) Each of Sellers and the Subsidiaries, either on a separate
basis or as a member of an affiliated group on a consolidated basis, has filed
all Tax Returns (as defined below) required to be filed by it, such Tax Returns
were correct and complete in all material respects and each of Sellers and the
Subsidiaries has paid all Taxes (as defined below) shown to be due on such Tax
Returns, except where the failure to file Tax Returns or to pay Taxes would not
have a Material Adverse Effect. Except as described in Schedule 2.10(a) hereto,
there are no material disputes, claims, actions or proceedings currently pending
or threatened against any Asset or the
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Sellers or the Subsidiaries by any governmental authority for the assessment or
collection of Taxes, no claim for the assessment or collection of Taxes has been
asserted against Sellers or the Subsidiaries, and there are no audits of Sellers
or the Subsidiaries by any governmental authority in respect of Taxes. Except as
described in Schedule 2.10(a) hereto, there are no agreements by Sellers or the
Subsidiaries for an extension of time for the assessment or payment of any Taxes
or for the filing of any Tax Return, or waivers of a statute of limitations by
Sellers or the Subsidiaries in respect of Taxes.
(b) The term "Tax" and "Taxes" shall mean any federal, state,
local, foreign or other taxes, assessments, deficiencies, fees, levies, social
security obligations, withholdings, customs duties or other governmental
charges, from time to time imposed by or required to be paid to any governmental
authority (including penalties and additions to tax thereon, penalties for
failure to file a return or report, and interest on any of the foregoing).
(c) The term "Tax Return" shall mean any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto.
(d) None of Sellers and the Subsidiaries has filed a consent
under Section 341(f) of the Code concerning collapsible corporations. None of
Sellers and the Subsidiaries has made any material payments, is obligated to
make any material payments, or is a party to any agreement that under certain
circumstances could obligate it to make any material payments that will not be
deductible under Section 280G of the Code. None of Sellers and the Subsidiaries
has been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. None of Sellers and the Subsidiaries is a party to
any Tax allocation or sharing agreement other than those which are statutorily
required.
(e) The unpaid income taxes of Sellers and the Subsidiaries
(including, but not limited to, any liability for Taxes of any person under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law) as transferee or successor by contract or otherwise) (A) did not,
as of the most recent fiscal month end, exceed by any material amount the
reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and tax income) set forth
on the face of the Interim Balance Sheet (rather than in any notes thereto) and
(B) will not exceed by any material amount such reserve as adjusted for
operations and transactions through the Closing Date in accordance with the past
custom and practice of Sellers and the Subsidiaries in filing their income Tax
Returns.
2.11. Title to Assets. Each of Sellers and the Subsidiaries has good and
marketable fee or leasehold title to, or a leasehold interest in, all of the
Assets (in the case of Sellers) and the assets of the Subsidiaries (in the case
of the Subsidiaries), free and clear of all Liens other than (i) mechanics',
carriers', workers', repairmen's or other like Liens (inchoate or otherwise)
arising or incurred in the ordinary course of business in respect of obligations
which are not overdue; (ii) reservations, conditions, rights of way, covenants,
restrictions and utility easements of record
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<PAGE> 17
encumbering the real property constituting part of the Assets and the real
property constituting part of the assets of the Subsidiaries which are not
violated by the existing use thereof or the improvements thereon in any material
respect; (iii) zoning ordinances which are not violated by the existing use
thereof or the improvements thereon in any material respect; (iv) estimated ad
valorem property taxes on the real property constituting part of the Assets and
the real property constituting part of the assets of the Subsidiaries to become
due for the year 1996, which taxes shall be prorated as of the Closing Date in
accordance with Section 4.9 hereof; (v) any state of facts an accurate survey
may show, provided same does not render title unmarketable in any material
respect; and (vi) variations between record lines of title and fences, shrubs
and other enclosures which are not material and do not impair the present use of
the property (collectively, "Permitted Liens"). All of the assets leased by
Sellers and the Subsidiaries are leased pursuant to leases set forth in Schedule
2.11 hereto. Each of Sellers agrees to use its best efforts to obtain the
consent of all lessors under the leases set forth in Schedule 2.11 hereto to the
consummation of the transactions contemplated by this Agreement without
requiring modification in the rights or obligations of the lessee under such
leases.
2.12. Properties.
(a) The tangible personal property constituting a part of the
Assets or assets of the Subsidiaries and, in each case, currently being actively
used in the Business is in good working condition, normal wear and tear
excepted, capable of being used safely and efficiently for its intended purpose.
(b) Schedule 2.12(b) hereto sets forth an accurate list and
summary description of all real property owned by either of Sellers or the
Subsidiaries or otherwise used in the Business (the "Real Property"), a brief
description of all plants located thereon, a list of all places of business
maintained by either of Sellers or the Subsidiaries in connection with the
Business, and a description of Sellers' or the relevant Subsidiary's right to
occupy such places of business. Except as otherwise set forth herein, neither of
Sellers nor ALAC makes any representation or warranty as to the condition of the
Real Property, plants and places of business, and Buyer agrees to accept such
real property, plants and places of business "as is."
(c) Schedule 2.12(c) hereto sets forth an accurate list and
summary description of all real property owned or operated by either of Sellers
or the Subsidiaries since October 20, 1986 other than the Real Property listed
in Schedule 2.12(b) hereto and a brief description of all plants or improvements
located thereon.
2.13. Patents, Trademarks, Etc. Schedule 2.13 hereto sets forth all of
the patents, trademarks, service marks, trademark registrations and applications
therefor, trade names, copyrights, and copyright registrations and applications
therefor owned by or registered in the name of either of Sellers or any of the
Subsidiaries in the United States or in which any of Sellers or the Subsidiaries
has any rights by license. Sellers or the Subsidiaries own, or are validly
licensed under, all patents, trademarks, service marks, trade names and
copyrights necessary for the conduct of the Business as now operated, without
known conflict with the rights of others.
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<PAGE> 18
Except as set forth on Schedule 2.13 hereto, each patent registration and
trademark registration and each application therefor listed in Schedule 2.13
hereto is valid, subsisting and in proper form and those registrations material
to the Business have been duly maintained, including by the submission of all
necessary filings in accordance with the legal and administrative requirements
of the jurisdiction of registration. Sellers have no knowledge of, and Sellers
are not currently in receipt of any notice of, any conflict with the asserted
rights of others in such patents, trademarks, service marks, trade names and
copyrights. Sellers have no knowledge of, and Sellers are not currently in
receipt of, any notice of infringement or other complaint that Sellers' or any
of the Subsidiaries' operations traverse or infringe the rights of patents,
trademarks, service marks, trade names or copyrights of others.
2.14. Contracts, Etc. All contracts and commitments of Sellers and each
of the Subsidiaries providing for the payment by Sellers or any of the
Subsidiaries or receipt by Sellers or any of the Subsidiaries of amounts in
excess of $100,000, or with a term extending more than one year after the date
hereof are, as of the date hereof, valid and in full force and effect. To the
knowledge of Sellers, none of Sellers, the Subsidiaries or any other party is in
default, and no event has occurred which, with notice and/or lapse of time,
would constitute a default, under any such contract or commitment. Schedule 2.14
hereto lists all such contracts and commitments as in effect on the date hereof.
2.15. Employees and Employee Benefit Plans.
(a) General. Schedule 2.15(a) hereto contains a true and complete
list of all of Sellers' employees, whether full-time or part-time,
(collectively, the "Employees"). Schedule 2.15(a) hereto also sets forth a
complete and correct list of (i) each defined benefit and defined contribution
plan which is maintained or contributed to by either of Sellers for the
Employees, or to which either of Sellers is required to contribute, with respect
to such Employees; (ii) collective bargaining agreements with labor or trade
unions relating to the Employees; and (iii) except to the extent set forth or
provided under any such collective bargaining agreement, all employment policies
and arrangements, all written employment and consulting agreements to the extent
not otherwise disclosed on a Schedule to this Agreement, written agreements with
respect to leased or temporary employees, executive compensation plans,
incentive compensation plans or arrangements, bonus plans, deferred compensation
agreements, excess benefit plans, vacation plans, death benefit plans, sickness
or disability plans, severance pay plans, educational assistance plans, employee
stock option, stock ownership or stock purchase plans, group life, health and
accident insurance and other plans, agreements, arrangements or commitments,
whether or not legally binding, whether written or oral, and whether express or
implied, of Sellers which benefit the Employees or former employees of Sellers
("Former Employees"), or their dependents, survivors or beneficiaries. All
Employees and Former Employees will be fully paid through the last pay period
ending on or prior to the Closing for services rendered and for ordinary
expenses incurred through the Closing under their respective employment
agreements, if any, or otherwise.
(b) Employee Benefit Plans. Except as set forth in Schedule
2.15(b) hereto, there is no material "employee benefit plan" within the meaning
of Section 3(3) of the Employee
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<PAGE> 19
Retirement Income Security Act of 1974, as amended ("ERISA"), and (to the extent
not otherwise included as an "employee benefit plan") no material stock
ownership, non-cash compensation or other similar plan, program or arrangement
maintained by or for either of Sellers under which either of Sellers has any
material present or future obligation or liability (other than to make current
wage or salary payments) with respect to Employees or Former Employees (all of
which, together with the plans, policies and arrangements set forth in Schedule
2.15(a) hereto, are hereafter referred to as the "Benefit Plans").
(c) Employee Pension Benefit Plans. Each Benefit Plan which
covers Employees generally and which is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) is intended to meet the requirements of
Section 401(a) of the Code and the trust forming part of such plan is exempt
from Federal income tax under Section 501(a) of the Code. A favorable
determination letter has been issued by the Internal Revenue Service ("IRS")
with respect to each such plan or trust and each amendment thereto. Each Benefit
Plan has been administered to date substantially in accordance with the material
provisions of ERISA, the Code, applicable law and the terms and provisions of
all documents, agreements or contracts pursuant to which such plans are
maintained. There have been no material "prohibited transactions" within the
meaning of Section 4975 of the Code or Part 4 Subtitle B of Title I of ERISA.
There is no material dispute, arbitration, claim, suit or grievance, pending or
threatened involving a Benefit Plan and there is no basis for such a claim. None
of the Benefit Plans and no fiduciary thereof have been the direct or indirect
subject of an order or investigation or examination by a governmental or
quasi-governmental agency, and there are no matters pending before the IRS,
Department of Labor or Pension Benefit Guaranty Corporation ("PBGC") with
respect to any Benefit Plan. Sellers have no liability or obligation to provide
post-retirement group insurance benefits to Former Employees or Employees.
