AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNITED OILFIELD SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2856284 3533
(STATE OR OTHER (I.R.S. EMPLOYER (PRIMARY STANDARD
JURISDICTION OF IDENTIFICATION NO.) INDUSTRIAL
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
615 UPPER NORTH BROADWAY
SUITE 950, MT-198
CORPUS CHRISTI, TEXAS 78477
(512) 882-3536
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALVIN H. DUEITT
615 UPPER NORTH BROADWAY
SUITE 950, MT-198
CORPUS CHRISTI, TEXAS 78477
(512) 882-3536
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
R. CLYDE PARKER, JR., ESQ. SAMUEL E. WING, ESQ.
WINSTEAD SECHREST & MINICK P.C. JONES & KELLER, P.C.
910 TRAVIS, SUITE 2400 1625 BROADWAY, SUITE 1600
HOUSTON, TEXAS 77002 DENVER, COLORADO 80202
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.01 par value......... 1,000,000 $7.00 $7,000,000 $2,065
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
UNITED OILFIELD SERVICES, INC.
CROSS-REFERENCE SHEET
This cross-reference sheet is provided pursuant to Item 501(b) of
Regulation S-K showing the location in the Prospectus of information required by
Part I of Form S-1:
FORM S-1 ITEM LOCATION IN PROSPECTUS
- ------------------------------------- -----------------------------------------
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........ Front of Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front Cover Page and Outside Back
Cover Page of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges................ Prospectus Summary; Risk Factors;
Selected Financial Information
4. Use of Proceeds................. Prospectus Summary; Use of Proceeds
5. Determination of Offering
Price........................... Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution........................ Dilution
7. Selling Security Holders........ Inapplicable
8. Plan of Distribution............ Outside Front and Inside Cover Pages of
Prospectus; Underwriting
9. Description of Securities to be
Registered...................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Capitalization;
Description of Securities
10. Interests of Named Experts and
Counsel......................... Legal Matters; Experts
11. Information with Respect to the
Registrant...................... Prospectus Summary; The Company; Risk
Factors; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Dividend Policy;
Capitalization; Selected Financial
Information; Management; Certain
Transactions; Description of Securities;
Securities Ownership of Management and
Certain Beneficial Holders; Index to
Financial Statements
12. Disclosure of Commission
Position on Indemnification for
Securities Act iabilities....... Inapplicable
<PAGE>
******************************************************************************
* *
* 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 OCTOBER 23, 1997
PROSPECTUS
[LOGO]
UNITED OILFIELD SERVICES, INC.
1,000,000 SHARES OF
COMMON STOCK
United Oilfield Services, Inc., a Texas corporation (the "Company")
organized in October 1997, hereby offers 1,000,000 shares (the "Offering") of
the common stock, par value $.01 per share, of the Company (the "Common
Stock"). The Common Stock is being offered through D. E. Frey & Company, Inc.
(the "Underwriter").
Before the Offering, there has been no trading market for the Common Stock,
and there can be no assurance that any such market for the Common Stock will
develop after the closing of the Offering or that, if developed, it will be
sustained. It is currently estimated that the initial public offering price will
be between $5.00 and $7.00 per share. The offering price of the Common Stock
will be established by negotiations between the Company and the Underwriter and
may not necessarily bear any direct relationship to the price at which the
Common Stock will trade after the Offering or to the Company's assets, earnings,
book value per share or other generally accepted criteria of value. For factors
to be considered in determining the initial public offering price, see
"Underwriting." The Company intends to apply for the listing of its Common
Stock on a national stock exchange or automated quotation system of a securities
association registered with the Securities and Exchange Commission (the
"Commission"), but there can be no assurance that the Common Stock will be
approved for such listing.
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN THE
COMPANY, SEE "RISK FACTORS" COMMENCING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION (1)(2) COMPANY (3)
- --------------------------------------------------------------------------------
Per Share...... $ $ $
- --------------------------------------------------------------------------------
Total.......... $ $ $
================================================================================
(see notes on following page)
The Common Stock is being offered by the Company through the Underwriter on
a best efforts, all or none basis, when, as and if issued, subject to approval
of certain legal matters by counsel for the Underwriter and certain other
conditions, during the offering period beginning on the date of this Prospectus
and ending on [ ], 1997 (which may be extended for up to 30 days or until
[ ], 1998, with the consent of the Company and the Underwriter). The Offering
is made by the Underwriter on behalf of the Company, subject to the
Underwriter's right to reject any subscription in whole or in part or to
withdraw or cancel the Offering without notice to anyone other than the Company.
All proceeds of the Offering will be held in escrow by Colorado State Bank and
Trust, Denver, Colorado, as escrow agent, until the Offering is fully
subscribed. It is expected that delivery of the securities will be made at the
offices of the Underwriter in Denver, Colorado as promptly as practicable
following the receipt of subscriptions for and payment of the aggregate offering
price. If the Offering is not fully subscribed on or before the end of the
offering period or any extension thereof, investors who have deposited funds
into the escrow account will promptly receive a full refund, without interest or
deduction.
D. E. FREY & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
(1) Subject to completion of the Offering, the Underwriter will receive a
non-accountable expense allowance equal to three percent of the amount raised in
the Offering. The Underwriter will further receive a commission of four percent
on sales of Common Stock to persons to whom the Company has referred the
Underwriter in writing (to a maximum of fifty percent of the Offering) and eight
and one-half percent on all other sales. For purposes of this table, the Company
has assumed that the Underwriter will receive the maximum commission of eight
and one-half percent on all sales. The Company has also agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Upon the closing of the Offering, the Company will sell to the
Underwriter and/or its designees, for an aggregate price of $100, warrants to
purchase 100,000 shares of Common Stock. The warrants will entitle the holder to
purchase the shares of Common Stock at a purchase price per share of 120% of the
offering price and will be exercisable during the four-year period beginning one
year after issuance thereof.
(3) These amounts represent the proceeds to the Company after payment of
underwriting commissions, but before deduction of other offering expenses
estimated at $485,000.
The Company has not previously filed any reports with the Commission and
currently is not a reporting company. The Company anticipates that it will file
appropriate documentation to register the Company as a reporting company under
the Securities Exchange Act of 1934, as amended, such registration to be
effective no later than the date of consummation of the Offering, and will
furnish its stockholders with annual reports containing consolidated financial
statements, audited and reported upon by its independent certified public
accountants, after the end of each fiscal year, beginning with its fiscal year
ending December 31, 1997. The Company will also distribute quarterly reports
containing unaudited interim financial information and such other periodic
reports as the Company may determine to be appropriate or as may be required by
law.
THE COMMON STOCK IS OFFERED SUBJECT TO PRIOR SALE, ALLOTMENT, WITHDRAWAL,
CANCELLATION OR MODIFICATION OF THE OFFERING WITHOUT PRIOR NOTICE. THE
UNDERWRITER RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART.
THE OFFERING CANNOT BE MODIFIED UNLESS AN AMENDED REGISTRATION STATEMENT IS
FILED AND DECLARED EFFECTIVE BY THE COMMISSION.
Any document that is incorporated by reference herein but not delivered
herewith may be requested by any person to whom this Prospectus is delivered.
Such requests should be made to United Oilfield Services, Inc., 615 Upper North
Broadway, Suite 950, MT-198, Corpus Christi, Texas 78477, telephone number (512)
882-3536. Delivery of the requested documents will be made without charge.
2
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CLOSING OF THE OFFERING,
UNITED OILFIELD SERVICES, INC. (THE "COMPANY") WILL ISSUE TO THE HOLDERS OF
THE OUTSTANDING EQUITY SECURITIES OF UNITED WELLHEAD SERVICES, INC.
("WELLHEAD"), FLARE KING, INC. ("FLARE KING") AND HI-TECH COMPRESSOR
COMPANY, L.C. ("HI-TECH") SHARES OF COMMON STOCK IN EXCHANGE FOR THE OWNERSHIP
INTERESTS OF SUCH HOLDERS IN SUCH COMPANIES (THE "REORGANIZATION"). WELLHEAD,
HI-TECH AND FLARE KING ARE AT TIMES REFERRED TO HEREIN INDIVIDUALLY AS A
"FOUNDING COMPANY" AND COLLECTIVELY AS THE "FOUNDING COMPANIES." UNLESS THE
CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO THE "COMPANY" HEREIN INCLUDE
THE FOUNDING COMPANIES. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY,
AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
PRO FORMA COMBINED AND HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Upon consummation of the acquisition of the Founding Companies, the Company
will be a diversified energy service and manufacturing company that provides a
variety of services and equipment to the exploration, production and
transmission sectors of the oil and gas industry. The Founding Companies are
engaged principally in the manufacture, reconditioning and distribution of
wellhead equipment for the oil and gas industry, mainly the drilling,
exploration and production segment (Wellhead), the manufacture of flare tips and
ignition systems for plant production facilities (Flare King) and the assembly
of rotary screw compressor units to enhance the production of oil and gas wells
(Hi-Tech). The Company is a Texas corporation. The Reorganization will be
effected simultaneously with and as a condition to the closing of the Offering.
WELLHEAD. The operations of Wellhead consist of the manufacture,
reconditioning, distribution, maintenance and sale of oilfield equipment and
components, principally wellhead equipment, valves, drilling spools and
manifolds. Wellhead obtains such equipment and components by acquiring and
reconditioning used items, by manufacturing items at its facilities or by
acquiring new products directly from manufacturers. Wellhead also reconditions
for a fee out-of-service equipment for various oilfield concerns and performs
onsite installations and repairs.
FLARE KING. Flare King designs, manufactures, installs and services flare
stacks and related ignition, reporting and control devices and systems to
control the onshore and offshore burning of various waste gas compounds.
Full-time experts qualified and trained in the science of gas flaring and full
manufacturing facilities permit Flare King to respond quickly to specific
customer needs both in developing appropriate flare systems and in installing
and servicing such systems. Flare King also maintains a fleet of rental flare
equipment to satisfy customer requirements during maintenance or construction or
pending permanent installation.
HI-TECH. Hi-Tech provides a broad range of natural gas compression
equipment to customers principally in Louisiana, Texas, New Mexico, Oklahoma,
Colorado and Wyoming. Hi-Tech also provides rental operations and maintenance
services to its customers. As of June 30, 1997 Hi-Tech had a fleet of eight
compression rental units with an aggregate capacity of 420 horsepower. Hi-Tech's
products and services are essential to the production, transportation,
processing and storage of natural gas and are provided primarily to energy
producers and processors.
OFFICES. The Company maintains its principal executive offices at 615
Upper North Broadway, Suite 950, Corpus Christi, Texas 78477 and its telephone
number is (512) 882-3536.
3
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company will acquire the Founding Companies in the Reorganization
simultaneously with and as a condition to the closing of the Offering. For
financial statement presentation purposes, Wellhead has been deemed the
"accounting acquiror." The following table presents summary pro forma combined
financial data for the Company, as adjusted for (i) the effects of the
Reorganization, (ii) the effects of certain pro forma adjustments to the
historical financial statements described below, and (iii) the consummation of
the Offering and the application of the net proceeds therefrom. The data
presented below should be read in conjunction with the Selected Pro Forma
Combined Financial Data, Management's Discussion and Analysis of Financial
Condition and Results of Operations, the historical Financial Statements of the
individual Founding Companies and the notes thereto and the Unaudited Pro Forma
Combined Financial Statements and the notes thereto included elsewhere in this
Prospectus.
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ --------------------------
1996 1996 1997
------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA(1)
Revenues....................... $ 10,153 $ 4,605 $ 6,183
Gross profit................... 3,715 1,731 2,677
Selling, general and
administrative expenses...... 2,609 1,142 1,312
Depreciation and amortization
expense(2)................... 243 106 130
Income from operations......... 863 483 1,235
Interest expense............... 74 33 36
Other income (expense), net.... 149 44 77
Income before income tax
provision.................... 938 494 1,276
Income tax provision(3)........ (289) (91) (412)
Net income..................... 649 403 864
Net income per share........... 0.16 0.10 0.21
Weighted average shares
outstanding(4)............... 4,118,750 4,118,750 4,118,750
OTHER DATA
EBITDA(5)...................... $ 1,255 $ 633 $ 1,442
JUNE 30, 1997
--------------------------
PRO FORMA AS
COMBINED(6) ADJUSTED(7)
----------- -----------
BALANCE SHEET DATA
Cash and cash equivalents....... $ 353 $ 4,178
Working capital................. 1,822 5,812
Total assets.................... 6,039 9,864
Long-term debt, including
current maturities............ 1,326 1,106
Redeemable preferred stock, net
of discount................... 907
Stockholders' equity............ 2,152 7,104
(FOOTNOTES ON FOLLOWING PAGE)
4
<PAGE>
- ------------
(1) The pro forma combined statements of operations data assume that the
Reorganization and the Offering were closed on January 1, 1996 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results.
(2) Includes $22,000 for the year ended December 31, 1996 and $11,000 for the
six months ended June 30, 1996 and 1997, respectively, of amortization on
the $331,000 of goodwill to be recorded as a result of the Reorganization
computed on the basis described in the notes to the Unaudited Pro Forma
Combined Financial Statements.
(3) Assumes all taxable income is subject to a corporate tax rate of 40% and all
goodwill is nondeductible.
(4) Includes (i) 3,118,750 shares to be issued in the Reorganization to holders
of ownership interests in the Founding Companies and (ii) 1,000,000 shares
sold in the Offering.
(5) Represents earnings before interest, taxes, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of a
Company's ability to incur and service debt. EBITDA should not be considered
by a prospective purchaser of Common Stock as an alternative to net income
as an indicator of the Company's operating performance or as an alternative
to cash flows as a measure of liquidity.
(6) The pro forma combined balance sheet data assumes that the Reorganization
was consummated on June 30, 1997.
(7) Adjusted for the sale of 1,000,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom. See "Use of Proceeds." Also
adjusted to account for the redemption of the Wellhead preferred stock by
issuing a long-term note in August 1997. The long-term note bears interest
at the rate of eight percent annually, with interest only payable from
September 1, 1997 through January 1, 1998. Beginning February 1, 1998,
principal and interest is to be paid in monthly installments of $19,465.
Upon successful completion of the Offering, the Company intends to use a
portion of the net proceeds of the Offering to pay in full the principal and
accrued interest with respect to the note.
5
<PAGE>
SUMMARY FOUNDING COMPANIES FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary financial data for each of the
individual Founding Companies for the three most recent fiscal years ended
December 31, 1994, 1995 and 1996 and the interim periods ended June 30, 1996 and
1997.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
WELLHEAD
Revenues........................... $ 4,043 $ 4,027 $ 8,011 $ 3,455 $ 5,019
Gross profit....................... 1,494 1,520 2,851 1,267 2,169
Income from operations............. 231 86 653 298 1,047
Net income (1)..................... 123 75 143 114 592
FLARE KING
Revenues........................... $ 1,268 $ 725 $ 1,034 $ 475 $ 654
Gross profit....................... 388 328 492 247 314
Income (loss) from operations...... (224) (123) 66 66 98
Net income (loss).................. (281) (110) 113 88 73
HI-TECH
Revenues........................... $ 337 $ 756 $ 1,108 $ 675 $ 510
Gross profit....................... 134 326 372 217 195
Income from operations............. 35 80 166 130 102
Net income (2)..................... 22 41 106 63 65
</TABLE>
- ------------
(1) Represents net income available for common stockholders.
(2) As adjusted to give effect to income taxes as if taxed at the entity level
rather than treating Hi-Tech, a limited liability company, as a
"pass-through" vehicle.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY,
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE RISK FACTORS AND
OTHER SPECIAL CONSIDERATIONS RELATING TO THE COMPANY AND THE OFFERING SET FORTH
BELOW.
BUSINESS RISKS
INDUSTRY CONDITIONS. Many of the Company's products are sold or leased to
industry sectors that experience significant fluctuations in demand based on
economic conditions, energy prices, consumer demand and other factors beyond the
control of the Company. The Company's operations are materially dependent upon
the levels of activity in oil and natural gas development, production,
processing and transportation. Such activity levels are affected both by
short-term and long-term trends in oil and natural gas prices. In recent years,
oil and natural gas prices, and therefore the level of drilling and exploration
activity, have been extremely volatile. Any prolonged substantial reduction in
oil and natural gas prices would, in all likelihood, depress the level of
exploration and development activity and result in a corresponding decline in
the demand for the Company's products and services. A significant prolonged
decline in oil and natural gas prices could have a material adverse effect on
the Company's business, results of operations and financial condition.
COMPETITION. The oil and gas production equipment, flare systems and
natural gas compression businesses are highly competitive. The Company competes
with several large national and multinational companies, many of which have
greater financial and other resources than the Company. There can be no
assurance that such competitors will not substantially increase the resources
devoted to the development and marketing of products and services competitive
with those of the Company or that new competitors will not enter these
industries. See "The Company -- Competition."
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING
COMPANIES. Before the Offering, each of the Founding Companies has been
operating as a separate entity, although there has been some overlap in
ownership and management. As a condition to the closing of the Offering, the
equityholders of the Founding Companies have agreed to effect the
Reorganization. The management group of United Oilfield Services, Inc. has been
assembled only recently and, although the members of the management group have
previously held and will continue to hold various management positions in one or
more of the Founding Companies, there can be no assurance that they will be able
to manage the combined entity or to implement effectively the Company's
acquisition and internal growth operating strategies. The inability of the
Company to integrate the Founding Companies successfully would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "The Company -- Operating Philosophy and Growth Strategies"
and "Management."
SUBSTANTIAL CAPITAL REQUIREMENTS. The Company makes, and intends to
continue to make, substantial capital investments in additional oilfield
equipment and its compressor rental fleet. Historically, the Company has
financed these investments through internally generated funds and bank debt. The
Company believes that it will have sufficient cash provided by the Offering, the
Company's operations and borrowings under the Company's existing credit
facilities with various banks to fund these capital needs. There can be no
assurance, however, that the Company will generate sufficient cash flow or have
sufficient access to external funding to continue to satisfy its capital
requirements. Failure to generate sufficient cash flow, together with the
absence of alternative sources of capital, could have a material adverse effect
on the Company's growth, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
AVAILABILITY AND INTEGRATION OF ACQUISITIONS. As part of its growth
strategy, the Company intends to pursue the acquisition of other companies,
assets and product lines that either complement or expand its existing business.
Each such acquisition will involve a number of potential risks, such as the
diversion of management's attention to the assimilation of the operations and
personnel of the acquired businesses and possible short-term adverse effects on
the Company's operating results during the integration process. The Company will
also routinely conduct preliminary discussions with numerous companies
concerning
7
<PAGE>
possible acquisitions. The Company is unable to predict whether or when any
prospective candidate will become available or the likelihood of a material
acquisition being completed. The Company may seek to finance any such
acquisition through the issuance of new debt and/or equity securities. If the
Company proceeds with an acquisition, and if such acquisition is relatively
large and consideration is in the form of cash, a substantial portion of the
Company's financial resources could be used in order to consummate any such
acquisition. See "The Company -- Operating Philosophy and Growth Strategies."
OPERATING RISKS AND INSURANCE. The Company's equipment and services are
provided to operations that are subject to hazards inherent in the oil and gas
industry, such as blowouts, explosions, craterings, fires and oil spills.
Litigation arising from a catastrophic occurrence at a location where the
Company's equipment and services are used may result in the Company being named
as a defendant in lawsuits asserting potentially large claims. The Company
maintains insurance coverage that it believes to be customary in the industry
against these hazards. There can, however, be no assurance that the Company will
be able to maintain adequate insurance in the future at rates it considers
reasonable or that insurance will continue to be available on terms as favorable
as the Company's existing arrangements. In addition, the insurance is subject to
coverage limits, and the occurrence of a significant event or adverse claim in
excess of the insurance coverage limits maintained by the Company or which is
not covered by insurance could have a material adverse effect on the Company's
financial condition and results of operations.
RELIANCE ON SIGNIFICANT CUSTOMERS. The Company's businesses are dependent
on securing and maintaining customers by delivering prompt, reliable and
high-quality service and reliable, high-performance products. While the Company
is not dependent on any one customer and the identity of customers of the
Company does vary from year to year, the loss of one or more significant
customers could, at least on a short-term basis, have an adverse effect on the
Company's results of operations. See "The Company -- The Wellhead Business,"
"-- The Flare Business" and "-- The Compression Business" for information as
to customer concentration.
ENVIRONMENTAL LIABILITY RISKS. As a result of its fabrication and
refurbishing operations, the Company generates or manages hazardous wastes, such
as solvents, thinner, waste paint, waste oil, washdown wastes, and sandblast
material. The Company attempts to use generally accepted operating and disposal
practices and, with respect to acquisitions, will attempt to identify and assess
whether there is any contamination before completing an acquisition. Based on
the nature of the industry, however, hydrocarbons or other wastes may have been
disposed of or released on or under properties owned, leased, or operated by the
Company or on or under other locations where such wastes have been taken for
disposal. These properties and the wastes disposed thereon may be subject to
federal or state environmental laws that could require the Company to remove the
wastes or remediate sites where they have been released. See also "Governmental
Regulation" below and "The Company -- Government Regulation."
GOVERNMENTAL REGULATION. The Company is subject to various federal, state
and local laws and regulatory standards relating to safety, health and the
environment, including regulations regarding emission controls. The Company
believes that it is in substantial compliance with such laws and regulations and
that the phasing in of emission controls and other known standards at the rate
currently contemplated by existing laws and regulations will not have a material
adverse effect on the Company's business, results of operations or financial
condition. However, various state and federal agencies from time to time
consider adopting new laws and regulations or amending existing laws and
regulations regarding environmental protection. While the Company may be able to
pass on to its customers the additional costs of complying with such laws, there
can be no assurances that attempts to do so will be successful. Accordingly, new
laws or regulations or amendments to existing laws or regulations could require
the Company to undertake significant capital expenditures and could otherwise
have a material adverse effect on the Company's business, results of operations
and financial condition.
CONTROL BY EXISTING MANAGEMENT AND SHAREHOLDERS. Upon the completion of
the Reorganization and the Offering, the Company's executive officers and
directors, former shareholders of the Founding Companies and entities affiliated
with them will beneficially own approximately 76% of the Common Stock of the
Company. As a result, these persons, if they chose to act together, would have
sufficient voting power
8
<PAGE>
to significantly influence the direction and policies of the Company and the
outcome of any matter requiring stockholder approval, including mergers,
consolidations and the sale of all or substantially all of the assets of the
Company, and to prevent or cause a change in control of the Company.
OFFERING RISKS
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; BEST EFFORTS
UNDERWRITING. There has been no public market for the Common Stock before the
Offering. Although the Company intends to apply for listing on a national stock
exchange or automated quotation system of a securities association registered
with the Commission, there can be no assurance that the Common Stock will be
approved for listing, that an active trading market will develop subsequent to
the Offering, that, if developed, it will be sustained or that the Company will
be able to maintain the standards that must be met to avoid having the shares
delisted. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Underwriter and may
bear no relationship to the price at which the Common Stock will trade 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 subject to significant fluctuation in
response to numerous factors, including variations in the annual or quarterly
financial results of the Company or its competitors, the liquidity of the market
for the Common Stock, investor perceptions of the Company and the energy
services industry and general economic and other conditions. There is no
commitment on the part of the Underwriter or any person to purchase any of the
shares offered hereby. The shares are being offered on a best efforts, all or
none basis.
UNDERWRITER'S LACK OF EXPERIENCE WITH INITIAL PUBLIC OFFERINGS. Although
the Underwriter offers a broad range of investment and financial services and
has acted as a member of the underwriting group in connection with several
public offerings, the Offering is the first initial public offering undertaken
by the Underwriter individually on behalf of an issuer. Moreover, although the
Underwriter has a trading department and has served as a market maker of equity
securities, with respect to which it has maintained up to twelve trading
positions at any given time, it has limited experience in aftermarket trading or
support of initial public offerings. No assurance can therefore be given that
the Underwriter can successfully complete the Offering or that the Underwriter
will, upon successful completion of the Offering, be able to support the
aftermarket.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market subsequent to the Offering could adversely affect the
market price of the Common Stock. Upon consummation of the Offering, the Company
will have 4,118,750 shares of Common Stock outstanding. Of these shares, the
shares of Common Stock issued pursuant to the Offering will be freely tradable
without restriction or further registration under the Securities Act, except for
shares held by persons deemed to be "affiliates" of the Company or acting as
"underwriters" as those terms are defined in the Securities Act. The remaining
3,118,750 shares of Common Stock outstanding will have been issued in the
Reorganization without registration under the Securities Act. They will be
"restricted securities" within the meaning of Rule 144 under the Securities
Act and will be eligible for resale subject to the volume, manner of sale,
holding period and other limitations of Rule 144. In addition, warrants to
purchase 100,000 shares of Common Stock will be issued to the Underwriter if the
Offering is successfully completed and will be exercisable for a four-year
period beginning one year after the issuance thereof. The executive officers and
directors of the Company and certain other stockholders have agreed not to sell
any shares of Common Stock without the consent of the Underwriter for a period
of one year from the date of the closing of the Offering. See "Shares Eligible
for Future Sale" and "Underwriting."