(d) Title IV Plans. Neither of Sellers maintains or
contributes to any "multiemployer plan," within the meaning of Section 3(37) of
ERISA which benefits any Employees or Former Employees. Except as a result of
the transactions contemplated by this Agreement, no Benefit Plan of Sellers
which is subject to Title IV of ERISA has been partially or completely
terminated. None of the Assets is subject to (i) any liability or Lien under any
agreement imposing secondary liability on Sellers as sellers of the assets of a
business in accordance with Section 4204 of ERISA or under any other provision
of Title IV of ERISA, (ii) contingent liability under Title IV of ERISA to the
PBGC or to any plan, (iii) a Lien under Section 4068 of ERISA, or (iv) any
liability or Lien with respect to any "accumulated funding deficiency" (whether
or not waived) within the meaning of Section 412 of the Code. The present value
of all "benefit liabilities" (whether or not vested) (as defined in Section
4001(a)(16) of ERISA) under each single employer defined benefit plan of Sellers
did not exceed as of the most recent plan actuarial valuation date, and will not
exceed as of the Closing Date, the then current fair market value of the assets
of such plan. For purposes of determining the present value of benefit
liabilities under any such plan, the actuarial assumptions and methods used
under such plan for the most recent plan actuarial valuation shall be used and
all benefits provided under such plan shall be deemed to be fully vested.
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<PAGE> 20
(e) Documents Provided. Sellers have heretofore delivered to
Buyer true and correct copies of (i) each of the Benefit Plans listed on
Schedule 2.15(b) hereto and all amendments thereto to the date hereof; (ii) each
trust agreement and annuity contract (or any other funding instruments)
pertaining to any of the Benefit Plans, including all amendments to such
documents to the date hereof; (iii) the most recent determination letter issued
by the IRS with respect to each of the employee pension benefit plans described
in Section 2.15(c); (iv) the most recent actuarial valuation report for each of
the current Benefit Plans for which an actuarial valuation report is required to
be prepared; and (v) the most recent Annual Report (IRS Forms 5500 series),
including Schedules A and B and plan audits, if applicable, required to be filed
with respect to each of the Benefit Plans.
(f) Labor Disputes. Except as provided in Schedule 2.15(f)
hereto, no strikes, work stoppages or other labor disputes involving the
Employees are pending or, to the knowledge of Sellers and ALAC, threatened
which, either singly or in the aggregate, could have a Material Adverse Effect.
Except as provided in Schedule 2.15(f), no Employees are represented by any
labor or trade union and, to the knowledge of Sellers and ALAC, no movement to
designate a collective bargaining agent to represent any of the Employees exists
or is threatened. Each of Sellers (i) is in compliance with all applicable Laws
respecting employment, employment practices, terms and conditions of employment
and wages and hours (including, but not limited to, the Worker Adjustment
Retraining Notification Act, the Americans with Disability Act of 1990 and the
Family and Medical Leave Act of 1993 ("FMLA")), in each case, with respect to
current and former officers, Employees, independent contractors and directors of
Sellers and each of the Subsidiaries, (ii) has withheld all amounts required by
Law or by agreement to be withheld from the wages, salaries and other payments
to such officers, Employees, independent contractors and directors of Sellers,
(iii) is not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing, and (iv) is not liable for any
payment to any trust or other fund or to any Governmental Agency, with respect
to unemployment compensation benefits, social security or other benefits for
current and former officers, Employees, independent contractors or directors of
each of Sellers and the Subsidiaries. Schedule 2.15(f) sets forth a list of all
persons who are on leave as of the Closing Date and identifies which persons are
on leave covered by the FMLA and which persons are on leave not covered by the
FMLA.
2.16. Litigation; Compliance with Laws.
(a) None of Sellers or the Subsidiaries is in violation of any
applicable Law, or any permits, memberships, authorizations, consents, waivers,
approvals, registrations, legal status, orders or other approvals and licenses
(collectively, "Permits") held by or applicable to Sellers or any of the
Subsidiaries under any Law or granted by any Governmental Agency, except for
such violations which would not have a Material Adverse Effect. Sellers and the
Subsidiaries have all Permits necessary to conduct the Business as heretofore
conducted by Sellers and the Subsidiaries and a list of such Permits is set
forth in Schedule 2.16(a) hereto.
(b) Except as set forth in Schedule 2.16(b) hereto, there is no
Litigation to which any of Sellers or the Subsidiaries is a party by or before
any (i) court, (ii) Governmental
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<PAGE> 21
Agency or (iii) arbitrator, in each case pending, or to the knowledge of Sellers
and ALAC, threatened, concerning title to the Assets or which, if adversely
determined, would have a Material Adverse Effect, or which questions the
validity of this Agreement or the transactions contemplated hereby. For purposes
of this Agreement, "Litigation" shall mean any action, suit, claim, proceeding,
investigation or governmental inquiry.
2.17. Environmental and Safety Laws.
(a) Except as described on Schedule 2.17, none of Sellers or
the Subsidiaries has received any written notice of violation, hearing,
correction order, cessation order, notice of fine or penalty, notice of proposed
assessment or other written notice from any Governmental Authority that any of
Sellers or the Subsidiaries is not in compliance with Environmental Laws (A)
since January 1, 1991, or (B) which relates to any matters that are not, or have
not been, resolved as of the date hereof.
(b) Except as described in Schedule 2.17 hereto and to the
knowledge of Sellers, there have been no releases (as defined under any
applicable Environmental Laws), and there exists no threat of release of
Hazardous Materials (defined below) ("Releases") (i) by any of Sellers or the
Subsidiaries or (ii) by any other person or entity at, on, in, under, over or in
any way affecting the Real Property, except as customarily occur in the normal
course of the Business and in compliance with Environmental Laws.
(c) Except as described in Schedule 2.17 hereto, none of the
Assets or the assets of the Subsidiaries are being used, or to the knowledge of
Sellers, have been used, to produce, manufacture, process, generate, store, use,
handle, recycle, treat, dispose of, manage, ship or transport Hazardous
Materials, other than as customary in the normal course of the Business and in
compliance with Environmental Laws.
(d) To the knowledge of Sellers, except as set forth in
Schedule 2.17 hereto, there are now no above ground storage tanks as defined in
applicable Environmental Laws, and no underground storage tanks which are
subject to regulation under the underground storage tank regulations issued
pursuant to the federal Resource Conservation and Recovery Act or comparable
state law, located at, on or in, the Real Property. Schedule 2.17 includes a
list of underground storage tanks subject to the underground storage tank
regulations issued pursuant to the federal Resource Conservation and Recovery
Act or comparable state law which have been removed from the ground since
January 1, 1991, or the date when Sellers or the Subsidiary acquired title to
any of the Real Property where any such underground storage tank was located,
whichever is later.
(e) No lien has been imposed on any Real Property by any
Governmental Authority in connection with the presence on or off any Real
Property of any Hazardous Materials.
(f) Except as (x) set forth on Schedule 2.17 hereto and (y)
may have an adverse effect of not more than $50,000 on the Business (unless the
matter is outstanding and unresolved,
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<PAGE> 22
in which case it is included on Schedule 2.17 unless it would have an adverse
effect of not more than $5,000), none of Sellers or the Subsidiaries, or, to
their knowledge, any other person or entity for whose conduct any of them is or
may be held responsible, have: (i) entered into or been subject to any consent
decree, compliance order, or administrative order or other order in connection
with the Business with respect to any facilities or operations on or
contemplated on the Real Property since January 1, 1991; (ii) received a written
notice under a citizen suit provision of any Environmental Law in connection
with the Business or any Real Property or any facilities or operations thereon
which has not been concluded, settled, withdrawn or otherwise finally resolved;
or (iii) received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental condition relating to the Business or any Real Property or any
facilities or operations thereon under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and neither of Sellers nor
the Subsidiaries has any knowledge or information as of the date of this
Agreement reasonably indicating that any of the above events will be
forthcoming.
(g) Except as set forth in Schedule 2.17 hereto and except for
monitoring data required under any applicable permit or regulation, neither of
Sellers nor the Subsidiaries have, since January 1, 1991, (i) reported a Release
pursuant to an Environmental Law, or (ii) filed a notice pursuant to
Environmental Law reporting a violation thereof.
(h) Except as set forth on Schedule 2.17 and to the knowledge
of Seller, there is not presently located at the Real Property (i) any
polychlorinated biphenyl ("PCBs") (other than PCBs in equipment that is not
regulated under the Toxic Substances Control Act) used in hydraulic oils,
transformers or other equipment or substances, or (ii) friable asbestos
containing material that is in need of removal, repair or encapsulation.
(i) For purposes of Section 2.17 the following terms have the
following meanings:
(i) "Environmental Law" means any federal, state or local
law, legislation, ordinance, regulation, rule, code, license, permit,
authorization, judicial or administrative order or injunction of any
Governmental Authority in effect on the Closing Date relating to (A) the
protection, preservation or restoration of the environment (including but not
limited to air, water vapor, surface water, groundwater, drinking water supply,
stormwater runoff, surface land, subsurface land, plant and animal life or any
other natural resource or environmental medium), or (B) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Materials
(defined below), including without limitation the Resource Conservation and
Recovery Act, as amended, the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, the Federal Clean Water Act, as
amended, the Toxic Substances Control Act, as amended, the Hazardous Materials
Transportation Act, as amended, the Occupational Safety and Health Act, as
amended, or corresponding state statutes.
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<PAGE> 23
(ii) "Hazardous material" means any substance presently
listed, defined, designated, controlled or classified as a pollutant or as
hazardous, toxic, radioactive or dangerous, under any Environmental Law
applicable in the jurisdiction in which the substance is present. Hazardous
Material includes, without limitation, any toxic waste, pollutant, contaminant,
toxic substance, hazardous waste, petroleum or any derivative or by-product
thereof, radon, radioactive material, asbestos containing material, urea
formaldehyde foam insulation, lead and PCBs.
2.18. Finders. Neither Sellers nor ALAC has made any agreement with any
person or taken any action which would cause any person to become entitled to
any agent's, broker's or finder's fee or commission in connection with the
transactions contemplated hereby, other than the fees payable by ALAC to J.P.
Morgan & Co. Incorporated in connection herewith.