DIVIDENDS. The Company is a newly organized corporation that has never
paid cash dividends on its Common Stock and does not anticipate paying any such
cash dividends in the foreseeable future. In addition, the Founding Companies'
existing lines of credit include restrictions on their ability to pay dividends
without the consent of the lenders and, if the Company is successful in
obtaining one or more new lines of credit, it is likely that any such facility
will include restrictions on the ability of the Company to pay dividends without
the consent of the lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
9
<PAGE>
DILUTION. Shares of Common Stock purchased by investors participating in
the Offering will incur immediate substantial dilution from the offering price
as compared to the book value of such shares. To the extent outstanding options
and warrants to purchase the Company's Common Stock are exercised, there may be
further dilution. See "Dilution."
ANTI-TAKEOVER MEASURES. The Company's Articles of Incorporation and Bylaws
(the "Charter Documents") contain provisions that may make it more difficult
for a third party to acquire, or may discourage acquisition bids for, the
Company. The Board of Directors of the Company is authorized, without action of
its stockholders, to issue authorized but unissued common and preferred stock.
The existence of undesignated preferred stock and authorized but unissued common
stock enables the Company to make more difficult or to discourage an attempt to
obtain control of the Company by means of a merger, tender offer, proxy contest
or otherwise. The Charter Documents provide further that (i) directors be
elected for three-year terms, with approximately one-third of the Board of
Directors standing for election each year, (ii) to alter or repeal the staggered
board provision or other measures in the Charter Documents relating to the
matters listed in this paragraph, the affirmative vote of the holders of not
less than 80% of the votes entitled to be cast by the holders of all stock
entitled to vote in the election of directors is required, (iii) the unanimous
vote of the Board of Directors or the affirmative vote of the holders of not
less than 80% of the votes entitled to be cast by the holders of all stock
entitled to vote in the election of directors is required to change the size of
the Board of Directors, (iv) directors may only be removed for cause by holders
of not less than 80% of the Common Stock, (v) a stockholder must notify the
Company at least that number of days in advance of the meeting at which such
holder intends to bring up items of business or nominate directors at any annual
meeting of stockholders as may be required under federal securities laws for
companies with a class of stock registered under the Securities Exchange Act of
1934, as amended, (vi) a special meeting of stockholders may be called by
stockholders only if at least 25% of the stockholders of the Company request
that a special meeting be called, (vii) any action required or permitted to be
taken by stockholders of the Company must be effected at a duly called annual or
special meeting of such stockholders and may not be effected by consent in
writing by such stockholders and (viii) the affirmative vote of the holders of
66 2/3% of the Company's capital stock entitled to vote thereon is required to
approve the merger, dissolution or sale of all or substantially all of the
assets of the Company.
10
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company will acquire the Founding Companies in the Reorganization
simultaneously with and as a condition to the closing of the Offering. For
financial statement presentation purposes, however, Wellhead has been identified
as the "accounting acquiror." The following table presents summary pro forma
combined financial data for the Company, as adjusted for (i) the effects of the
Reorganization, (ii) the effects of certain pro forma adjustments to the
historical financial statements described below, and (iii) the consummation of
the Offering and the application of the net proceeds therefrom. The data
presented below should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations, the historical
Financial Statements of the individual Founding Companies and the notes thereto
and the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------
1996(1) 1996 1997
------------ ----------- -----------
STATEMENTS OF OPERATIONS DATA(1)
Revenues......................... $ 10,153 $ 4,605 $ 6,183
Gross profit..................... 3,715 1,731 2,677
Selling, general and
administrative expenses........ 2,609 1,142 1,312
Depreciation and amortization
expense(2)..................... 243 106 130
Income from operations........... 863 483 1,235
Interest expense................. 74 33 36
Other income (expense), net...... 149 44 77
Income before income tax
provision...................... 938 494 1,276
Income tax provision(3).......... (289) (91) (412)
Net income....................... 649 403 864
Net income per share............. 0.16 0.10 0.21
Weighted average shares
outstanding(4)................. 4,118,750 4,118,750 4,118,750
OTHER DATA
EBITDA(5)........................ $ 1,255 $ 633 $ 1,442
JUNE 30, 1997
--------------------------
PRO FORMA AS
COMBINED(6) ADJUSTED(7)
----------- -----------
BALANCE SHEET DATA
Cash and cash equivalents.......... $ 353 $ 4,178
Working capital.................... 1,822 5,812
Total assets....................... 6,039 9,864
Long-term debt, including current
maturities........................ 1,326 1,106
Redeemable preferred stock, net of
discount.......................... 907
Stockholders' equity............... 2,152 7,104
- ------------
(1) The pro forma combined statements of operations data assume that the
Reorganization and the Offering were closed on January 1, 1996 and are not
necessarily indicative of the results of the Company would have obtained had
these events actually then occurred or of the Company's future results.
(2) Includes $22,000 for the year ended December 31, 1996 and $11,000 for the
six months ended June 30, 1996 and 1997, respectively, of amortization on
the $331,000 of goodwill to be recorded as a result of
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
11
<PAGE>
the Reorganization computed on the basis described in the notes to the
Unaudited Pro Forma Combined Financial Statements.
(3) Assumes all taxable income is subject to a corporate tax rate of 40% and all
goodwill is nondeductible.
(4) Includes (i) 3,118,750 shares to be issued in the Reorganization to holders
of ownership interests in the Founding Companies and (ii) 1,000,000 shares
sold in the Offering.
(5) Represents earnings before interest, taxes, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of a
Company's ability to incur and service debt. EBITDA should not be considered
by a prospective purchaser of Common Stock as an alternative to net income
as an indicator of the Company's operating performance or as an alternative
to cash flows as a measure of liquidity.
(6) The pro forma combined balance sheet data assumes that the Reorganization
was consummated on June 30, 1997.
(7) Adjusted for the sale of 1,000,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom. See "Use of Proceeds." Also
adjusted to account for the redemption of the Wellhead preferred stock by
issuing a long-term note in August 1997. The long-term note bears interest
at the rate of eight percent annually, with interest only payable from
September 1, 1997 through January 1, 1998. Beginning February 1, 1998,
principal and interest is to be paid in monthly installments of $19,465.
Upon successful completion of the Offering, the Company intends to use a
portion of the net proceeds of the Offering to pay in full the principal and
accrued interest with respect to the note.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Pro Forma Combined Financial Data, the Unaudited Pro Forma Combined Financial
Statements, and the historical Financial Statements of the individual Founding
Companies and related notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company was formed to combine the operations of the Founding Companies,
which provide products and services to the energy industry. The Founding
Companies are engaged in: (1) the manufacture, reconditioning and distribution
of wellhead equipment for the oil and gas industry, mainly the drilling,
exploration and production segments, (2) the manufacturing of flare tips and
ignition systems for plant and production facilities, and (3) the assembling of
rotary screw compressor units to enhance the production of oil and gas wells.
The financial data (dollar amounts in thousands) set forth below for the
years ended December 31, 1996 and the six months ended June 30, 1996 and 1997
are derived from the Unaudited Pro Forma Combined Statements of Operations of
United Oilfield Services, Inc. included elsewhere herein. The data set forth
below for the years ended December 31, 1994 and 1995 were prepared on a
consistent basis with such later periods and were derived from the historical
statements of the individual Founding Companies. Combined results of operations
excludes other income and expenses, interest expense and income taxes.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................... $ 5,648 100.0% $ 5,508 100.0% $ 10,153 100.0% $ 4,605 100.0%
Cost of goods sold.................. 3,631 64.3% 3,334 60.5% 6,438 63.4% 2,874 62.4%
--------- --------- --------- ---------
Gross profit.................... 2,017 35.7% 2,174 39.5% 3,715 36.6% 1,731 37.6%
Selling, general and administrative..... 1,813 32.1% 1,892 34.4% 2,609 25.7% 1,142 24.8%
Depreciation and amortization........... 161 2.9% 240 4.4% 221 2.2% 95 2.1%
--------- --------- --------- ---------
Operating income.................... $ 43 0.8% $ 42 0.8% $ 885 8.7% $ 494 10.7%
========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
Sales................................... $ 6,183 100.0%
Cost of goods sold.................. 3,506 56.7%
---------
Gross profit.................... 2,677 43.3%
Selling, general and administrative..... 1,312 21.2%
Depreciation and amortization........... 119 1.9%
---------
Operating income.................... $ 1,246 20.2%
=========
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total sales increased $1,578,000 or 34.3% from $4,605,000 in the six months
ended June 30, 1996 to $6,183,000 in the six months ended June 30, 1997.
Operating income increased $752,000 or 152.6% from $494,000 to $1,246,000 for
the same periods. These increases resulted primarily from improved market
conditions. This improvement in market conditions resulted principally from an
increase in the price of natural gas and crude oil which, in turn, increased
exploration and production activity which increased the demand for wellhead
equipment and gas compressors. Stricter enforcement of clean air regulations,
which has a direct effect on the demand for flare stacks, also contributed to
the increase.
Cost of goods sold consists of cost associated with manufacturing materials
and components, labor, quality control, subcontracting, installation, and
shipping of the Company's products. Cost of goods sold increased $632,000 or
18.0% from $2,874,000 for the six months ended June 30, 1996 to $3,506,000 for
the same period in 1997. Cost of goods sold as a percentage of sales decreased
5.7% with respect to the same periods. This favorable decrease resulted from
price increases in products sold by the Company and an increase in labor
efficiency as sales increased.
Selling, general and administrative expense increased 14.9% from $1,142,000
for the six months ended June 30, 1996 to $1,312,000 for the same period in
1997, but declined 3.6% as a percentage of sales. This is a result of additional
cost to support increased sales and an increase in profit-based incentive
compensation payable to employees and officers.
Depreciation and amortization expense increased $24,000 or 24.0% from
$95,000 for the six months ended June 30, 1996 to $119,000 for the same period
in 1997. The increase resulted from a continuing expansion in the gas compressor
rental fleet and other capital expenditures.
13
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total sales increased $4,645,000 or 84.3% from $5,508,000 for the year
ended December 31, 1995 to $10,153,000 for the year ended December 31, 1996 and,
with respect to the same periods, operating income increased $843,000 from
$42,000 to $885,000. These increases resulted principally from improved market
conditions and the opening of a wellhead facility in Shreveport, Louisiana which
included an additional $1,363,000 in sales for the period.
Cost of goods sold increased $3,104,000 or 93.1% from $3,334,000 for the
year ended December 31, 1995 to $6,438,000 for the year ended December 31, 1996.
This increase is the result of additional costs to support an increase in sales,
purchases of consumable supply items for the newly-opened Shreveport branch of
Wellhead, and the implementation of a new inventory policy in January 1996. This
new policy resulted in an inventory write down of $219,000 charged to cost of
goods sold. Inventory items under the new policy are written off monthly as they
are determined to be obsolete. This policy did not have a material effect on the
prior years' financial results.
Selling, general and administrative expenses increased $718,000 or 37.9%
from $1,892,000 for the year ended December 31, 1995 to $2,609,000 for the year
ended December 31, 1996. This increase was necessary to support increased sales
activity and an incentive program to compensate employees and officers for
increased profitability.
Depreciation and amortization expense decreased $19,000 or 8.3% from
$240,000 for the year ended December 31, 1995 to $221,000 for the year ended
December 31, 1996. This decrease is primarily the result of certain assets
becoming fully depreciated and that did not require replacement.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total sales decreased $140,000 or 2.5% from $5,648,000 for the year ended
December 31, 1994 to $5,508,000 for the year ended December 31, 1995. This
decrease resulted principally from the fact that the industry, as a whole,
experienced minimal growth and in addition, the Company was in the process of
implementing a new marketing strategy for branch locations acquired in the
acquisition of WRI Inc.
Cost of goods sold decreased $297,000 or 8.9% from $3,631,000 for the year
ended December 31, 1994 to $3,334,000 for the year ended December 31, 1995. This
was the result of changes in managerial and cost control procedures in the newly
acquired branches of Wellhead and also as a result of a general decrease in
sales activity.
Selling, general and administrative expense increased $79,000 or 4.2% from
$1,813,000 for the year ended December 31, 1994 to $1,892,000 for the year ended
December 31, 1995. This increase was the result of a full year of certain
administrative costs connected with the acquisition and integration of four new
locations added to Wellhead.
Depreciation and amortization expense increased $79,000 or 49.0% from
$161,000 for the year ended December 31, 1994 to $240,000 for the year ended
December 31, 1995. The increase resulted primarily from the acquisition of WRI,
Inc. in June 1994.
INCOME TAX BENEFIT
The Founding Companies account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Wellhead, as of June 30, 1997, has an operating loss carryforward of
approximately $578,000 for federal income taxes available to offset future
income, expiring, if not used, periodically through the year 2009. The net
operating loss carryforward was acquired in the acquisition of WRI, Inc. and is
subject to an annual limitation of approximately $74,000. Flare King has a
capital loss carryforward of approximately $6,300.
SEASONALITY AND ECONOMIC CONDITIONS
The Company's sales are affected by the timing of planned drilling,
development and construction by its energy industry customers. The fourth
quarter is generally favorably affected.
14
<PAGE>
INFLATION
Management does not believe that inflation has had a material impact upon
the results of operations during the years ended December 31, 1994, 1995, 1996,
and the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Founding Companies have funded their operations mainly through cash
flows generated from operations. On a combined basis, the Founding Companies
generated $524,000 of net cash flow from operating activities during 1996. At
December 31, 1996, the combined Founding Companies had cash of $471,000, working
capital of $1,416,000, and total long-term debt of $1,312,000, of which $667,000
was classified as current. On a pro forma basis, after giving effect to the
Reorganization and the application of the net proceeds from the Offering, the
Company and the Founding Companies would have had, on a combined basis, a cash
balance of approximately $4,000,000, working capital of approximately $5,800,000
and total debt of approximately $1,092,000, $567,000 of which would be
classified as current. Certain debts of the Founding Companies have from time to
time been guaranteed by officers and significant shareholders thereof. See
"Certain Transactions -- Existing Matters." As these debts mature and are paid
or refinanced, the Company does not anticipate that such guarantees will be
extended or renewed or that new guarantees will be executed.
Upon completion of the Offering, the Company intends to actively pursue
acquisitions; no specific candidates have yet been identified. The Company
expects to fund future acquisitions through borrowings (the Company at June 30,
1997 had a total unused bank line of credit of approximately $836,000), cash
flow from operations and the issuance of additional common stock or other equity
or debt securities of the Company. Capital expenditures for equipment and
expansion of facilities will be funded from cash flow from operations and will
be supplemented to the extent necessary by borrowings. To the extent the Company
funds a significant portion of the consideration for future acquisitions with
cash, it may have to increase the credit facilities currently available to it or
obtain other sources of financing. The Company believes that the revenues
generated by its operations and the proceeds from the Offering will be adequate
to meet the Company's anticipated cash, capital and debt service requirements
for at least twelve months following the Offering.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered hereby, after deducting underwriting commissions and
estimated expenses of the Offering, are estimated to be $5.0 million, assuming
an offering price of $6.00 per share. From the net proceeds, the Company intends
first to repay in full the principal and accrued interest with respect to a
promissory note in the principal amount of $960,000, executed by Wellhead in
favor of Gay A. Roane and due in full on or before January 1, 2003. The
principal amount bears interest at the rate of eight percent per annum. The
Company next intends to retire current indebtedness in the outstanding amounts
of approximately $120,000 and $100,000 under a $150,000 Commercial Revolving
Note due June 19, 2000 and $125,000 Commercial Draw Note due June 19, 1998,
respectively, each dated June 19, 1997, made by Flare King in favor of Midland
American Bank, Midland, Texas. As an accommodation to Flare King, Wallace C.
Sparkman, formerly an executive officer and a significant shareholder of Flare
King, acted as co-maker in both instances. These obligations accrue interest at
an annual rate of 2.75% over the prime rate published in THE WALL STREET JOURNAL
(8.5% at October 1, 1997). It is anticipated that approximately $200,000 of the
remaining net proceeds will be used to finance an expansion of the Company's
sales and marketing operations, approximately $250,000 will be used to expand
inventory and the remainder will be used for general corporate purposes, current
working capital and the cash portion of future acquisitions. The Company is not
currently involved in negotiations with respect to, and has no agreement or
understanding regarding, any future acquisitions, which the Company anticipates
will be in the oil and gas services industry. No specific amounts for such
purposes have been allocated and the Company reserves the right to change the
allocation set forth above or to allocate funds received in the Offering for
other purposes upon determination by the Board of Directors of the Company that
such reallocation would be in the best interest of the Company. Pending such
uses, the net proceeds will be invested in investment-grade, short-term,
interest-bearing instruments.
16
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization as of June 30, 1997 (i) of the Company on a pro
forma combined basis giving effect to the Reorganization, and (ii) of the
Company on such a pro forma combined basis, as adjusted to give effect to the
Offering and the application of a portion of the estimated net proceeds
therefrom as described in "Use of Proceeds." This table should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements of the
Company and the notes thereto and the historical Financial Statements of the
individual Founding Companies and the notes thereto included elsewhere in this
Prospectus.
JUNE 30, 1997
----------------------------
PRO FORMA
PRO FORMA COMBINED,
COMBINED AS ADJUSTED
---------- --------------
(IN THOUSANDS)
Current maturities of long-term
debt(1)............................ $ 806 $ 706
========== ==============
Long-term obligations, less current
maturities(1)...................... $ 520 $ 400
Preferred stock, $0.01 par value,
5,000,000 shares authorized, none
issued.............................
Common stock, $0.01 par value,
25,000,000 shares authorized,
3,118,750 shares and 4,118,750
shares issued and outstanding,
respectively....................... 31 41
Additional paid-in capital........... 1,265 6,207
Retained earnings.................... 856 856
---------- --------------
Total stockholders' equity...... 2,152 7,104
---------- --------------
Total capitalization....... $2,672 $7,504
========== ==============
- ------------
(1) For a description of the Company's long-term debt, see notes to Unaudited
Pro Forma Combined Financial Statements and notes to the historical
Financial Statements of the individual Founding Companies included elsewhere
herein.
17
<PAGE>
DIVIDEND POLICY
The Company is a newly organized corporation that has never paid dividends
on its Common Stock. The Company intends to retain all of its future earnings,
if any, to finance the expansion of its business and for general corporate
purposes, including future acquisitions, and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The payment of
dividends in the future will depend upon the Company's earning levels, capital
requirements, financial condition, credit and loan agreements and other factors
deemed relevant by the Board of Directors. Certain subsidiaries of the Company
are restricted under existing credit and loan agreements from paying dividends.
DILUTION
The pro forma combined net tangible book value of the Company at June 30,
1997 was approximately $1.4 million or $0.46 per share of Common Stock. Net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by 3,118,750 shares of
Common Stock, the number of shares to be issued in the Reorganization. Net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering.
After giving effect to the sale in the Offering of 1,000,000 shares of
Common Stock, the deduction of underwriting commissions and estimated expenses
of the Offering and the receipt and application of the estimated net proceeds
therefrom of $5.0 million, the pro forma combined net tangible book value of the
Company at June 30, 1997 would have been approximately $6.5 million or $1.56 per
share. This represents an immediate increase in pro forma combined net tangible
book value of $1.10 per share to existing stockholders and an immediate dilution
in pro forma combined net tangible book value of $4.44 per share to purchasers
of Common Stock in the Offering. The following table illustrates this pro forma
dilution:
Assumed initial public offering price
per share.......................... $ 6.00
Pro forma combined net tangible
book value per share before the
Offering....................... $ 0.46
Increase in pro forma combined
net tangible book value per
share attributable to new
investors...................... 1.10
---------
Pro forma combined net tangible book
value per share after the
Offering........................... 1.56
---------
Dilution per share to new
investors.......................... $ 4.44
=========
Dilution as a percentage of the
assumed initial public offering
price.............................. 74%
=========
The following table sets forth, on a pro forma combined basis to give
effect to the Reorganization at June 30, 1997, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by existing stockholders and the new investors purchasing
shares of Common Stock from the Company in the Offering, before deducting
underwriting commissions and estimated Offering and Reorganization expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 3,118,750 75.7 $ 2,152,000(1) 26.0 $0.69
New investors........................ 1,000,000 24.3 6,000,000 74.0 $6.00
----------- ------- ------------ -------
Total........................... 4,118,750 100.0 $ 8,152,000 100.0
=========== ======= ============ =======
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies after the Reorganization, but
before the Offering.
18
<PAGE>
THE COMPANY
THE INDUSTRY
Based on its operating familiarity with the industry, management believes
that several large, well capitalized companies account for the majority of the
market. A large number of small privately held companies operating in a single
or limited number of locations make up the remainder of the market. The Company
believes there is a significant opportunity for a well capitalized regional
company to provide remanufacturing of used equipment to the industry together
with new systems and equipment. The fragmented nature of the industry,
particularly of the remanufacturing aspect, should provide the Company with
significant opportunities to expand both through internally generated growth and
acquisitions.
The Company believes that the fundamental force driving the demand for
equipment used in the oil and gas specialty service industry, including the
products and services offered by the Company, is the growing consumption of
natural gas. As more gas is consumed, the demand for such products and services
increases. Demand for such equipment and services is thus expected to continue
to rise as a result of (i) the increasing demand for energy, both domestically
and abroad; (ii) environmental considerations which provide strong incentives to
use natural gas in place of other carbon fuels; (iii) implementation of
international environmental and conservation laws for conservation of natural
gas; (iv) the aging of producing natural gas reserves worldwide; and (v) the
extensive supply of as yet undeveloped natural gas reserves. As producing
natural gas reserves are depleted, demand for remanufacture of wellhead
equipment and for gas compression facilities increases. Development of as yet
undeveloped natural gas reserves adds to the supply of used wellhead equipment
as such reserves are produced and maintains if not increases demand for gas
compression facilities. The Company believes that it is especially well
positioned through its remanufacturing, gas compression and flare system
activities to take advantage of the aging of reserves and the development of new
reserves.
The products and services required by the oil and gas specialty service
industry typically must be highly engineered to meet demanding and unique
customer specifications. The fundamental nature of such products and services
has, however, been stable and not subject to rapid technological change. It is
often therefore more efficient and less costly to remanufacture existing
equipment.
THE BUSINESS
Simultaneously with the closing of the Offering, the Company will cause the
Reorganization to be effected, pursuant to which the Founding Companies will be
acquired, thereby creating a regional company providing a range of specialty
energy industry services and products. The Reorganization is being effected
primarily in response to increased demand in the natural gas exploration,
production, processing, transmission and user markets. The Company is involved
in the sale and service of (i) remanufactured wellhead equipment and other
specialized production equipment, (ii) natural gas flare stacks and ignition
systems and (iii) natural gas compressors. Wellhead has manufacturing facilities
located in Houston, Midland and Robstown, Texas and Shreveport and Lafayette,
Louisiana, where it remanufactures and services used oilfield wellhead equipment
and other specialized production equipment. Flare King has a manufacturing
facility located in Midland, Texas, where it designs and manufactures natural
gas flare stacks and ignition systems for use in oilfield, refinery, and
petrochemical plant applications. Hi-Tech has a facility located in Midland,
Texas, where it assembles natural gas compressor units. See " -- The Wellhead
Business," " -- The Flare Business," " -- The Compression Business" and the
historical Financial Statements of the individual Founding Companies included
herein.
The Founding Companies currently provide their products and services
largely to a customer base of approximately 440 companies, out of a potential
20,400 independent oil and gas exploration and production companies operating in
Louisiana, Texas, New Mexico, Oklahoma, Colorado and Wyoming. The Company
believes that because such independent producers are actively buying fields from
the major companies, the market for the Company's products and services will
continue to expand.
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The Company is a Texas corporation organized on October 20, 1997 with Alvin
H. Dueitt as its sole shareholder pending the Reorganization. Its principal
executive offices are located at 615 Upper North Broadway, Suite 950, Corpus
Christi, Texas 78477. Its telephone number is (512) 882-3536.
OPERATING PHILOSOPHY AND GROWTH STRATEGIES
The Company's operating philosophy is to maximize profit while preserving
the integrity of shareholder equity. Management believes that this can be
achieved by implementing the following growth strategies:
ACCELERATING INTERNAL GROWTH. The Company believes that following the
Reorganization and the Offering and in conjunction with implementation of its
acquisition plans, acceleration of internal growth can be initiated by combining
its existing separate marketing efforts and establishing a regional sales and
marketing program to increase its business opportunities. The Company also
believes that it can accelerate internal growth by more actively pursuing
international sales. Although it has on occasion made international sales in the
past, it has lacked the financial resources to pursue such sales aggressively
before the Offering.