2.19. Effect of Certain Representations. For purposes of this
Agreement, references to the "knowledge of" any of Sellers, ALAC or the
Subsidiaries shall constitute only references to the actual knowledge of (i) any
executive officer of Sellers, ALAC or the Subsidiaries, (ii) any of the
employees of Sellers, ALAC or the Subsidiaries in charge of a principal business
unit, division or function or (iii) any person within Sellers', ALAC's or the
Subsidiaries' organization to whom such executive officer or employee directly
reports.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers and ALAC as follows:
3.1. Power and Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to enter into and perform this
Agreement and the Collateral Agreements to which it is or will be a party and
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Collateral Agreements to which it is or will be a party
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of Buyer, and no other corporate
action by Buyer is necessary to authorize the execution and delivery of this
Agreement or the Collateral Agreements to which it is or will be a party or the
consummation of the transactions contemplated hereby or thereby. This Agreement,
and the Collateral Agreements to which Buyer is or will be a party, constitute
or, when executed and delivered, will constitute, the legal, valid and binding
obligations of Buyer enforceable against Buyer in accordance with their
respective terms, except as such enforceability may be limited by general
principles of equity and subject to bankruptcy and other laws relating to or
affecting the rights of creditors generally.
3.2. Governmental Consents. Except for filings, if any, required under
the HSR Act, neither the execution, delivery or performance by Buyer of this
Agreement or any Collateral Agreement to which it is or will be a party, nor the
consummation of the transactions
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contemplated hereby or thereby, will require any Permit or other order or action
of, or notice to, or declaration, filing or registration with, any third party
or Governmental Agency.
3.3. No Violation. Neither the execution, delivery or performance by
Buyer of this Agreement or the Collateral Agreements to which it is or will be a
party, nor the consummation of the transactions contemplated hereby and thereby,
will (i) violate, conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of Buyer, or (ii) violate, breach or be
in conflict with, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any Liens upon any property or assets of Buyer
under, any contract, lease, sublease, loan agreement, note or other instrument
or obligation, or any Permit, in each case to which Buyer is a party or by which
Buyer is bound, or (iii) violate any Laws applicable to Buyer or by which Buyer
or any of its properties or assets is bound, excluding from the foregoing
clauses (ii) and (iii) violations, breaches, defaults, terminations,
accelerations and creations which would not have any effect on the ability of
Buyer to perform its obligations under this Agreement.
3.4. Litigation. There is no Litigation to which Buyer is a party by or
before any (i) court, (ii) Governmental Agency or (iii) arbitrator, in each case
pending or, to the knowledge of Buyer, threatened, which seeks to restrain,
enjoin, prevent the consummation of, or otherwise challenge this Agreement, any
of Collateral Agreements or any of the transactions contemplated hereby or
thereby.
3.5. Finders. Buyer has not made any agreement with any person or taken
any action which would cause any person to become entitled to an agent's,
broker's or finder's fee or commission in connection with the transactions
contemplated hereby, other than the fees payable by Buyer to Lehman Brothers in
connection herewith.
ARTICLE IV
COVENANTS
4.1. Preservation of the Business. From the date hereof to the Closing
Date, each of Sellers and ALAC will use its best efforts to cause Sellers and
the Subsidiaries to conduct the Business only in the ordinary course (except as
contemplated to the contrary by this Agreement or as agreed to by Buyer in
writing) and, to the extent consistent with such operation, to use its best
efforts to maintain and preserve Sellers' and the Subsidiaries' present business
organizations intact, keep available the services of Sellers' and the
Subsidiaries' present officers and employees, and preserve and maintain Sellers'
and the Subsidiaries' present relationships with suppliers and customers and
other persons having business dealings and relations with Sellers or any of the
Subsidiaries, as applicable, to follow generally accepted accounting practices
and methods, making ordinary accruals, incurring ordinary liabilities and
expenditures and making ordinary contract
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commitments for capital additions and replacements, merchandise, insurance,
rentals, research and development, and other ordinary expenses, only in the
ordinary course, unless actions out of the ordinary course are expressly agreed
to by Buyer in writing, and to refrain from any of the acts enumerated in
Section 2.9 hereof.
4.2. Sale or Encumbrance of Assets; Sellers' Shares.
(a) From the date hereof to the Closing Date, Sellers shall not
directly or indirectly, (a) sell, pledge, dispose of or encumber any of the
Assets except in the ordinary course of business and consistent with past
practice, or (b) issue, grant or sell, or authorize or propose the issuance of,
or split, combine, reclassify or redeem, purchase or otherwise acquire or
propose the purchase of, any shares of any class of its capital stock or issue
any securities convertible into, or rights to subscribe to, or warrants or
options (including employee stock options) to acquire, or enter into any
contract with respect to the issuance of, any such shares or other convertible
securities, or make any such changes in its equity capital structure.
(b) From the date hereof to the Closing Date, Sellers shall cause each
of the Subsidiaries not to, directly or indirectly, (a) sell, pledge, dispose of
or encumber any material assets owned by it except in the ordinary course of
business and consistent with past practice, or (b) issue, grant or sell, or
authorize or propose the issuance of, or split, combine, reclassify or redeem,
purchase or otherwise acquire or propose the purchase of, any shares of any
class of its capital stock or issue any securities convertible into, or rights
to subscribe to, or warrants or options (including employee stock options) to
acquire, or enter into any contract with respect to the issuance of, any such
shares or other convertible securities, or make any such changes in its equity
capital structure.
4.3. Approvals and Consents. Each of Sellers shall use its best efforts
to promptly obtain and to comply with all requisite statutory or regulatory
approvals, third party consents and other requirements necessary for the valid
and legal consummation of the transactions contemplated hereby.
4.4. Investigations. Sellers shall provide Buyer and its attorneys,
representatives, agents and consultants (including environmental consultants or
engineers) with access to the books, records and properties of Sellers and the
Subsidiaries and to furnish to Buyer such financial and operating data and other
information with respect to the Business and the Assets and the assets of the
Subsidiaries as Buyer shall from time to time reasonably request; provided,
however, that any such investigation shall be conducted in such manner as not to
interfere unreasonably with the operation of the Business.
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4.5. Books and Records; Personnel.
(a) For a period of ten years after the Closing Date, Buyer shall
not dispose of or destroy, or transfer to any place outside the United States,
any of the existing business records and files of Sellers which are transferred
in connection herewith without first offering to turn over possession thereof to
ALAC by written notice to ALAC at least 30 days prior to the proposed date of
such disposition or destruction.
(b) Buyer shall allow ALAC and its agents access to all business
records and files of Sellers which are transferred in connection herewith,
during normal working hours at the principal places of business of Sellers or at
any location where such records are stored, and ALAC shall have the right, at
its own expense, to make copies of any such records and files; provided,
however, that any such access or copying shall be had or done in such a manner
so as not to interfere unreasonably with the normal conduct of the Business.
(c) At ALAC's request and expense, including reasonable
compensation for the time devoted by Buyer's employees, agents, officers or
directors, Buyer shall provide reasonable assistance to Sellers and ALAC in
resolving disputes with third parties relating to the Assets or the Business in
respect of all periods prior to the Closing originating in, or with respect to,
periods prior to the Closing. Such disputes could include, but would not be
limited to, tax audits, environmental issues, commercial liability claims or
similar controversies in which Buyer, or Sellers' former records, could be of
assistance in reaching resolution.
4.6. Excluded Liabilities. Each of Sellers agrees that it will promptly
pay and discharge when due the Excluded Liabilities retained by Sellers,
provided that Sellers shall have the right to contest in good faith any of such
Excluded Liabilities and to assert all rights, remedies and defenses it may have
with respect to the Excluded Liabilities. Nothing contained in this Section 4.6
is intended or shall be construed as granting or creating any right or cause of
action in any person or entity whatsoever that is not a party to this Agreement.
4.7. Employee Plans and Other Matters.
(a) Buyer shall offer to employ each Employee who is actively at
work (or on approved leave) or who has recall rights or rights to re-employment
of any kind on the Closing Date (collectively, the "Transferred Employees") on
terms and conditions which, for a period of ninety days following the Closing
Date, shall be, in the aggregate, substantially similar to those which apply to
such Employee's employment by Sellers immediately prior to the Closing Date;
provided, however, that Buyer shall retain the right to terminate the employment
of any Transferred Employee at any time, subject to the requirements of any
applicable employment agreement, collective bargaining agreement or Law.
Effective as of the Closing Date, Buyer will make arrangements for pension,
retirement, insurance, health, welfare and other employee benefit plans,
policies, programs and practices that provide benefits to the Transferred
Employees and their covered dependents (collectively, the "Participants") which,
for a period of ninety days following the Closing Date, shall be, in the
aggregate, substantially similar to those provided by
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Sellers for the Participants immediately prior to the date hereof. Buyer shall
take, or shall cause to be taken, all action necessary (including the adoption
of plans, insurance contracts or board of directors resolutions) to provide such
employee benefit plans and coverage for the Transferred Employees effective as
of the Closing Date (the "Buyer Plans") as provided in this Section 4.7. Buyer
shall credit such Transferred Employees under the Buyer Plans with all years of
service with Sellers and any ERISA Affiliate to the extent and for the purposes
such service was credited under each of the plans listed on Schedules 2.15(a) or
(b) hereto (the "Seller Plans") prior to the date hereof, including without
limitation, where applicable, for purposes of eligibility to participate in,
vesting or accrual of benefits under any Buyer Plan except that Buyer shall not
be required to credit such service for the accrual of benefits under any Buyer
Plan which is an "employee pension benefit plan," as defined in Section 3(2) of
ERISA. Without limiting the generality of the foregoing, Buyer shall give full
credit to each Transferred Employee for all service with or recognized by
Sellers and any ERISA Affiliate for all purposes (including, without limitation,
the amount of benefits payable) under Buyer's (or its Affiliate's) vacation pay
plan or policy and under the severance plan to be maintained by Buyer or its
Affiliates in accordance with Section 4.7(b). Health benefits provided by Buyer
pursuant to this Section 4.7(a) shall not be subject to any waiting period,
insurability requirement or preexisting condition requirement.
(b) In the event that any Transferred Employee, whose terms and
conditions of employment are not governed by a collective bargaining agreement
or employment contract, is discharged by Buyer within six (6) months after the
Closing Date, Buyer shall make payments to such discharged Transferred Employee
in a manner consistent with the level of severance and other benefits (if any)
that would have been provided to such Person under the severance practices of
Sellers and its ERISA Affiliates as set forth in Schedules 2.15(a) and (b),
regardless of whether such plan becomes effective as a result of the
transactions contemplated by this Agreement.
(c) Each of Sellers agrees that, from and after the Closing, it
shall retain responsibility for, and the term Excluded Liabilities shall
include, all health, welfare and severance claims of the Participants under the
Seller Plans, including (without limitation) all health and medical, short- and
long-term disability, sick pay, life and accident insurance, severance and
workers' compensation claims, incurred prior to the Closing Date under the
Seller Plans or incurred at any time under any other compensation or benefit
plan, program or statutory scheme not listed on Schedule 2.15(a) or 2.15(b)
hereto. Buyer shall assume responsibility for, and the term Assumed Liabilities
shall include, all health, welfare and severance claims incurred by the
Participants, including (without limitation) all health, medical, short- and
long-term disability, sick pay, life and accident insurance, severance and
workers' compensation claims, incurred from and after the Closing under the
Buyer Plans.