CAPITALIZING ON NEW CORPORATE STRUCTURE. Centralization of purchasing
operations should increase the Company's ability to negotiate more favorable
terms with respect to insurance and financing than were available to the
Founding Companies as independent operations. Management further believes that
there will be opportunities to eliminate redundant facilities and equipment
through coordination of subsequently acquired operations and to benefit from
cross-marketing and increased equipment utilization.
EXPANDING THROUGH ACQUISITIONS. The Company intends to pursue an
aggressive acquisition strategy to enhance its position in its current markets
and to acquire operations in new markets by expanding into new geographic areas.
The Company is actively seeking to acquire well established manufacturing and
service operations that either broaden the range of services provided by the
Company in its existing markets or expand the geographic scope of the Company's
current operations. The Company is not currently involved in negotiations with
respect to, and has no agreements or understandings with respect to any
potential acquisitions.
THE WELLHEAD BUSINESS
The production of oil and gas requires the support of specialized
production equipment and engineering services, particularly as production
operations have expanded into ever more remote and inhospitable locations.
Growth in the market for wellhead equipment is primarily related to the price of
oil and gas, although the market for remanufactured wellhead and other
specialized production equipment can remain strong in a price downturn as
producers maintain already operating wells as efficiently as possible.
Wellhead was formed in 1990 to remanufacture wellhead equipment. In June
1994, Wellhead acquired WRI, Inc. with facilities in Robstown, Houston and
Midland, Texas and Lafayette, Louisiana, expanding its geographical area and its
customer base. In 1996 Wellhead also opened a facility in Shreveport, Louisiana.
Wellhead manufactures, supplies, repairs, installs, maintains and
refurbishes pressure control equipment used at the wellhead in the drilling for
and production and transmission of oil and gas, both onshore and offshore. The
primary products include wellheads, gate valves, ball valves, drilling spools
and manifolds. The equipment is manufactured or remanufactured in a variety of
sizes and to various specifications with working pressure ratings up to 20,000
pounds per square inch. Wellhead equipment is designed to support the casing and
production pipe on a completed well and includes casing head housings, casing
heads, casing spools, tubing heads and casing and tubing hangers. Valves of
different sizes and design are assembled with other components into a device
known as the "Christmas Tree," which is mounted on the wellhead equipment and
is used to control pressure and the flow of oil and gas from a producing well.
Most Christmas Trees are custom designed to meet individual customer
requirements.
A substantial portion of Wellhead's oilfield equipment business is
conducted through surplus wellhead equipment management programs. Under these
programs, Wellhead collects out-of-service equipment at the customer's wellhead
or accepts delivery of a customer's equipment at one of its locations. Such
equipment
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is inspected by Wellhead upon its receipt and, before being inventoried, is
classified according to its condition and degree of obsolescence. If deemed
salvageable, the equipment is cleaned and disassembled. Components are either
replaced or repaired. The equipment is then remachined on Wellhead's lathes,
boring mills, radial drills, milling machines and grinding machines to new
equipment standards. Substantially all remanufacturing is done in accordance
with American Petroleum Institute ("API") specifications.
Reconditioned equipment may thereafter be reemployed by the customer in
accordance with its requirements. The customer is charged for this
reconditioning service based on an established price schedule, in addition to
any charges incurred for receiving, inspecting and classifying the equipment. In
certain cases, Wellhead may also purchase the customer's used equipment for
resale to other customers. The resale price of the equipment is typically based
upon a percentage of the current list price for new equipment. The payment for
the customer's equipment is occasionally in the form of a merchandise credit to
be applied toward a future purchase by that customer. Although Wellhead does not
expressly warrant reconditioned equipment, Wellhead does work with its customers
to correct or resolve any complaints or other issues raised by a customer.
In addition to remanufacturing the equipment of its customers, Wellhead
also purchases used equipment for its own account from various sources, which it
then remanufactures for resale. Using remanufactured or reconditioned equipment
allows the customer to lower initial drillwell capital costs, which
significantly improves overall exploration and production project economics and
reduces oil and gas product price sensitivity.
The sales and service locations of Wellhead act, in part, as clearing
houses for oilfield operators. If an operator at a particular location requires
a unique component held by Wellhead for another customer, Wellhead will contact
the customer and effect a purchase or exchange for the required equipment and
resell such equipment to the customer requiring it. Wellhead maintains a
computerized inventory system which allows it to determine if requested
equipment is available at any of its locations at the time requested.
Of Wellhead's total sales of wellhead equipment, sales of remanufactured
and refurbished wellhead equipment account for approximately 50%. Sales of new
wellhead equipment account for approximately 25%, and service renewals,
transportation and rentals account for the remainder. Wellhead generally
achieves a higher margin on sales of refurbished equipment but anticipates that
sales of new equipment will increase over time as a percentage of the whole.
Wellhead had sales to five customers that represented 19% of total Wellhead
revenue for the year ended December 31, 1996. No single customer accounted for
over 10%, and the identity of customers varies from year to year, but loss of a
group of customers accounting for such a portion of the business could have a
material adverse impact on the business.
THE FLARE BUSINESS
The drilling for and production of oil and gas results in certain gaseous
hydrocarbon byproducts that generally must be burned off at the source. Although
flares and flare systems of some sort have been part of the oilfield and
petrochemical environment for many years, increasing regulation of emissions
have resulted in a significant increase in demand for flare systems of
increasingly complex design meeting the strictest environmental regulations.
Growth is primarily related, as is the case for most industries connected with
oil and gas, to the price of oil and gas.
Flare King was acquired by its current owners in 1993. Flare King designs,
manufactures, installs and services flare stacks and related ignition and
control devices for onshore and offshore burning of gas compounds such as H2S,
CO2, natural gas and LPGs. Flare King produces two ignition systems for varied
applications: (a) a standing jet-like pipe for minimal fuel consumption, with a
patented electronic igniter; and (b) an electronic sparked ignition system.
Flare tips are available in carbon steel as well as many grades of stainless
steel alloys and the stacks can be free standing, guyed, or trailer mounted. The
flare stack and ignition systems are designed to use a smokeless
state-of-the-art design for reduced emissions which meet or exceed government
regulated clean air standards. The Flare King product line includes
solar-powered flare ignition systems and thermocouple control systems designed
to detect the loss of combustion in the
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product stream and reignite the product stream. These products contain
specially-designed combustion tips and utilize pilot flow Venturi tubes to
maximize the efficient burning of waste gas with a minimal use of pilot or
assist gas, thereby minimizing the impact on the environment of the residual
output. Increased emphasis on "clean air" and industry emissions has had a
positive effect on the flare industry. Flare King's broad energy industry
experience has allowed it to work closely with its customers to seek
cost-effective solutions to their flare requirements.
Flare King had sales to five customers that represented 38% of total Flare
King revenue for the year ended December 31, 1996. No single customer accounted
for over 10% and the identity of customers varies from year to year, but loss of
a group of customers accounting for such a portion of the business of Flare King
could have a material adverse impact on its business.
THE COMPRESSION BUSINESS
Natural gas compressors are used in a number of applications intended to
enhance the productivity of oil and gas wells, gas transportation lines and
processing plants. Compression equipment is required to boost the well's
production to economically viable levels and allow gas to be brought to market.
As gas is transported through a pipeline, compression equipment is applied to
allow the gas to continue to flow in the pipeline to its destination.
Additionally, compressors re-inject associated gas to artificially lift liquid
hydrocarbons which increases the rate of crude oil production from oil and gas
wells.
Changing well and pipeline pressures and conditions over the life of a well
often require producers to reconfigure their compressor units to optimize the
well production or pipeline efficiency. Because the equipment is highly
technical, a highly trained staff of field service personnel, a substantial
parts inventory and a diversified fleet of natural gas compressors are often
necessary to perform such functions in the most economic manner. It is not,
however, reasonably efficient or even, in many cases, economically possible for
independent natural gas producers to maintain such capabilities individually.
Also, certain major domestic oil companies, in order to streamline their
operations and reduce their capital expenditures and other costs, have sold
certain domestic energy reserves to independent energy producers and have
outsourced many facets of their operations. Such initiatives, in the opinion of
Hi-Tech, are likely to contribute to increased rental of compressor equipment.
For that reason, Hi-Tech, which initially concentrated on selling gas
compression units to its customers, has created its own compressor-rental fleet
to take advantage of the rental market.
Hi-Tech was formed in 1994 to take advantage of the concept of packaging a
rotary screw compressor, making available lower cost compression for marginal
wells. Hi-Tech provides its customers with a full range of compressor rental,
maintenance and contract compression services. As of October, 1997, Hi-Tech's
gas compressor fleet consisted of eight units, ranging from 20 to 80 horsepower
and had under construction eight additional rental units at 80 horsepower. The
size, type and geographic diversity of this rental fleet enables Hi-Tech to
provide its customers with a range of compression units that can serve a wide
variety of applications, and to select the correct equipment for the job, rather
than trying to "fit" the job to its fleet of equipment. Hi-Tech bases its gas
compressor rental rates on several factors, including the cost and size of the
equipment, the type and complexity of service desired by the customer, the
length of contract, and the inclusion of any other services desired, such as
installation, transportation and daily operation.
Although natural gas compressors generally do not suffer significant
technological obsolescence, they do require routine maintenance and periodic
refurbishing to prolong their useful life. Routine maintenance includes
alignment, compression checks, and other parametric checks which indicate a
change in the condition of the equipment. In addition, oil and wear-particle
analysis is performed on all units prior to their redeployment at specific
compression rental jobs. Overhauls are done on a condition-based interval
instead of a time-based schedule. In Hi-Tech's experience, these rigorous
procedures maximize component life and unit availability and minimize downtime.
Hi-Tech also fabricates natural gas compressors for its customers,
designing compressors to meet the unique specifications dictated by the well
pressure, production characteristics and the particular applications for which
compression is sought. In general, units to be sold to third parties are
assembled according to
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customer specification and sold on a turnkey basis. In order to meet the ongoing
needs of its customers, Hi-Tech offers a variety of services, including: (i)
engineering, fabrication and assembly of the compressor unit; (ii) installation
and testing of the units; (iii) ongoing performance review to assess the need
for a change in compression; and (iv) periodic maintenance and replacement parts
supply.
San Juan Compression, L.C. and Marathon Oil Company accounted for 31% and
25%, respectively, of total Hi-Tech revenue for the year ended December 31,
1996. Loss of either such customer could have a material adverse impact on the
business of Hi-Tech.
SALES AND MARKETING
GENERAL. The Company conducts its operations from each of its locations.
Each location, with the exception of the executive offices, maintains inventory
for local customer requirements, trained service technicians, and machine shop
capabilities to provide quick delivery and service for its customers. The
Company's sales force also operates out of each location and focuses on
communication with its customers and potential customers through frequent direct
contact, technical assistance, print literature, and direct mail, as well as
through "word of mouth" referrals.
Additionally, the Company's personnel coordinate with each other to develop
relationships with customers who operate in multiple regions. The sales
personnel of the Company maintain intensive contact with the Company's
operations personnel in order to promptly respond to and satisfy customer needs.
The Company's overall sales efforts concentrate on demonstrating the Company's
commitment to enhancing the customer's cash flow through superior product
design, fabrication, manufacturing, installation, customer service and
aftermarket support.
WELLHEAD EQUIPMENT SEGMENT. The Company has eleven salesmen in the
wellhead equipment segment. The wellhead equipment marketing program emphasizes
providing complete supply chain management of wellhead equipment requirements
for its customers. This program includes repair of customer equipment, sale of
remanufactured equipment, sale of new equipment, and a distribution network of
machine shop locations and sales offices to provide prompt local service and
support.
FLARE SYSTEMS SEGMENT. The Company employs one salesman in the flare
systems segment. The marketing program emphasizes the Company's ability to
design, manufacture, install and service flares with the latest technology.
COMPRESSION SEGMENT. The Company employs one salesman in the compression
segment. The compression marketing program emphasizes the ability of the Company
to design and fabricate gas compressor units in accordance with the customer's
unique specifications and to provide all necessary service for such units.
COMPETITION
GENERAL. Over the past several years, there has been severe price
competition in the oil and gas industry which has continued to have a
substantial impact on profit margins of specialty service providers. Although
the Company has experienced improved profit margins in the last eighteen months,
no assurance can be given that such trend will continue.
WELLHEAD EQUIPMENT SEGMENT. Oilfield equipment, both new and used, is sold
by many manufacturers, distributors and dealers, some of which have
substantially greater resources than the Company. The Company estimates that it
has five major competitors in the wellhead equipment segment, but does not have
sufficient information to determine its competitive position within that group.
The Company believes, however, that relatively few competitors offer programs
involving maintenance, reconditioning, storage, distribution, and management of
equipment such as those offered by the Company. In offering its programs, the
Company emphasizes its ability to provide reconditioned oilfield equipment at
favorable prices while at the same time performing services which the customer
would otherwise have to perform or have performed at substantial cost and
inconvenience. The Company's management believes that it has a distinct
competitive advantage against many of these companies because remanufactured
wellhead equipment reduces the operating costs of oil and gas operators and thus
increases their profit margins.
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FLARE SYSTEMS SEGMENT. The flare business is also highly competitive.
Flare King estimates that it has six major competitors in the flare systems
segment, but does not have sufficient information to determine its competitive
position within that group. Flare King's responsive, experienced staff have
enabled it to develop a strong customer base. Flare King's commitment to product
quality and service are reflected in repeat business with its customers.
COMPRESSION SEGMENT. The natural gas compression and power services
business is highly competitive. Overall, the Company experiences considerable
competition from companies with significantly greater financial resources and,
on a regional basis, from several smaller companies which compete directly with
the Company. The Company estimates that it has six major competitors in the
natural gas compression segment, but does not have sufficient information to
determine its competitive position within that group. The Company believes that
it competes effectively on the basis of price, customer service, including the
ability to place personnel in remote locations, flexibility in meeting customer
needs and quality and reliability of its compressors and related services.
Compressor industry participants can achieve significant advantages through
increased size and geographic breadth. As the number of rental units in the
Company's rental fleet increases, the number of sales, engineering,
administrative and maintenance personnel required and the minimum level of
inventory required to be maintained do not increase commensurately. As a result
of economies of scale, the Company, with a growing rental fleet, has relatively
lower operating costs and higher margins than smaller companies. These benefits
are expected to increase as the Company implements its acquisition strategy.
The Company also fabricates natural gas compressors in competition with
other fabricators of compressor units. The compressor fabrication business is
dominated by a few major competitors, several of which also compete with the
Company in the compressor rental business.
PROPERTIES
The Company leases its 1,227 square-foot executive offices in Corpus
Christi, Texas on a month-to-month basis. The Company also operates six
facilities for its combined operations. All of these facilities are leased. All
of the facilities, with the exception of the executive office located in Corpus
Christi, Texas, are used principally for operations, testing, warehousing and
storage, general and administrative functions, and training.
Wellhead leases (i) a 14,660 square-foot facility in Houston, Texas; (ii) a
10,000 square-foot facility in Robstown, Texas; (iii) a 4,800 square-foot
facility in Midland, Texas; (iv) a 5,000 square-foot facility in Shreveport,
Louisiana; and (v) a 9,950 square-foot facility in Lafayette, Louisiana.
Together, all of the Wellhead locations provide over 40,000 square-feet of metal
machine shop space fully equipped with all machinery necessary to manufacture
and refurbish all wellhead components on site. The Houston and Midland, Texas
locations are rented pursuant to month-to-month arrangements and are subject to
termination on short notice. The Company believes that it could readily obtain
substantially similar facilities at similar rates if any such termination were
to occur.
Flare King and Hi-Tech share a leased 24,645 square foot facility in
Midland, Texas. This facility provides Flare King and Hi-Tech with sufficient
space to manufacture, test and assemble their equipment on site.
The aggregate expense for the facilities leased by the Founding Companies
was approximately $227,000 during 1996. The Company's current facilities are
anticipated to provide the Company with sufficient space and capacity for at
least the next three years and thus there are no current plans to open new
locations, unless they are acquired as a result of any future acquisitions. The
Company believes that its properties are generally well maintained, in good
condition and adequate for its present needs.
LIABILITY AND OTHER INSURANCE COVERAGE
The Company's equipment and services are provided to operations that are
subject to hazards inherent in the oil and gas industry, such as blowouts,
explosions, craterings, fires and oil spills. The Company maintains liability
insurance that it believes to be customary in the industry against these
hazards, and losses
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from such hazards have not historically exceeded its insurance coverage. The
Company also maintains insurance with respect to its facilities. Although
management believes that the Company's insurance coverage is adequate and
comparable to that generally carried in the wellhead manufacturing, flare
systems and gas compression industry segments, there can be no assurance given
that such insurance will be sufficient to cover the Company's liabilities or
will be generally available in the future or, if available, that premiums will
be commercially justifiable. If the Company were to incur substantial liability
and such damages were not covered by insurance or were in excess of policy
limits, or if the Company were to incur such liability at a time when it is not
able to obtain liability insurance, its business, results of operations and
financial condition could be materially adversely affected.
GOVERNMENT REGULATION
The Company is subject to numerous federal, state, local laws and
regulations relating to the storage, handling, emission and discharge of
materials into the environment, including the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Clean Water Act, the
Clean Air Act and the Resource Conservation and Recovery Act. As a result of its
fabrication and refurbishing operations, the Company generates or manages
hazardous wastes, such as solvents, thinner, waste paint, waste oil, washdown
wastes, and sandblast material. Although the Company attempts to identify and
address contamination before acquiring properties, and although the Company
attempts to utilize generally accepted operating and disposal practices,
hydrocarbons or other wastes may have been disposed of or released on or under
properties owned, leased, or operated by the Company or on or under other
locations where such wastes have been taken for disposal. These properties and
the wastes disposed thereon may be subject to federal or state environmental
laws that could require the Company to remove the wastes or remediate sites
where they have been released.
The Company believes that its existing environmental control procedures are
adequate and it has no current plans for substantial operating or capital
expenditures relating to environmental control requirements. The Company
believes that it is in substantial compliance with environment laws and
regulations and that the phasing in of emission controls and other known
regulatory requirements at the rate currently contemplated by such laws and
regulations will not have a material adverse affect on the Company's financial
condition or operational results. Some risk of environmental liability and other
costs are inherent in the nature of the Company's business, however, and there
can be no assurance that environmental costs will not rise. Moreover, it is
possible that future developments, such as increasingly strict requirements and
environmental laws and enforcement policies thereunder, could lead to material
costs of environmental compliance by the Company. While the Company may be able
to pass on the additional cost of complying with such laws to its customers,
there can be no assurance that attempts to do so will be successful.
RESEARCH AND DEVELOPMENT
The Company engages in a continuing effort to improve its compressor and
flare operations. Research and development activities in this regard include new
and existing product development testing and analysis, process and equipment
development and testing and product performance improvement. The Company
continues to develop low emission compressor and engine technology. The Company
also focuses its activities on reducing overall costs to the customer, which
includes both the initial capital cost for equipment and the operating costs
associated with such equipment, including energy consumption, maintenance cost
and environmental emissions. Research and development expenditures for 1996
were, however, not material and the Company does not have a specific amount
budgeted for research and development in 1997 or 1998.
BACKLOG
The Company's wellhead operations currently have no backlog. With respect
to its compressor operations, the Company had a backlog of approximately
$410,000 as of June 30, 1997 as compared to approximately $314,000 as of the
same period in 1996 and approximately $133,000 as of the same period in 1995.
With respect to its flare system operations, the Company had a backlog of
approximately $78,000 at
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June 30, 1997 as compared to approximately $82,000 as of the same period in 1996
and approximately $49,000 at the same period in 1995. Backlog consists of firm
customer orders for which a purchase order has been received, satisfactory
credit or financing arrangements exist and delivery is scheduled.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that the success of its business depends more on the
technical competence, creativity and marketing abilities of its employees than
on any individual patent, trademark or copyright. Nevertheless, as part of its
ongoing research, development and manufacturing activities, the Company has a
policy of seeking patents when appropriate on inventions concerning new products
and product improvements. The Company currently owns two United States patents
covering certain flare system technologies, which expire on May 2, 2009 and
December 11, 2010, respectively. The Company does not own any foreign patents.
Although the Company continues to use the patented technology and considers it
useful in certain applications, the Company does not consider these patents to
be material to its business as a whole.
The Company also relies on trade secret protection for its confidential and
proprietary information and enters into confidentiality agreements with its key
employees. There can be no assurance, however, that others will not
independently obtain similar information or otherwise gain access to the
Company's trade secrets.
SUPPLIES AND RAW MATERIALS
With respect to its compressor and flare system operations, the principal
raw materials used by the Company are cast and forged iron and steel. Such
materials are generally available from a number of suppliers, and accordingly,
the Company is not dependent on any particular supplier. The Company currently
does not have long term contracts with its suppliers of raw materials, but
believes its sources of raw materials are reliable and adequate for its needs.
The Company has not experienced any significant supply problems in its
operations and does not anticipate any significant supply problems in the
foreseeable future.
With respect to its wellhead operations, the Company acquires used wellhead
equipment. Such equipment is generally available from its customers, salvage
yards, and other remanufacturers of wellhead equipment. The Company is not
dependent on any particular source for its used wellhead equipment. The Company
has not experienced any significant supply problems in its operations and does
not anticipate any significant supply problems in the foreseeable future.
EMPLOYEES
As of June 30, 1997, the Company had 76 employees, of which 15 are employed
in administration, 13 in sales and marketing, 42 in technical capacities and 6
in field services. No employees are represented by labor unions and the Company
believes that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
From time to time the Company has been and expects to continue to be
subject to various legal proceedings, all of which are of a ordinary or routine
nature and incidental to the operations of the Company. In the opinion of the
Company's management, such proceedings and actions should not, individually or
in the aggregate, have a material adverse effect on the Company's results of
operations or financial condition.
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THE REORGANIZATION
Simultaneously with and as a condition to the closing of the Offering, the
Company will issue to the holders of the outstanding equity securities of the
Founding Companies shares of its Common Stock in exchange for the ownership
interests of such holders in such companies. In connection with the
Reorganization, the equityholders of Wellhead (other than Hi-Tech which owns
1500 shares) will receive 4.922775 shares of Common Stock of the Company for
each share of Wellhead held by them for an aggregate of 2,582,650 shares of
Common Stock of the Company, the equityholders of Flare King will receive
3.173253 shares of Common Stock of the Company for each share of Flare King held
by them for an aggregate of 353,675 shares of Common Stock of the Company and
the equityholder of Hi-Tech (other than Flare King, which owns a 50% membership
interest) will receive 3648.50 shares of Common Stock of the Company for each
one percent of membership interest in Hi-Tech held by them for an aggregate of
182,425 shares of Common Stock of the Company. Under Section 1032 of the
Internal Revenue Code of 1986, as amended (the "Code"), the Company will not
recognize any gain or loss in the Reorganization or the Offering. Based on
Section 351 of the Code and Internal Revenue Service regulations thereunder and
interpretations thereof, it is anticipated that equityholders of Wellhead,
Hi-Tech, and Flare King will not recognize gain or loss in the Reorganization.
Upon completion of the Reorganization, the Founding Companies will be direct or
indirect wholly owned subsidiaries of the Company.
The following table sets forth the consideration to be paid by the Company
for each of the Founding Companies:
SHARES OF
COMMON STOCK
------------
Wellhead................................ 2,582,650
Flare King(1)........................... 353,675
Hi-Tech(2).............................. 182,425
------------
Total................................... 3,118,750
============
- ------------
(1) After giving effect to Flare King's ownership of 50% of the membership
interests in Hi-Tech.
(2) After giving effect to Hi-Tech's ownership of 1,500 shares of common stock
of Wellhead.
In connection with the Reorganization, and as consideration for their
interests in the Founding Companies, certain officers and directors will receive
shares of Common Stock of the Company as follows:
SHARES OF
NAME COMMON STOCK
- ---------------------------------------- ------------
Wallace O. Sellers...................... 472,227(1)
Alvin H. Dueitt......................... 631,474
Martin L. Tomlin........................ 624,090
Earl R. Wait............................ 4,923
- ------------
(1) Includes 101,109 shares to be received by Naudain Ives Sellers, Mr. Sellers'
spouse.
The consummation of the Reorganization is subject to customary conditions.
These conditions include, among others, the continuing accuracy on the closing
date of the Reorganization of the representations and warranties with respect to
the Founding Companies, the performance by the parties thereto of all covenants
included in the agreement relating to the Reorganization, the receipt of certain
consents of third parties and the absence of a material adverse change in the
results of the operations, financial condition or business of each Founding
Company.
There can be no assurance that the conditions to the closing of the
Reorganization will be satisfied or waived or that the reorganization agreement
will not be terminated prior to consummation. If the Reorganization is
terminated for any reason, the Company does not intend to consummate the
Offering.