(d) Effective as of the Closing Date, Buyer shall assume and
discharge Sellers' liabilities and obligations under the collective bargaining
agreements applicable to any Employee to the extent first arising on or after
the Closing Date.
(e) Buyer agrees to assume responsibility for, and the term
Assumed Liabilities shall include, all obligations first arising from and after
the Closing under the executive contracts
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listed on Schedule 4.7(e)(i) hereto. Seller agrees to retain responsibility for,
and the term Excluded Liabilities shall include, all obligations under the
retention bonus agreements listed on Schedule 4.7(e)(ii) hereto.
(f) All assets of, under or associated with the Benefit Plans
existing as of the Closing shall be Excluded Assets and all liabilities of,
under or associated with the Benefit Plans existing as of the Closing shall be
Excluded Liabilities.
(g) If the Closing Date does not coincide with the last day of the
pay period applicable to one or more Transferred Employees, (i) Buyer shall pay
or cause to be paid (as a payroll agent for Sellers and not as an employer) all
cash compensation payable by Sellers or the Subsidiaries to each such
Transferred Employee for the partial pay period including the Closing Date, (ii)
Buyer shall withhold, deduct or pay or cause to be paid (as a payroll agent for
Sellers and not as an employer) all amounts required to be withheld from,
deducted from or paid by an employer with respect to such cash compensation and
(iii) the Purchase Price under Section 1.2 shall be reduced by the sum of all
amounts paid or caused to be paid by Buyer pursuant to this Section 4.7(g). As
soon as practicable after the Closing Date, Sellers shall provide Buyer all
information necessary for Buyer properly to make all payments required pursuant
to this Section 4.7(g).
4.8. Insurance Policies.
(a) All insurance coverage respecting the Business and the Assets
is maintained under insurance policies of ALAC and from and after the Closing
the Business and the Assets will no longer be covered by such insurance policies
and Buyer acknowledges and agrees that it shall have sole responsibility for
obtaining appropriate insurance with respect to the Business and the Assets from
and after the Closing.
(b) From and after the Closing, to the extent any of the Assumed
Liabilities assumed by Buyer pursuant to this Agreement is paid, discharged or
otherwise provided for by Buyer, which liability is covered by any insurance
contract or similar agreement to which ALAC is a party, ALAC shall make
available to Buyer the benefits of ALAC's rights under any such contract or
agreement, to the full extent permitted by such contract or agreement and funds
received by ALAC in connection therewith shall be promptly paid over to Buyer in
an amount not in excess of the amount of such liability that is paid, discharged
or otherwise provided for by Buyer.
4.9. Prorations; Agreement as to Other Adjustments. Unless otherwise
specified in this Agreement, all income, expenses and costs related to the real
and personal property constituting part of the Assets (the "Property") shall be
prorated, as follows:
(a) All estimated ad valorem real property taxes on the Property
to become due for the fiscal year 1997, regardless of the fiscal year of the
taxes in question, shall be prorated on a calendar year basis. Sellers shall pay
that fraction of such taxes the denominator of which shall
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be 365 and the numerator of which shall be the number of days in the current
calendar year which shall have passed as of the midnight of the date immediately
prior to the Closing Date, and Buyer shall pay the remaining portion of such
taxes. Such taxes shall be estimated using the valuation for the property and
the tax rate effective for the fiscal year beginning January 1, 1997.
(b) All assessments or installments thereof due for the year 1997
shall be prorated on a calendar year basis in accordance with Section 4.9(a)
hereof. All assessments or installments thereof which are attributable to
periods following the Closing Date shall become a Lien on the Property at the
Closing Date or thereafter shall be the responsibility of and be paid by Buyer.
(c) To the extent that the amounts of any of the above items shall
not be available for exact proration as of the Closing, they shall be computed
and settled as part of the determination of any amounts owing between Buyer and
Sellers pursuant to Section 1.3(e) hereof.
(d) The parties hereto recognize that, in addition to the
adjustments provided for elsewhere in this Agreement, there may well be other
matters which should properly be adjusted or prorated as of the Closing Date.
Accordingly, each of the parties hereto agrees to use its best efforts to work
out any such matters and to resolve them in good faith consistent with the
provisions of this Agreement.
(e) Notwithstanding the foregoing, no prorations or adjustments
shall be made under this Section 4.9 in respect of any of the Assumed
Liabilities.
4.10. Assignment of Name. At the Closing, Sellers will deliver to Buyer
a written assignment, in the form of Exhibit 4.10 hereto (the "Trademark
Assignment"), evidencing their assignment to Buyer or to any parent, subsidiary,
affiliate or associate of Buyer, or any successor or assign thereof, of all of
Sellers' rights to the name "Bowen Tools", together with any trade marks, logos
or any variants thereof, and such other names and marks relating to the
operation of the Business or the Assets as are designated in Schedule 2.13
hereto (the "Trademarks"). Each of Sellers agrees that from and after the
Closing Date, Sellers and their respective affiliates will not use or have the
right to use Trademarks in the operation of any business in any geographic area.
At or following the Closing, each of Sellers will execute such consents and
waivers as may be necessary or appropriate in order that Buyer may qualify to do
business in any state using Trademarks. Upon Closing, each of Sellers shall
amend its Certificate of Incorporation to change its name to a name which does
not include the name "Bowen Tools".
4.11. Transfer Tax Obligations. Sellers shall be responsible for
payment of any Taxes imposed on or in connection with the transfer of the Assets
to Buyer hereunder, including, without limitation, any such sales and use Taxes,
value added Taxes, real property title transfer Taxes, securities transfer Taxes
and stamp Taxes. Sellers agree to pay whatever such Taxes are ultimately
determined to be due, and to indemnify Buyer for any liability for such Taxes
(including penalties, additions to tax and interest thereon) imposed on or in
connection with the transfer of the Assets to Buyer hereunder. At Sellers'
request and expense, including reasonable compensation for the
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time devoted by Buyer's employees, agents, officers and directors, Buyer shall
timely provide to Sellers all appropriate certificates evidencing exemption from
sales, use or other similar transfer Taxes and take such other action as Sellers
may reasonably request in order to utilize all available exemptions, deductions
and credits that may be available to reduce the amount of such Taxes payable by
Sellers. Schedule 4.11 hereto sets forth the jurisdictions in which Buyer or its
affiliates shall be required to qualify as a foreign corporation authorized to
do business in such jurisdictions or make such other filings as may be necessary
to achieve the results set forth in the preceding sentence. Buyer shall
indemnify and hold harmless Sellers and ALAC from any additional Taxes paid or
other costs incurred by Sellers or ALAC solely as a result of the failure of
Buyer or its affiliates to comply with its obligations under this Section 4.11.
4.12. Buyer's Assumption of Liabilities. Buyer agrees to pay and
discharge the Assumed Liabilities and to assume and perform all of the
obligations under the terms of any contract or agreement assigned to Buyer as
part of the Assets in accordance with the terms and conditions of such contract
or agreement, provided that Buyer shall be entitled to assert all rights,
remedies and defenses that either of Sellers or Buyer may have with respect to
the performance of such obligations.
4.13. Patent Assignment. Each of Sellers will execute and deliver to
Buyer at the Closing a Patent Assignment in the form of Exhibit 4.13 hereto.
4.14. Allocation of Purchase Price. The parties agree that the
consideration for the sale of the Assets, consisting of the Purchase Price to be
paid in accordance with Section 1.2 hereof, the assumption of the Assumed
Liabilities and all other capitalizable costs, shall be allocated in accordance
with Section 1060 of the Code as agreed upon by the parties prior to the
Closing.
4.15. Best Efforts. Upon the terms and subject to the conditions
hereof, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement and shall use its best efforts to promptly obtain
all waivers, permits, consents and approvals and to effect all registrations,
fillings and notices with or to third parties or governmental or public bodies
or authorities which are in the opinion of Sellers necessary or desirable in
connection with the transactions contemplated by this Agreement, including,
without limitation, filings to the extent required under the HSR Act.
4.16. ALAC Guarantee. ALAC will guarantee for the benefit of Buyer each
of Sellers' obligations under this Agreement and the Collateral Agreements, such
guaranty to be in the form attached hereto as Exhibit 4.16.
4.17. Schedules and Exhibits. From time to time prior to the Closing,
Sellers will promptly supplement or amend the Schedules and Exhibits to this
Agreement with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Schedules or Exhibits to this Agreement. No such
supplement or amendment of the Schedules or Exhibits to this Agreement made
pursuant to this
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Section 4.17 which purports to correct any prior representation or cure the
breach of any prior warranty made in this Agreement shall be deemed to correct
such representation or cure the breach of such warranty for purposes of Section
5.1 and Article VIII of this Agreement, unless specifically agreed to in writing
by the Buyer.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER
TO CONSUMMATE THE TRANSACTION
The obligations of Buyer under this Agreement to be performed at the
Closing shall be subject to the satisfaction, or the waiver in writing by Buyer,
on or prior to the Closing Date of the following conditions:
5.1. Accuracy of Representations and Warranties; Compliance with
Covenants. The representations and warranties of Sellers and ALAC contained in
this Agreement shall be true and correct in all material respects on the Closing
Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date and all of the agreements
of Sellers to be performed on or before the Closing Date pursuant to the terms
hereof shall have been performed in all material respects. Buyer shall have
received a certificate, dated the Closing Date, signed by an appropriate officer
of each of Sellers and of ALAC, certifying that the conditions specified in this
Section 5.1 have been fulfilled.
5.2. Financial Results. Buyer shall have received Sellers' unaudited
statement of income for the year ended December 31, 1996 accompanied by a
certificate in the form attached hereto as Exhibit 5.2 dated as of the Closing
Date and signed by an executive officer of each of Sellers and ALAC, and
Sellers' earnings before interest, income taxes, depreciation and amortization
for such calendar year as reflected in such income statement shall be equal to
or greater than $5,040,000.
5.3. No Injunction. No judgment, order or decree shall have been
rendered in any Litigation which has the effect of (a) enjoining, restraining or
prohibiting the consummation of the transactions contemplated by this Agreement
or any Collateral Agreement, or (b) enjoining, restraining or prohibiting the
transfer of any of the Assets from Sellers to Buyer or requiring Buyer to hold
any assets separately from other assets owned or operated by Buyer.
5.4. Opinion of Counsel. Buyer shall have received the favorable
opinion of Coudert Brothers, counsel to Sellers and ALAC, dated the Closing
Date, substantially in the form of Exhibit 5.4 hereto.
5.5. Consents. All consents and approvals necessary to the consummation
of the transactions contemplated hereby shall have been obtained, and any
waiting period (and any
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extension thereof) applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated.
5.6. No Material Adverse Effect. Except as described or contemplated
herein or in the Schedules, there shall have been no uninsured damage or
destruction to, or change in, the Assets or the Business since the date of the
Interim Financial Statements which would have a Material Adverse Effect, other
than as a result of general economic conditions or other conditions affecting
the industry in which the Business operates.
5.7. Resolutions of the Boards of Directors. Buyer shall have received
from each of Sellers and ALAC certified copies of the resolutions of their
respective Boards of Directors (or, in the case of ALAC, the Executive Committee
of its Board of Directors) approving this Agreement and the Collateral
Agreements and authorizing the consummation of the transactions contemplated
hereby and thereby.
5.8. Delivery of Bills of Sale. There shall have been delivered to
Buyer by Sellers and the ALAC FSC bill(s) of sale, dated the Closing Date,
sufficient to transfer to Buyer the Assets other than the portion thereof
consisting of Real Property and in the form of Exhibit 1.1(b)(i) hereto.
5.9. Delivery of Real Property Deeds. There shall have been delivered
to Buyer by the Operating Company deeds, each dated the Closing Date, in the
form required by Section 1.1(b)(ii) hereof which shall be sufficient to transfer
to Buyer the Real Property and shall be in recordable form reasonably acceptable
to Buyer.
5.10. Actual or Threatened Actions. There shall not be any actual or
threatened action or proceeding by or before any court or other individual,
administrative or Governmental Entity which seeks to restrain, prohibit or
invalidate the transactions contemplated by this Agreement, which could
materially adversely affect the Business after the Closing Date, or which could
deny Buyer any of the benefits of the transactions contemplated hereby.
5.11. Insurable Title to Real Property. Buyer will have received
evidence reasonably satisfactory to it that a reputable title insurance company
has issued at ordinary rates its title insurance policy effective the Closing
Date with respect to the Real Property located in the United States and included
in the Assets, insuring in the case of each such property such title as is
reflected in the title reports referenced in Exhibit 5.11 hereto and previously
delivered to Buyer, and subject to any existing or potential exceptions to such
title as set forth in such title report provided such state of title does not
render title to a particular property unmarketable in any material respect or
prohibit or impair the present use of such property (the "Title Insurance").
5.12. Transfer Taxes. Buyer shall have received properly completed all
required real estate transfer tax returns duly executed by Sellers in form
reasonably acceptable to Buyer (collectively, the "Transfer Tax Returns");
provided, however, that Buyer shall reasonably
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cooperate in the completion, execution and filing of such returns to the extent
that such cooperation is necessary for such completion, execution and filing.
5.13. Assignment and Assumption of Agreements. Each of Sellers shall
have executed and delivered to Buyer sufficient instruments of assignment
respecting the agreements constituting part of the Assets to which Buyer is a
party.
5.14. Allocation of Purchase Price. The parties shall have agreed upon
an allocation of the Purchase Price in accordance with Section 4.14 hereof.
5.15. Reliance Letters. Sellers shall have requested and, if received
by Sellers, Sellers shall have delivered to Buyer the reliance letters in the
form set forth as Exhibit 5.15 hereto from the environmental consultants who
have previously provided environmental assessment reports in connection with the
Real Property constituting a part of the Assets.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SELLERS AND
ALAC TO CONSUMMATE THE TRANSACTION
The obligations of each of Sellers and ALAC under this Agreement to be
performed at the Closing shall be subject to the satisfaction, or the waiver in
writing by Sellers and ALAC, on or prior to the Closing of the following
conditions:
6.1. Accuracy of Representations and Warranties; Compliance with
Covenants. The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on the Closing Date
with the same force and effect as though such representations and warranties
had been made on and as of the Closing Date and all of the agreements of Buyer
to be performed on or before the Closing Date pursuant to the terms hereof shall
have been performed in all material respects. Sellers and ALAC shall have
received a certificate, dated the Closing Date, signed by an appropriate officer
of Buyer, certifying that the conditions specified in this Section 6.1 have been
fulfilled.
6.2. No Injunction. No judgment, order or decree shall have been
rendered in any Litigation which has the effect of (a) enjoining the
consummation of the transactions contemplated by this Agreement or any
Collateral Agreement, or (b) enjoining the transfer of any of the Assets from
Sellers to Buyer or requiring Sellers or ALAC to hold any Assets separately from
other assets owned or operated by any such party.
6.3. Opinion of Counsel. Sellers and ALAC shall have received the
favorable opinion of Jones, Day, Reavis & Pogue, counsel to Buyer, dated the
Closing Date, substantially in the form of Exhibit 6.3 hereto.
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6.4. Consents. All consents and approvals necessary to the consummation
of the transactions contemplated hereby shall have been obtained, and any
waiting period (and any extension thereof) applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated.
6.5. Allocation of Purchase Price. The parties shall have agreed upon
an allocation of the Purchase Price in accordance with Section 4.14 hereof.
ARTICLE VII
TERMINATION PRIOR TO CLOSING
7.1. Termination. This Agreement may be terminated and abandoned:
(a) At any time prior to the Closing, by the mutual consent in
writing of the parties hereto;
(b) At any time prior to the Closing, by either Buyer, on the one
hand, or ALAC and Sellers, on the other hand, by notice in writing to the other
if the Closing shall not have occurred on or before March 31, 1997;
(c) At any time prior to the Closing, by either Buyer, on the one
hand, or ALAC and Sellers, on the other hand, by notice in writing to the other
if any court of competent jurisdiction in the United States or other United
States governmental body shall have issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable; or
(d) By Buyer if, prior to 5:00 p.m., New York City time, on
January 20, 1997, Buyer shall have notified Sellers and ALAC in writing that
Buyer has not obtained sufficient financing, or commitments in respect thereof,
to consummate the transactions contemplated hereby; provided, however, that it
is acknowledged and agreed to by Buyer that the right to terminate this
Agreement pursuant to this Section 7.1(d) shall expire and Buyer shall have no
right to terminate this Agreement pursuant to this Section 7.1(d) if Buyer has
not provided the written notice described in this Section 7.1(d) prior to 5:00
p.m., New York City time, on January 20, 1997.
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ARTICLE VIII
INDEMNIFICATION
8.1. Scope of Indemnity.
(a) Each of Sellers and ALAC will, and hereby does, jointly and
severally, indemnify, defend and hold harmless Buyer and its affiliates and
associates and the directors, officers, employees and agents of any of the
foregoing (collectively, the "Buyer's Indemnified Parties") against and in
respect of any liability, cost, expense, damage or deficiency sustained by any
of the Buyer's Indemnified Parties, including without limitation, investigation,
remediation and related expenses, as a result of any judgments or as the result
of any other liabilities of, or claims made against, any of the Buyer's
Indemnified Parties of any nature, whether accrued, absolute, contingent or
otherwise, which (i) consist of or relate to the Excluded Liabilities or Taxes
in respect of the Assets, the assets of the Subsidiaries or the Business for all
periods prior to the Closing Date; (ii) arise out of (A) the breach of any
representation or warranty of Sellers or ALAC herein or in any of the Collateral
Agreements, other than the representations contained in Section 2.10 or (B) the
non-fulfillment of any covenant or undertaking of Sellers or ALAC contained in
this Agreement or any of the Collateral Agreements; or (iii) arise out of any
failure to comply with any "bulk sales" laws of any state applicable to the
transactions contemplated by this Agreement; provided, however, that (x) any
claim by any of the Buyer's Indemnified Parties under Section 8.1(a)(ii)(A)
shall be payable only in the event that the accumulated amount of claims of all
of the Buyer's Indemnified Parties under Section 8.1(a)(ii)(A) shall exceed
$250,000, (y) at such time as such aggregate shall exceed $250,000, Sellers and
ALAC shall be liable hereunder only for such excess and (z) Sellers and ALAC
collectively shall not be liable in the aggregate for any amounts in excess of
$15,000,000 under Section 8.1(a)(ii)(A).
(b) Buyer will, and hereby does indemnify, defend and hold
harmless each of Sellers, ALAC and their respective affiliates and associates
and the directors, officers, employees and agents of any of the foregoing
(collectively, the "Sellers' Indemnified Parties", and together with the Buyer's
Indemnified Parties, the "Indemnified Parties") against and in respect of any
damage, liability, cost, expense or deficiency sustained by any of the Sellers'
Indemnified Parties as the result of any judgments or as the result of any other
liabilities of, or claims made against, any of the Sellers' Indemnified Parties
of any nature, whether accrued, absolute, contingent or otherwise, which (i)
consist of or relate to the Assumed Liabilities; or (ii) arise out of (A) the
breach of any representation or warranty of Buyer herein or in any of the
Collateral Agreements or (B) the non-fulfillment of any covenant or undertaking
of Buyer contained in this Agreement or any of the Collateral Agreements;
provided, however, that (x) any claim by any of the Sellers' Indemnified Parties
under Section 8.1(b)(ii)(A) shall be payable only in the event that the
accumulated amount of claims of all of the Sellers' Indemnified Parties under
Section 8.1(b)(ii)(A) shall exceed $250,000, (y) at such time as such aggregate
shall exceed $250,000, Buyer shall be liable hereunder only for such excess and
(z) Buyer shall not be liable in the aggregate for any amounts in excess of
$15,000,000 under Section 8.1(b)(ii)(A).
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<PAGE> 36
8.2. Claims and Litigation. In the event that any person or entity not
a party to this Agreement shall make any demand or claim, or file or threaten to
file any lawsuit, which demand, claim or lawsuit may result in any liability,
damage or loss to any of the Indemnified Parties for which such Indemnified
Party may seek indemnity from the relevant indemnifying party hereunder, then,
the Indemnified Party shall give prompt written notice to such indemnifying
party of such demand, claim or lawsuit, and such indemnifying party shall have
the option at its cost and expense, to join in the defense of any such demand,
claim or lawsuit, and no such claim shall be settled or compromised without the
consent of such indemnifying party, unless such indemnifying party shall fail to
respond within ten (10) days after receipt of such notice of any such demand,
claim or lawsuit, or shall notify the Indemnified Party that it does not intend
to defend such demand, claim or lawsuit. Nothing contained in this Section 8.2
shall prevent any of the Indemnified Parties from taking such action as may be
necessary prior to the end of the ten (10) day period provided for above to
prevent a default judgment from being entered.
8.3. Making of Claims. A claim for indemnity pursuant to this Article
VIII may only be made by an Indemnified Party by written notice to the relevant
indemnifying party. Such written notice shall set forth in reasonable detail the
basis upon which such claim for indemnity is made.