27
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers and those persons who will become executive
officers in connection with the Offering:
NAME AGE POSITION
- ---------------------------- --- -------------------------------------------
Wallace O. Sellers.......... 68 Director and Chairman of the Board of
Directors
Alvin H. Dueitt............. 42 Director and President and Chief Operating
Officer of the Company and President of
Wellhead
Burnace J. Boles, Jr........ 51 Vice President of the Company and
President of Flare King
Earl R. Wait................ 53 Chief Accounting Officer and
Secretary/Treasurer of the Company
Wayne L. Vinson............. 38 President of Hi-Tech(1)
Martin L. Tomlin............ 47 Vice President of Wellhead(1)
J. Richard Espinosa......... 52 Vice President of Wellhead(1)
Donald D. McAtee............ 47 Controller of Wellhead(1)
L. Melvin Cooper............ 44 Director
Charles K. Miller, Jr....... 40 Director
Francis M. Ricci............ 54 Director
- ------------
(1) Will have certain responsibilities and functions of an executive officer of
the Company.
The principal occupations and positions for the past five years of each of
the person listed above are as follows:
Wallace O. Sellers has served as a director and the Chairman of the Board
of Directors of the Company since its organization on October 20, 1997. Since
January 1, 1995, he has been retired, having served from November 1986 through
December 1994 as President and Chief Executive Officer of Enhance Financial
Services, Inc. ("Enhance"). Mr. Sellers is serving as Vice-Chairman of the
Board and Chairman of the Executive Committee of Enhance and also serves as a
director of Danielson Holding Corp. ("Danielson"). Enhance and Danielson are
each reporting companies under the Securities Exchange Act of 1934.
Alvin H. Dueitt has served as a director and the President of the Company
since the Company's organization on October 20, 1997. Since April 1, 1990, he
has been serving as President and Chief Executive Officer of Wellhead. Mr.
Dueitt has more than 19 years of management experience in the energy service
industry.
Burnace J. Boles, Jr. has served as the Vice President of the Company since
its organization on October 20, 1997. Since January 1, 1997, he has been serving
as President of Flare King and from October 1, 1996 he served as Flare King's
General Manager. Mr. Boles pursued other business interests from July 1996
through October 1996. From January 1995 through July 1996, he was West Area
Manager - Midland Region for Burlington Resources. From March 1986 through
December 1994, he was West Region Production Manager - Meridian Oil. Mr. Boles
has more than 28 years of experience in the energy service industry.
Earl R. Wait has served as the Chief Financial Officer and
Secretary/Treasurer of the Company since its organization on October 20, 1997.
He has served as Secretary/Treasurer of Wellhead since 1992, as
Secretary/Treasurer of Flare King since April 1993 and as Assistant
Secretary/Treasurer for Hi-Tech since June 1996. Mr. Wait is a certified public
accountant and has more than 15 years of experience in the energy service
industry.
Wayne L. Vinson has served as the President of Hi-Tech since February,
1994. From January 1990 to June 1995, Mr. Vinson served as Vice President and
since June 1995, he has served as President of Vinson Operating Company. Since
1992, he has served as Vice President of CNG Engines Co. Since 1988, he has
served as President of A&W Petroleum Inc. From August 1985 through March 1997,
he served as Vice
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<PAGE>
President of Production Meter and Testing, Inc. Despite the other business
commitments of Mr. Vinson, he devotes substantially all of his time to the
performance of his duties as President of Hi-Tech. Mr. Vinson has more than 13
years of experience in the energy service industry.
Martin L. Tomlin has served as Vice President of Wellhead since April 1,
1990. Mr. Tomlin has more than 22 years of experience in the energy service
industry.
J. Richard Espinosa has served as Vice President of Wellhead since June
1994. From 1978 until their acquisition by Wellhead, Mr. Espinosa served as
President and a director of WRI, Inc. and Wellhead Recycling, Inc. Mr. Espinosa
has more than 25 years of experience in the energy service industry.
Donald D. McAtee has served as Controller for Wellhead since June 1994.
From July 1992 through June 1994, he served as Controller for WRI, Inc., which
was acquired by Wellhead in June 1994. Mr. McAtee has more than 19 years of
experience in the energy service industry.
L. Melvin Cooper has served as a director of the Company since its
organization on October 20, 1997. Since August 1997 Mr. Cooper has acted as an
independent financial consultant. From March 1997 through August 1997 Mr. Cooper
served as President of ImmuDyne, Inc. and from February 1996 through March 1997
as its Senior Vice President, Secretary and Chief Financial Officer. Mr. Cooper
was a partner in MCN Partners, an investment partnership, from June 1995 through
February 1996. From May 1994 through June 1995 Mr. Cooper served as General
Manager and Director of AquaNatural Company and from March 1993 through May 1994
as its Vice President, Secretary and Chief Financial Officer. Mr. Cooper served
as Vice President and Chief Financial Officer of Southern Holdings Corp. from
1989 through March 1993. Mr. Cooper is a certified public accountant.
Charles K. Miller, Jr. has served as a director of the Company since its
organization on October 20, 1997. Mr. Miller has served as a director of
Wellhead since 1995 and has served as the President and Chief Executive Officer
of Miller Environmental Services, Inc. since 1983.
Francis M. Ricci has served as a director of the Company since its
organization on October 20, 1997. Since 1991, Mr. Ricci has served as Chairman
and President of Precision Acquisitions, Inc., which provides corporate finance
and management consulting services. Mr. Ricci is a certified public accountant
and served in both client service and firm management capacities with Deloitte
Haskins & Sells (now Deloitte & Touche LLP) for 22 years. Since November 1995
Mr. Ricci has acted as a corporate finance consultant to D.E. Frey & Company,
Inc., the Underwriter.
The Board of Directors has been divided into three classes of one, two and
two directors with directors serving staggered three-year terms expiring at the
annual meeting of stockholders in 1998, 1999 and 2000, respectively. At each
annual meeting of stockholders, one class of directors will be elected for a
full term of three years to succeed those directors in the class whose term is
expiring. With respect to the existing Board of Directors, the term of Mr.
Miller will expire in 1998, the terms of Mr. Cooper and Mr. Ricci in 1999 and
the terms of Mr. Dueitt and Mr. Sellers in 2000. All officers of the Company
serve at the discretion of the Board of Directors.
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee and the Compensation
Committee will be Messrs. Cooper and Ricci and Messrs. Cooper and Miller,
respectively.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $1,000 for attendance at each meeting of the Board of Directors and
$1,000 for each committee meeting (unless held on the same day as a meeting of
the Board of Directors). Directors are also reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof. See also " -- 1997 Incentive Compensation Plan."
29
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned during the year ended December 31, 1996 by the president of Wellhead, who
has also served as president of the Company since its organization in October
1997 and the other most highly compensated executive officer of the Founding
Companies who will also be executive officers of the Company or a subsidiary
thereof and whose annual salary and bonus for the year ended December 31, 1996
exceeded $100,000 (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ALL
NAME AND PRINCIPAL POSITION(S) WITH THE ANNUAL OTHER
COMPANY(1) SALARY BONUS COMPENSATION COMPENSATION
- ---------------------------------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Alvin H. Dueitt, President of the
Company and President of Wellhead..... $ 77,770 $ 91,268 (2) (3)
J. Richard Espinosa, Vice President of
Wellhead.............................. 70,539 74,686 (2) (3)
</TABLE>
- ------------
(1) No executive officer of any of the individual Founding Companies received
annual compensation in excess of $100,000 in 1995 or 1994.
(2) The Company provides an automobile to each of the named officers, the
personal use of which is valued at an amount not exceeding 10% of such
officer's annual compensation.
(3) The Company made contributions to its 401(k) plan of $2,906 and $2,761 for
the accounts of Mr. Dueitt and Mr. Espinosa, respectively.
EMPLOYMENT AGREEMENTS
The Company anticipates entering into employment agreements (the
"Employment Agreements") with Alvin H. Dueitt, Burnace J. Boles, Jr., Martin
L. Tomlin and J. Richard Espinosa (the "Contracting Officers"). The Employment
Agreements will be effective upon consummation of the Reorganization and the
Offering. Each of the Employment Agreements will be for a period of three years
commencing on the closing of the sale of Common Stock in the Offering and will
provide for the payment of an initial base salary at an annual rate not less
than $120,000, $60,000, $77,000, and $70,000, respectively. The base salaries
will be subject to adjustment upon recommendation of the Compensation Committee.
The Employment Agreements may provide for the payment of significant incentive
compensation.
The Employment Agreements will contain certain confidentiality and
noncompetition provisions and provide for the termination of the employment of a
Contracting Officer on the grounds of (i) cause, i.e., willful breach or neglect
of duty, willful violation of Company policies, refusal to obey reasonable
direction, conviction of a felony or fraud, or inability to perform duties
because of a legal impediment, (ii) disability, (iii) death or (iv) certain
specified changes affecting the Contracting Officer's employment. The Employment
Agreements will also provide that if the Contracting Officer is terminated, the
Contracting Officer will receive one lump-sum payment in an amount equal to
three months' base salary (six months with respect to Mr. Dueitt).
1997 INCENTIVE COMPENSATION PLAN
In October 1997, the Board of Directors and the sole shareholder approved
the Company's 1997 Incentive Compensation Plan (the "Plan"). The purpose of
the Plan is to provide employees, non-employee directors and consultants with
additional incentives by increasing their ownership interests in the Company.
Individual awards under the Plan may take the form of one or more of (i) either
incentive stock options or nonqualified stock options, (ii) stock appreciation
rights, (iii) restricted or deferred stock, (iv) dividend equivalent rights and
(v) other awards not otherwise provided for, the value of which is based in
whole or in part upon he value of the Common Stock.
The Compensation Committee will administer the Plan, select the individuals
who will receive awards and establish the terms and conditions of those awards.
The maximum number of shares of Common Stock
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<PAGE>
that may be subject to outstanding awards, determined immediately after the
grant of any award may not exceed 411,000 shares. Shares of Common Stock which
are attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted. There
have been no awards made under the Plan to date.
CERTAIN TRANSACTIONS
EXISTING MATTERS
Wellhead will continue to lease certain of its facilities from J. Richard
Espinosa, a Vice-President of Wellhead, pursuant to a Commercial Lease Agreement
dated June 6, 1994. The lease provides for a total annual rent of approximately
$60,000 with an initial five (5) year term commencing on June 1, 1994. Wellhead
currently has the option to purchase the facilities for the sum of $274,000 and
an amount as determined by a formula set forth in the purchase option relating
to an addition built to the facilities. The exercise price as of October 1, 1997
was approximately $385,000. The lease was executed in connection with the
acquisition of WRI, Inc.
Wellhead has executed an Installment Note dated July 30, 1996 (the
"Espinosa Note"), payable to the order of J. Richard Espinosa in the principal
amount of $135,000, together with interest at the annual rate of 1 1/4% over the
prime rate established from time to time by Texas Commerce Bank. This Note
represents a refinancing of the note originally issued in connection with the
acquisition of WRI, Inc. Principal payments of $5,625 plus accrued interest are
due and payable in monthly installments with the first installment beginning on
August 1, 1996, with remaining installments of principal plus accrued interest
on the first day of each succeeding calendar month thereafter until the
expiration of twenty-four (24) months.
Certain directors and officers of the Founding Companies have acted as
guarantors or co-makers with respect to indebtedness previously incurred by the
Founding Companies. Wallace C. Sparkman, who formerly held a significant direct
or indirect equity interest in Wellhead and Flare King and served as an
executive officer and director of each of the Founding Companies, retired as a
director and officer of each of the Founding Companies effective October 22,
1997. Mr. Sparkman had previously (i) absolutely and unconditionally guaranteed
all of the indebtedness of Wellhead under that $700,000 Loan Agreement (the
"$700,000 Loan Agreement) dated January 16, 1997 with Community National Bank,
Midland, Texas; (ii) absolutely and unconditionally guaranteed all of the
indebtedness of Hi-Tech under (a) the $425,000 Loan Agreement (the "$425,000
Loan Agreement") dated October 1, 1996 with Norwest Bank Texas, Midland, N.A.