8.4. Attorneys' Fees, Interest, Penalties, Costs and Expenses. Each of
the Indemnified Parties' right of indemnity hereunder shall extend to all
interest, penalties, costs and expenses, including reasonable attorneys' fees,
incident to any of the matters covered by Section 8.1 hereof, subject to the
limitations on liability set forth in Section 8.1 hereof.
8.5. Survival of Representations and Warranties and Indemnities. The
indemnification obligations and the covenants of Sellers and Buyer shall survive
the Closing or any termination of this Agreement as set forth herein. The
representations and warranties of Buyer and Sellers shall, notwithstanding any
investigation heretofore or hereafter made by any party hereto, survive the
Closing Date for a period of two (2) years from and after the Closing Date,
except that (i) the representations and warranties contained in Section 2.10
shall survive for the applicable statute of limitations periods plus sixty (60)
days and (ii) the representations and warranties contained in Section 2.11 and
Section 2.17 shall survive for a period of five (5) years after the Closing
Date. The indemnification obligations contained in this Article VIII shall
survive the Closing for the applicable survival period associated with the
representations and warranties related thereto, in the case of indemnification
obligations with respect to Taxes or "bulk sales" laws, the applicable statute
of limitations plus a period of six (6) months and the indemnification
obligations with respect to the Excluded Liabilities, shall survive the Closing;
provided, however, that in the event that an Indemnified Party learns of the
failure of any of the representations and warranties or seeks indemnification
pursuant to Section 8.1 and gives notice thereof to the relevant indemnifying
party within the applicable survival period, such Indemnified Party shall be
entitled to make its claim for indemnification hereunder at any time within six
(6) months following the expiration of the applicable survival period.
Notwithstanding anything else contained herein, any claim for indemnification
asserted within such specified periods of survival shall be entitled to the
indemnification obligations contained in this Article VIII.
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<PAGE> 37
8.6. General Provisions. Any right to Indemnification under this
Article VIII shall be (i) limited to the loss, liability or expenses (after
giving effect to the present value, based on a discount rate equal to the short
term applicable federal rate as determined by Section 1274(d) of the Code at
that time, of any Tax benefit realized or unrealized by the Indemnified Party in
connection with or as a result of the incurrence of the loss, liability or
expense for which the indemnity payment is to be made) incurred or suffered and
shall not include special, indirect, punitive or consequential damages incurred
by the Indemnified Party, (ii) net of insurance proceeds actually received by
the Indemnified Party and (iii) in the case of Buyer's Indemnified Parties, net
of any reserves or provisions for loss, liability or expense on the Closing Date
Balance Sheet applicable thereto. Any recovery, as limited by the preceding
sentence, is further subject to the monetary limitations specified in Section
8.1. If the amount to be netted hereunder from any payment by the Indemnifying
Party of any amount otherwise required to be paid pursuant to this Article VIII
shall be undetermined, the Indemnified Party shall repay to the Indemnifying
Party, promptly after such determination, any amount that the Indemnifying Party
would not have had to pay pursuant to this Article VIII had such determination
been made at the time of such payment.
8.7. Tax Treatment. Any indemnity payment by Buyer under this Agreement
shall be treated as an increase in the Purchase Price for tax purposes. Any
indemnity payment by Sellers under this Agreement shall be treated as a decrease
in the Purchase Price for tax purposes.
ARTICLE IX
MISCELLANEOUS
9.1. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the Collateral Agreements shall supersede all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof, and no party shall be liable or bound
to the other in any manner by any warranties or representations not set forth
herein or contemplated hereby.
9.2. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. This Agreement may not be assigned by any party
without the prior written consent of each other party hereto and any purported
assignment in violation of this Section 9.2 shall be void. Notwithstanding the
foregoing, the parties agree that Buyer may assign its rights hereunder to one
or more wholly-owned subsidiaries of Buyer provided that Buyer shall remain
fully and completely responsible for its obligations set forth herein
notwithstanding any such assignment.
9.3. Identical Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
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<PAGE> 38
9.4. Headings. The headings of the Articles and Sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
9.5. Use of Certain Terms. As used in this Agreement, the words
"herein", "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section, paragraph
or other subdivision.
9.6. Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof, and this Agreement may be modified or amended at any time
by the parties hereto. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
9.7. Schedules, Etc. All Exhibits and Schedules hereto and the
documents, certificates and instruments required to be delivered simultaneously
herewith or at or prior to the Closing are expressly made a part of this
Agreement as fully as though completely set forth herein, and all references to
this Agreement herein or in any such Exhibits, Schedules, documents,
certificates or other instruments shall be deemed to refer to and include all
such Exhibits, Schedules, documents, certificates and instruments.
9.8. Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be in writing and
delivered personally, sent by registered or certified mail (airmail if
international), postage prepaid, or sent by internationally recognized
air-courier service.
If to Buyer, to:
IRI International Corporation
First Interstate Bank Plaza
1000 Louisiana, Suite 5900
Houston, Texas 77002
Attn: Munawar H. Hidayatallah,
Executive Vice President -- Corporate Development
with copies to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attn: William F. Henze II, Esq.
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<PAGE> 39
If to Sellers or ALAC at the following address:
Air Liquide America Corporation
2700 Post Oak Boulevard
Houston, Texas 77056
Attn: Vice President, Legal and Corporate Affairs
with a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Attn: Andrew S. Hedden, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party. Any notice which is addressed and mailed in the manner
herein provided shall be conclusively presumed to have been given to the party
to whom it is addressed at the close of business, local time of the recipient,
on the third day after the day it is so placed in the mail. Any notice which is
addressed and sent by internationally recognized air-courier in the manner
herein provided shall be conclusively presumed to have been given to the party
to whom it is addressed at the close of business, local time of the recipient,
on the fourth day after the day it is delivered to such air-courier.
9.9. Governing Law. The parties hereby agree that this Agreement shall
be construed, enforced and governed by the laws of the State of New York without
regard to applicable principles of conflict of laws.
9.10. Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future Laws, such
provision shall be fully severable, and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
9.11. Expenses. Except as otherwise specifically provided herein,
whether or not the transactions contemplated by this Agreement are consummated,
all legal, accounting and other costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby, including without
limitation amounts payable to any agents, brokers or finder and whether or not
referred to in Section 2.18 or Section 3.5, shall be paid by the contracting
party or parties incurring such expenses.
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<PAGE> 40
9.12. Third Party Beneficiaries. No individual, firm, corporation,
partnership or other entity shall be a third-party beneficiary of the
representations, warranties, covenants, and agreements made by Buyer, ALAC and
Sellers herein.
9.13. Exclusive Remedies. The parties hereto agree that the
indemnification provisions contained in Article VIII hereof shall be the
exclusive remedies of the parties with respect to any breach or violation of
this Agreement other than any claim for actual fraud or intentional
misrepresentation.
9.14. Number and Gender of Words. Whenever herein the singular number
is used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
9.15. Actions. Each of the parties hereto agrees that any action or
dispute between them involving this Agreement and transactions contemplated
hereby shall be asserted and maintained in any court of competent subject matter
jurisdiction located in the State of New York.
9.16. Nondisclosure. Buyer and Sellers and ALAC agree that the
Confidentiality Agreement previously executed by the parties shall continue in
full force and effect, binding on all parties hereto, and shall survive the
Closing or any termination of this Agreement.
9.17. Acquisition Proposals. During the period (the "Pre-Closing
Covenant Period") between the date hereof and the earliest to occur of (a) the
Closing and (b) the termination of this Agreement, Sellers and ALAC will not,
and each of Sellers and ALAC will instruct their respective officers, directors,
employees, agents, legal or financial advisors or other representatives not to,
solicit, initiate or consider any proposals or offers from any person or entity
relating to, or enter into (or continue) any discussions, or deliver any
information, concerning any acquisition or purchase of all or a material amount
of the assets of, or any securities of, or any merger, consolidation or other
business combination with, any of the Assets (any such transaction, a
"Competitive Transaction"). During the Pre-Closing Covenant Period, each of
Sellers and ALAC will promptly notify Buyer in the event of any proposal or
offer in respect of a Competitive Transaction.
9.18. Tax Agreements. All agreements, if any, between any of the
Subsidiaries, on the one hand, and ALAC, Sellers or any of their affiliates, on
the other hand, regarding the allocation or payment of Taxes or amounts in lieu
of Taxes shall be deemed terminated at and as of the Closing.
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<PAGE> 41
IN WITNESS WHEREOF, each of the parties hereto has signed this
Agreement in counterparts all as of the date first above written.
BOWEN TOOLS, INC.-DELAWARE
By:__________________________________
Name:
Title:
BOWEN TOOLS, INC.
By:__________________________________
Name:
Title:
AIR LIQUIDE AMERICA CORPORATION
By:__________________________________
Name:
Title:
IRI INTERNATIONAL CORPORATION
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
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<PAGE> 42
EXHIBIT 5.2
[Form of Certificate]
CERTIFICATE
The attached unaudited income statement for the year ended December 31,
1996 (the "Income Statement"), sets forth the accounts of Bowen Tools,
Inc.-Delaware, its subsidiaries, and its portion of Big Three International,
Inc. (a foreign sales corporation). To the best of our knowledge and belief, the
Income Statement presents fairly the results of operations for the year ended
December 31, 1996 in accordance with United States generally accepted accounting
principles (GAAP) consistently applied except: (i) Bowen Tools, Inc.-Delaware
did not adopt Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes ("FAS 109"), which is required in order to conform with GAAP,
(ii) the Income Statement does not contain all financial statements or footnote
disclosures required by GAAP and (iii) the Income Statement has been prepared
based on a first-in-first-out (FIFO) basis and does not include any adjustments
under the last-in-first-out (LIFO) method of accounting for inventory. Physical
inventory observations have been conducted on a consistent basis as of September
30, 1995 and September 30, 1996. Adjustments arising out of the preparation of
the September 30, 1996 audited balance sheet that do not relate to the Income
Statement period are not included therein.
BOWEN TOOLS, INC.-DELAWARE
By:________________________________________
Name:
Title:
BOWEN TOOLS, INC.
By:________________________________________
Name:
Title:
AIR LIQUIDE AMERICA CORPORATION
(as 100% shareholder of Bowen Tools, Inc.-
Delaware)
By:________________________________________
Name:
Title:
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<PAGE> 1
IRI INTERNATIONAL CORPORATION
EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this Plan is to attract and retain
qualified officers, directors and other key employees of, and consultants to,
IRI International Corporation (the "Corporation") and its Subsidiaries and to
provide such persons with appropriate incentives. The Corporation has adopted
the Plan effective as of June 17, 1997, subject to the approval of the
Corporation's shareholders, and unless extended by amendment in accordance with
the terms of the Plan, no Option Rights will be granted hereunder after the
tenth anniversary of such effective date.
2. DEFINITIONS. As used in this Plan,
"BOARD" means the Board of Directors of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COMMITTEE" means the Compensation Committee of the Board of
Directors, as described in Section 10(a) of this Plan.
"COMMON SHARES" means (i) shares of the Common Stock of the
Corporation and (ii) any security into which Common Shares may be converted by
reason of any transaction or event of the type referred to in Section 6 of this
Plan.
"DATE OF GRANT" means the date specified by the Committee on which a
grant of Option Rights shall become effective, which shall not be earlier than
the date on which the Committee takes action with respect thereto.
"INCENTIVE STOCK OPTION" means an Option Right that is intended to
qualify as an "incentive stock option" under Section 422 of the Code or any
successor provision thereto.
"MARKET VALUE PER SHARE" means the fair market value of the Common
Shares as determined by the Committee from time to time.
"NONQUALIFIED OPTION" means an Option Right that is not intended to
qualify as a Tax-qualified Option.
"OPTIONEE" means the person so designated in an agreement evidencing
an outstanding Option Right.
"OPTION PRICE" means the purchase price payable upon the exercise of
an Option Right.
<PAGE> 2
"OPTION RIGHT" means the right to purchase Common Shares from the
Corporation upon the exercise of a Nonqualified Option or a Tax-qualified
Option granted pursuant to Section 4 of this Plan.
"PARTICIPANT" means a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time an officer, director,
or other key employee of, or consultant to, the Corporation or any Subsidiary
or (ii) has agreed to commence serving in any such capacity.
"RELOAD OPTION RIGHTS" means additional Option Rights automatically
granted to an Optionee upon the exercise of Option Rights pursuant to Section
4(f) of this Plan.
"RULE 16b-3" means Rule 16b-3, as promulgated and amended from time to
time by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, or any successor rule to the same effect.
"SUBSIDIARY" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Corporation has a
direct or indirect ownership or other equity interest; provided, however, that
for purposes of determining whether any person may be a Participant for
purposes of any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which the Corporation owns or controls directly or indirectly
more than 50% of the total combined voting power represented by all classes of
stock issued by such corporation at the time of the grant.
"TAX-QUALIFIED OPTION" means an Option Right that is intended to
qualify under particular provisions of the Code, including without limitation
an Incentive Stock Option.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 6 of this Plan, the number of Common Shares which may be
issued or transferred upon the exercise of Option Rights shall not in the
aggregate exceed 4,000,000 Common Shares, which may be Common Shares of
original issuance or Common Shares held in treasury or a combination thereof.
For the purposes of this Section 3(a):
(i) Upon payment in cash of the benefit provided by any
award granted under this Plan, any Common Shares that were covered by
that award shall again be available for issuance or transfer
hereunder.
(ii) Upon the full or partial payment of any Option Price
by the transfer to the Company of Common Shares or upon satisfaction
of tax withholding obligations in connection with any such exercise or
any other payment made or benefit realized under this Plan by the
transfer or relinquishment of Common Shares, there shall be deemed to
have been issued or transferred under this Plan only the net number of
Common Shares actually issued or transferred by the Corporation less
the number of Common Shares so transferred or relinquished.
(b) Notwithstanding anything in Section 3(a) hereof, or elsewhere in
this Plan, to the contrary, the aggregate number of Common Shares actually
issued or
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<PAGE> 3
transferred by the Corporation upon the exercise of the Incentive Stock
Options shall not exceed the total number of Common Shares first specified in
Section 3(a) hereof.
(c) Notwithstanding any other provision of this Plan to the
contrary, no Participant shall be granted Option Rights for more than 3,000,000
Common Shares during any three consecutive calendar years, subject to
adjustment as provided in Section 6 of this Plan.
4. OPTION RIGHTS. The Committee may from time to time authorize grants to
Participants of options to purchase Common Shares upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains.
(b) Each grant shall specify an Option Price per Common Share,
which may be equal to or greater or less than the Market Value per Share on
the Date of Grant.
(c) Each grant shall specify the form of consideration to be paid
in satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalent acceptable to the Corporation, (h) nonforfeitable,
unrestricted Common Shares, which are already owned by the Optionee, (iii) any
other legal consideration that the Committee may deem appropriate, including
without limitation any form of consideration authorized under Section 4(d)
below, on such basis as the Committee may determine in accordance with this
Plan and (iv) any combination of the foregoing.
(d) Any grant of a Nonqualified Option may provide that payment of
the Option Price may also be made in whole or in part in the form of Common
Shares that are subject to risk of forfeiture or restrictions on transfer.
Unless otherwise determined by the Committee on or after the Date of Grant,
whenever any Option Price is paid in whole or in part by means of any of the
forms of consideration specified in this Section 4(d), the Common Shares
received by the Optionee upon the exercise of the Nonqualified Option shall
be subject to the same risks of forfeiture or restrictions on transfer as those
that applied to the consideration surrendered by the Optionee; provided,
however, that such risks of forfeiture and restrictions on transfer shall apply
only to the same number of Common Shares received by the Optionee as applied to
the forfeitable or restricted Common Shares surrendered by the Optionee.
(e) Any grant may, if there is then a public market for the Common
Shares, provide for deferred payment of the Option Price from the proceeds of
sale through a broker of some or all of the Common Shares to which the exercise
relates.
(f) Any grant may provide for the automatic grant to the Optionee
of Reload Option Rights upon the exercise of Option Rights, including Reload
Option Rights, for Common Shares or any other noncash consideration authorized
under Sections 4(c) and
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<PAGE> 4
(d) above; provided, however, that the term of any Reload Option Right shall
not extend beyond the term of the Option Right originally exercised.
(g) Successive grants may be made to the same Optionee
regardless of whether any Option Rights previously granted to the Optionee
remain unexercised.
(h) Each grant shall specify the period or periods of continuous
employment, or continuous engagement of the consulting services, of the
Optionee by the Corporation or any Subsidiary that are necessary before the
Option Rights or installments thereof shall become exercisable, and any grant
may provide for the earlier exercise of the Option Rights in the event of a
change in control of the Corporation or other similar transaction or event.
(i) Option Rights granted pursuant to this Section 4 may be
Nonqualified Options or Tax-qualified Options or combinations thereof.
(j) Any grant of an Option Right may provide for the payment to
the Optionee of dividend equivalents thereon in cash or Common Shares on a
current, deferred or contingent basis, or the Committee may provide
that any dividend equivalents shall be credited against the Option Price.
(k) No Option Right granted pursuant to this Section 4 may be
exercised more than 10 years from the Date of Grant.
(l) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and delivered to
and accepted by the Optionee and shall contain such terms and provisions as the
Committee may determine consistent with this Plan.
5. TRANSFERABILITY. (a) No Option Right granted under this Plan
may be transferred by a Participant except by will or the laws of descent and
distribution. Option Rights granted under this Plan may not be exercised
during a Participant's lifetime except by the Participant or, in the event of
the Participant's legal incapacity, by his guardian or legal representative
acting in a fiduciary capacity on behalf of the Participant under state law and
court supervision. Notwithstanding the foregoing, the Committee, in its sole
discretion, may provide for the transferability of particular awards under this
Plan so long as such provisions will not disqualify the exemption for other
awards under Rule 16b-3, if such Rule is then applicable to awards under the
Plan.
(b) Any grant made under this Plan may provide that all or any
part of the Common Shares that are to be issued or transferred by the
Corporation upon the exercise of Option Rights shall be subject to further
restrictions upon transfer.
6. ADJUSTMENTS. (a) The Committee may make or provide for such
adjustments in the number of Common Shares covered by outstanding Option
Rights, the Option Prices per Common Share applicable to any such Option
Rights, and the kind of shares (including shares of another issuer) covered
thereby, as the Committee may in good faith determine
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<PAGE> 5
to be equitably required in order to prevent dilution or expansion of the
rights of Participants that otherwise would result from (i) any stock dividend,
stock split, combination of shares, recapitalization or similar change in the
capital structure of the Corporation or (ii) any merger, consolidation,
spin-off, spin-out, split-off, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of warrants or other
rights to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement evidencing
any award under this Plan that the holder of the award may elect to receive an
equivalent award in respect of securities of the surviving entity of any
merger, consolidation or other transaction or event having a similar effect, or
the Committee may provide that the holder will automatically be entitled to
receive such an equivalent award. The Committee may also make or provide for
such adjustments in the maximum numbers of Common Shares specified in Section 3
of this Plan as the Committee may in good faith determine to be appropriate in
order to reflect any transaction or event described in this Section 6.
(b) If another corporation is merged into the Corporation or the
Corporation otherwise acquires another corporation, the Committee may elect to
assume under this Plan any or all outstanding stock options or other awards
granted by such corporation under any stock option or other plan adopted by it
prior to such acquisition. Such assumptions shall be on such terms and
conditions as the Committee may determine; provided, however, that the awards
as so assumed do not contain any terms, conditions or rights that are
inconsistent with the terms of this Plan. Unless otherwise determined by the
Committee, such awards shall not be taken into account for purposes of the
limitations contained in Section 3 of this Plan.
7. FRACTIONAL SHARES. The Corporation shall not be required to
issue any fractional Common Shares pursuant to this Plan. The Committee may
provide for the elimination of fractions or for the settlement thereof in cash.
8. WITHHOLDING TAXES. To the extent that the Corporation is
required to withhold federal, state, local or foreign taxes in connection with
any payment made or benefit realized by a Participant or other person under
this Plan, and the amounts available to the Corporation for the withholding are
insufficient, it shall be a condition to the receipt of any such payment or the
realization of any such benefit that the Participant or such other person make
arrangements satisfactory to the Corporation for payment of the balance of any
taxes required to be withheld. At the discretion of the Committee, any such
arrangements may without limitation include voluntary or mandatory
relinquishment of a portion of any such payment or benefit or the surrender of
outstanding Common Shares. The Corporation and any Participant or such other
person may also make similar arrangements with respect to the payment of any
taxes with respect to which withholding is not required.
9. CERTAIN TERMINATIONS OF EMPLOYMENT OR CONSULTING SERVICES,
HARDSHIP, AND APPROVED LEAVES OF ABSENCE. Notwithstanding any other provision
of this Plan to the
-5-
<PAGE> 6
contrary, in the event of termination of employment or consulting services by
reason of death, disability, normal retirement, early retirement with the
consent of the Corporation, termination of employment or consulting services to
enter public or military service with the consent of the Corporation or leave
of absence approved by the Corporation, or in the event of hardship or other
special circumstances, of a Participant who holds an Option Right that is not
immediately and fully exercisable, the Committee may take any action that it
deems to be equitable under the circumstances or in the best interests of the
Corporation, including without limitation waiving or modifying any limitation
or requirement with respect to any award under this Plan.
10. ADMINISTRATION OF THE PLAN. (a) This Plan shall be
administered by the Compensation Committee of the Board, which shall be
composed of not less than two members of the Board. At any time that awards
under the Plan are subject to Rule 16b-3, each member of the Compensation
Committee shall be a "non-employee director" within the meaning of such Rule.
In addition, at any time that the Corporation is subject to Section 162(m) of
the Code, each member of the Compensation Committee shall be an "outside
director" within the meaning of such Section. A majority of the Committee
shall constitute a quorum, and the acts of the members of the Committee who are
present at any meeting thereof at which a quorum is present, or acts
unanimously approved by the members of the Committee in writing, shall be the
acts of the Committee.
(b) The interpretation and construction by the Committee of any
provision of this Plan or any agreement, notification or document evidencing
the grant of Option Rights, and any determination by the Committee pursuant to
any provision of this Plan or any such agreement, notification or document,
shall be final and conclusive. No member of the Committee shall be liable for
any such action taken or determination made in good faith.
11. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended
from time to time by the Committee; provided, however, that except as expressly
authorized by this Plan, no such amendment shall cause this Plan to cease to
satisfy any applicable condition OF Rule 16b-3 or cause any award under the
Plan to cease to qualify for any applicable exception to Section 162(m) of the
Code, without the further approval of the stockholders OF the Corporation.
(b) With the concurrence of the affected Participant, the
Committee may cancel any agreement evidencing Option Rights granted under this
Plan. In the event of any such cancellation, the Committee may authorize the
granting of new Option Rights hereunder, which may or may not cover the same
number of Common Shares as had been covered by the cancelled Option Rights, at
such Option Price, in such manner and subject to such other terms, conditions
and discretion as would have been permitted under this Plan had the cancelled
Option Rights not been granted.
(c) The Committee may condition the grant of any award or
combination of awards authorized under this Plan on the surrender or deferral
by the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Corporation or a Subsidiary to the
Participant.
-6-
<PAGE> 7
(d) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Corporation or
any Subsidiary and shall not interfere in any way with any right that the
Corporation or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(e) To the extent that any provision of this Plan would prevent
any Option Right that was intended to qualify as a Tax-qualified Option from so
qualifying, any such provision shall be null and void with respect to any such
Option Right; provided, however, that any such provision shall remain in effect
with respect to other Option Rights, and there shall be no further effect on
any provision of this Plan.
(f) Any award that may be made pursuant to an amendment to this
Plan that shall have been adopted without the approval of the stockholders of
the Corporation shall be null and void if it is subsequently determined that
such approval was required under the terms of the Plan or applicable law.
(i) Unless otherwise determined by the Committee, this Plan is
intended to comply with Rule 16b-3 at all times that awards hereunder are
subject to such Rule.
-7-
<PAGE> 1
EXHIBIT 10.8
IRI INTERNATIONAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
RECITALS
A. [Outside Director] (the "Optionee") is an employee or
director of, or consultant to, IRI International Corporation (the
"Corporation").
B. The Optionee has been selected as a participant in
the Corporation's Equity Incentive Plan (the "Plan").
C. The Board of Directors of the Corporation (the
"Board") has on June 17, 1997 authorized the execution of a stock option
agreement in the form hereof as of the date on which the Corporation's initial
public offering of Common Shares is consummated (the "Date of Grant").
D. The option granted hereby is intended to be a
nonqualified stock option and will not be treated as an "incentive stock
option" within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986.
NOW, THEREFORE, pursuant to the Plan and subject to the terms
and conditions thereof and to the terms and conditions herein set forth, the
Corporation hereby grants to the Optionee a Nonqualified Option (the "Option")
to purchase 20,000 Common Shares (the "Option Shares") at an exercise price per
Option Share equal to the offering price per share at the initial public
offering of the Common Shares (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter
provided, (i) the Option will be exercisable cumulatively to the extent of
one-half of the Option Shares on the Date of Grant, and (ii) the Option will
become exercisable cumulatively to the extent of one-quarter of the Option
Shares after each of the first two anniversaries of the Date of Grant for so
long as the Optionee remains in continuous employment with or service as a
director of or consultant to the Corporation or any Subsidiary. For the
purposes of this Agreement, the continuous employment or service of the
Optionee with the Corporation or any Subsidiary will not be deemed to have been
interrupted, and the Optionee will not be deemed to have ceased to be an
employee or director of, or a consultant to, the Corporation or any Subsidiary,
by reason of the transfer of his or her services among the Corporation and its
Subsidiaries or a leave of absence approved by the Board.
(b) Notwithstanding the provisions of Section 1 (a)
hereof, if the Optionee's employment or service with the Corporation and all
Subsidiaries terminates prior to the second anniversary of the Date of Grant by
reason of his or her death or disability, or if the Optionee's employment with
the Corporation and all Subsidiaries is terminated by the
<PAGE> 2
Corporation or any Subsidiary prior to the second anniversary of the Date of
Grant for any reason other than Cause (as defined herein), the Option will
become fully exercisable.
(c) To the extent that the Option becomes exercisable in
accordance with the terms of this Section 1, it may be exercised in whole or in
part from time to time thereafter.
2. TERMINATION OF OPTION. The Option will terminate
automatically and without further action on the earliest of the following
dates:
(a) the date of the voluntary termination by the Optionee
of his or her employment or service with the Corporation and all Subsidiaries;
(b) the date of the termination by the Corporation or any
Subsidiary of the Optionee's employment or service for Cause;
(c) 360 days after the termination of the Optionee's
employment or service with the Corporation and all Subsidiaries by reason of
his or her death;
(d) 180 days after the termination of the Optionee's
employment or service with the Corporation and all Subsidiaries by reason of
his or her disability;
(e) 30 days after the termination by the Corporation and
all Subsidiaries of the Optionee's employment or service therewith for any
reason other than disability or Cause; or
(f) five years after the Date of Grant, if the Optionee
remains in continuous employment or service with the Corporation or any
Subsidiary during that five-year period.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price may be paid (a)
in cash or check or other cash equivalent acceptable to the Corporation, (b) by
actual or constructive transfer to the Corporation of nonforfeitable,
nonrestricted Common Shares owned by the Optionee, or (c) by any combination of
the foregoing methods of payment. Nonforfeitable, nonrestricted Common Shares
that are transferred by the Optionee in payment of all or any part of the
Exercise Price will be valued on the basis of their fair market value as
determined by the Committee from time to time. The requirement of payment in
cash will be deemed satisfied if the Optionee makes arrangements that are
satisfactory to the Corporation with a broker that is a member of the National
Association of Securities Dealers, Inc. to sell a sufficient number of the
Option Shares that are being purchased pursuant to the exercise so that the net
proceeds of the sale transaction will at least equal the amount of the
aggregate Exercise Price and pursuant to which the broker undertakes to deliver
to the Corporation the amount of the aggregate Exercise Price not later than
the date on which the sale transaction will settle in the ordinary course of
business.
- 2 -
<PAGE> 3
4. COMPLIANCE WITH LAW. The Corporation will make reasonable
efforts to comply with all applicable securities laws; provided, however, that
notwithstanding any other provision of this agreement, the Option will not be
exercisable if the exercise thereof would result in a violation of any such
law.
5. RIGHT TO TERMINATE EMPLOYMENT OR SERVICE AND ADJUST
COMPENSATION. No provision of this agreement will limit in any way whatsoever
any right that the Corporation or any Subsidiary may otherwise have to
terminate the employment or service or adjust the compensation of the Optionee,
at any time.
6. RELATION TO OTHER BENEFITS. Any economic or other benefit to
the Optionee under this agreement or the Plan will not be taken into account in
determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Corporation or any Subsidiary and will not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan
covering employees of the Corporation or any Subsidiary.
7. THE PLAN. The Option evidenced hereby will be subject to the
provisions of the Plan, including without limitation the provisions thereof
relating to the transferability and exercisability of Option Rights (including
the Option), adjustments and withholding taxes, as the Plan may from time to
time be amended, provided, however, that no such amendment shall adversely
affect the rights of the Optionee hereunder without the Optionee's written
consent thereto.
8. SEVERABILITY. In the event that one or more of the provisions
of this Agreement may be invalidated for any reason by a court, any provision
so invalidated will be deemed to be separable from the other provisions hereof,
and the remaining provisions hereof will continue to be valid and fully
enforceable.
9. GOVERNING LAW. This Agreement is made under, and will be
construed in accordance with, the laws of the State of New York, without giving
effect to the principle of conflict of laws of such State.
10. CERTAIN DEFINITIONS. (a) "Cause" means any act or omission by
the Optionee that is materially inimical to the business or reputation of the
Corporation or any Subsidiary, as determined by the Board in its sole
discretion.
(b) Any other terms used with initial capital letters and
not defined herein shall have the meaning given to such terms in the Plan.
This Agreement is executed by the Corporation on this __ day of
_______, 1997, effective as of the Date of Grant.
IRI INTERNATIONAL CORPORATION
- 3 -
<PAGE> 4
By:
--------------------------
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Agreement and accepts the Option granted hereunder, subject to
the terms and conditions of the Plan and the terms and conditions hereinabove
set forth.
-----------------------------
Optionee
Date:
------------------------
- 4 -
<PAGE> 1
List of Subsidiaries
--------------------
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Organization
---------- ---------------
<S> <C>
Cardwell International, Ltd. Kansas
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
IRI International Corporation:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Dallas, Texas
September 8, 1997
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
IRI International Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
September 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,635
<SECURITIES> 0
<RECEIVABLES> 8,072
<ALLOWANCES> (36)
<INVENTORY> 37,995
<CURRENT-ASSETS> 55,646
<PP&E> 2,566
<DEPRECIATION> (168)
<TOTAL-ASSETS> 58,671
<CURRENT-LIABILITIES> 16,988
<BONDS> 0
0
80
<COMMON> 2
<OTHER-SE> 24,821
<TOTAL-LIABILITY-AND-EQUITY> 58,671
<SALES> 62,298
<TOTAL-REVENUES> 62,298
<CGS> 44,968
<TOTAL-COSTS> 9,110
<OTHER-EXPENSES> 635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,475
<INCOME-TAX> 98
<INCOME-CONTINUING> 8,377
<DISCONTINUED> 0
<EXTRAORDINARY> (600)
<CHANGES> 0
<NET-INCOME> 7,777
<EPS-PRIMARY> 47.54
<EPS-DILUTED> 47.54
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