("Norwest Bank") and (b) the $250,000 Loan Agreement (the "$250,000 Loan
Agreement") dated May 1, 1997 with Norwest Bank; (iii) signed as a co-maker
along with Flare King (a) the $150,000 Commercial Revolving Note dated June 19,
1997 with Midland American Bank, Midland, Texas ("Midland Bank") and (b) the
$125,000 Commercial Draw Note dated June 19, 1997 with Midland Bank (the Notes
described in clause (iii)(a) and (iii)(b) being the "Midland Notes"); (iv)
absolutely and unconditionally guaranteed Wellhead's payment of the Espinosa
Note; and (v) unconditionally guaranteed Flare King's payment of a Promissory
Note dated June 16, 1997, in the principal amount of $65,502, payable to Robert
Chambers. The Midland Notes will be paid out of the net proceeds of the Offering
(see "Use of Proceeds"), and Mr. Sparkman, as comaker of the Midland Notes,
will have no further obligation under the Midland Notes. Although Mr. Sparkman
has been instrumental in negotiating the Reorganization and the Offering and may
therefore be considered a promoter of the Company, Mr. Sparkman has transferred
all of his interests in Wellhead and Flare King to Diamente Investments, L.P., a
Texas limited partnership in which Mr. Sparkman and his wife are the general and
limited partners (the "Partnership"). Mr. Sparkman will not receive any
compensation in connection with the Reorganization or the Offering, but the
Partnership will receive, along with and on the same basis as other
equityholders of Wellhead and Flare King, shares of the Company in exchange for
the shares it holds in Wellhead and Flare King. The
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<PAGE>
Partnership has executed an irrevocable proxy in favor of the Chairman of the
Board of Directors of the Company with respect to its shares of capital stock of
the Company to be issued in the Reorganization. If a majority of the Board of
Directors is made up of independent directors, the Chairman (or other authorized
designee) will vote such shares in accordance with the direction of a majority
of the directors in attendance at such meeting. If a majority of the Board of
Directors is not made up of independent directors, the Chairman (or other
authorized designee) will vote such shares in accordance with the direction of a
majority of the independent directors in attendance at such meeting. By its
terms, the proxy will expire at such time as the Partnership's ownership
interest in the Company represents less than five percent of the Company's
outstanding common stock. Mr. Sparkman will not continue any affiliation as an
officer or director of the Founding Companies and will not be an officer or
director of the Company. Until the consummation of the Reorganization and the
Offering, he will remain an employee of the Company to assist with transition
matters. He has also indicated that he will make himself available following the
Reorganization at the request of the Company's Board of Directors for
consultation as the Board of Directors may deem appropriate.
Mr. Sparkman has executed a note in favor of Flare King in satisfaction and
discharge of his obligations under a renewal and extension of that certain
Variable Rate Revolving Line of Credit Note dated July 8, 1993. The note, in the
outstanding principal amount of approximately $91,000, bears interest at the
rate of 8.5% per annum and is due in full on January 21, 1999.
Alvin H. Dueitt, a director and President of the Company and Chief
Executive Officer of Wellhead, and Martin L. Tomlin, Vice President of Wellhead,
have also absolutely and unconditionally guaranteed all of the indebtedness of
Wellhead under the $700,000 Loan Agreement. Wayne L. Vinson, President of Hi-
Tech, has also absolutely and unconditionally guaranteed all of the indebtedness
of Hi-Tech under the $425,000 Loan Agreement and the $250,000 Loan Agreement.
In connection with the Reorganization, and as consideration for their
interests in the Founding Companies, certain officers and directors together
with their spouses will receive shares of Common Stock of the Company. See
"Reorganization."
Francis M. Ricci serves as a director of the Company and as a consultant to
the Underwriter, to whom the Company has certain ongoing obligations. See
"Underwriting."
COMPANY POLICY
Any future transactions with affiliated parties will be approved by a
majority of the Board of Directors, including a majority of the disinterested
members of the Board of Directors, and will be on terms no less favorable than
those that are deemed by the Board of Directors to be equivalent to those the
Company could obtain from unaffiliated third parties.
32
<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL HOLDERS
The following table sets forth information as of the effective date of the
Reorganization regarding the beneficial ownership of the Common Stock, after
giving effect to the Reorganization and the Offering, by (i) each director, (ii)
each named executive officer, (iii) all executive officers and directors as a
group and (iv) each person known to be the beneficial owner (as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended) of more than 5% of the
outstanding shares of Common Stock. All persons listed have an address c/o the
Company's principal executive offices and have sole voting and investment power
with respect to their shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED
AFTER REORGANIZATION
AND OFFERING
-----------------------
NUMBER PERCENT
----------- -------
Diamente Investments, L.P./Wallace C.
and Patsy Sparkman(1).............. 768,354 18.66%
Alvin H. Dueitt...................... 631,474 15.33%
Wallace O. Sellers................... 371,118 9.01%
Martin L. Tomlin..................... 624,090 15.15%
J. Richard Espinosa.................. 62,470 1.52%
L. Melvin Cooper.....................
Charles K. Miller, Jr................
Francis M. Ricci.....................
All directors and executive officers
as a group (11 persons)............ 1,694,075 41.13%
- ------------
(1) The Partnership is a Texas limited partnership in which Wallace C. Sparkman
and his spouse, Patsy Sparkman, are general and limited partners. The
Partnership and the general partners have investment power with respect to
the shares of the Company owned by the Partnership. The Partnership has
executed an irrevocable proxy in favor of the Chairman of the Board of
Directors of the Company with respect to such shares. See "Certain
Transactions." The address of the Partnership is 205 Del Mar, Corpus
Christi, Texas 78404.
33
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 25,000,000 shares
of common stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share. After giving effect to the Reorganization, but
without giving effect to the Offering, the Company will have outstanding
3,118,750 shares of common stock and no shares of preferred stock. Giving effect
to the Offering, the Company will have outstanding 4,118,750 shares of common
stock and no shares of preferred stock.
The following discussion is qualified in its entirety by reference to the
Articles of Incorporation and the Bylaws of the Company, which are included as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on any matter
submitted to the vote of shareholders. Shareholders elect only one-third of the
members of the Board of Directors in any given year, each director serving for a
term of three years. See "Risk Factors -- Anti-Takeover Measures" for a
discussion of the classified board and other terms of the Charter Documents
having an anti-takeover effect. Subject to preferential rights with respect to
preferred stock and any other stock ranking prior to Common Stock as to
dividends, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of the debts and other liabilities and the
liquidation preference of any stock ranking prior to Common Stock. Holders of
Common Stock have no preemptive rights to purchase shares of stock of the
Company. Shares of Common Stock are not subject to any redemption or sinking
fund provisions and are not convertible into any other securities of the
Company. In addition, the rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of any holders of preferred
stock which may be issued in the future and that may be senior to the rights of
the holders of Common Stock. The shares of Common Stock presently outstanding
are, and the shares of Common Stock to be issued in the Reorganization and the
shares of Common Stock offered hereby when issued will be, fully paid and
nonassessable.
PREFERRED STOCK
Subject to the provisions of the Company's Articles of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
issue one of more series of preferred stock, to fix by resolution with respect
to the issue of each series the preferences, limitations and relative rights of
such series including without limitation, the following: (i) the number of
shares of any series and to change the number of shares constituting any series,
(ii) the dividend rights of any series, the preferences, if any, over any other
class or series of stock, or of any other class or series of stock over such
series, as to dividends, the extent, if any to which shares of any series will
be entitled to participate in dividends with shares of any other series or class
of stock, whether dividends on shares of any series will be fully, partially or
conditionally cumulative, or a combination thereof, and limitations or
restrictions thereof, (iii) the rights of any series, and the preferences, if
any, over any other class or series, or of any other class or series over such
series, in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and the extent to which shares of any series will be
entitled to participate with any other series or class; (iv) the terms of
redemption and redemption prices; (v) the terms of any purchase, retirement or
sinking fund; (vi) the terms of conversion or exchangability rights; and (vii)
the voting powers of any series. The Company has no current plans to issue any
shares of preferred stock.
One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
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<PAGE>
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, preferred stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of preferred stock may discourage
bids for the Common Stock or may otherwise adversely affect the market price of
the Common Stock. See also "Risk Factors -- Anti-Takeover Measures."
WARRANTS TO PURCHASE COMMON STOCK
Upon successful completion of the Offering, the Company will grant to the
Underwriter for a purchase price of $100 warrants to purchase 100,000 shares of
Common Stock at an exercise price of 120% of the offering price. The warrants
will be exercisable at any time during a four-year period beginning one year
after the issuance thereof. The Underwriter may request the Company upon 60 days
written notice to register the shares issuable upon exercise of such warrants
under the Securities Act, and if requested the Company will at its expense
prepare and file a registration statement within 60 days.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to the Company's Articles of Incorporation and as permitted by
Texas law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for any transaction in which a director has received an improper benefit
or for acts or omissions for which the liability of a director is expressly
provided for by statute.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify directors of the Company to the fullest extent permitted by the
Texas Business Corporation Act. The Company has also entered into
indemnification agreements with its directors and officers covering the matters
provided for in the Bylaws and maintains insurance with respect to such
indemnification.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American
Securities Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
After effecting the Reorganization and upon completion of the Offering, the
Company will have 4,118,750 shares of Common Stock outstanding. In addition, the
Company may issue up to 100,000 shares upon exercise of the warrants granted to
the Underwriters in connection with the Offering. Of these shares, the shares
sold in the Offering will be freely tradeable without restriction under the
Securities Act, except that any shares acquired by "affiliates" of the
Company, as that term is defined in Rule 144 ("Rule 144") under the Securities
Act, may generally only be sold in compliance with the applicable provisions of
Rule 144. The remaining 3,118,750 shares of Common Stock (and any shares issued
pursuant to exercise of the warrants) outstanding after the Offering will be
issued without registration under the Securities Act and will, therefore, be
"restricted securities" within the meaning of Rule 144 under the Securities
Act and may not be sold in a public distribution except in compliance with the
registration requirements of the Securities Act or an applicable exemption under
the Securities Act, including an exemption pursuant to Rule 144 thereunder.
Restricted securities are eligible for sale in the public market pursuant to
Rule 144 no sooner than one year from the date of acquisition.
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell in "broker's transactions" or to market makers, within any three-month
period [commencing 90 days after the date of this Prospectus], a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (approximately 4,118,750 shares
immediately after the Offering); or (ii) generally, the average weekly trading
volume of the Common Stock during the four preceding calendar weeks. Sales under
Rule 144 are
35
<PAGE>
also subject to requirements concerning the availability of certain public
information about the Company, restrictions on the manner of sale and notice
requirements. Under Rule 144(k), a person who is not deemed an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
The Company's officers and directors and certain of its stockholders, who
will hold upon completion of the Offering approximately 76% of the outstanding
shares of Common Stock, have entered into contractual "lock-up" agreements
pursuant to which they have agreed that during the period beginning from the
date of the closing of the Offering and continuing and including the twelve
months thereafter, they will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock, including without limitation any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Common Stock without the prior written consent of the
Underwriter, except for the shares of Common Stock offered in connection with
the Offering and issuances of capital stock by the Company in connection with
potential future acquisitions, provided that the shares issuable pursuant to any
such acquisitions shall not be transferable before the end of the twelve month
period. As a result of these contractual restrictions, shares subject to lock-up
agreements cannot be sold until the agreements expire without the prior written
consent of the Underwriter.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of such shares for sale to the
public will have on the market price for the Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock following the Offering
could adversely affect the market price of the Common Stock.
36
<PAGE>
UNDERWRITING
The Company has engaged the Underwriter to conduct an offering of its
Common Stock on a best efforts, all or none basis. The Offering is being made
without a firm commitment by the Underwriter, which has no obligation or
commitment to purchase any of the Common Stock. The Company has been advised by
the Underwriter that it proposes to offer the Common Stock to the public within
the price range shown on the cover page of this Prospectus and to certain
dealers at such price. The dealers will receive a portion of the commission not
in excess of $[ ] per share.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price for the Common Stock will be
determined through negotiations between the Company and the Underwriter. In
determining the offering price, the Company and the Underwriter considered such
factors as the Company's historic performance, the stage of its development as a
commercial enterprise, existing business relationships and the future potential
benefits of such relationships, its business plan, the size and condition of the
industry, its perception of potential market penetration and the financial
benefits that would result therefrom, the intended use of the proceeds of the
Offering, the financial resources of the Company, the amount of equity or
control desired to be retained by the Company's existing stockholders, the
amount of dilution to potential investors and the general condition of the
securities market.
Unless sooner withdrawn or canceled by either the Company or the
Underwriter, the Offering will continue until the earlier of the date on which
all the Common Stock offered hereby is sold or [ ], 1997 (which may
be extended to [ ], 1998). Until such date as the Offering is
closed, all proceeds from the sale of the Common Stock will be deposited in
escrow with Colorado State Bank and Trust (the "Escrow Agent"). Proceeds
deposited in escrow with the Escrow Agent may not be withdrawn by purchasers
prior to the closing or termination of the Offering. If the Offering is
withdrawn, canceled or terminated, all proceeds will be returned by the Escrow
Agent without interest or deduction to the persons from which they are received
within five business days after such withdrawal or cancellation.
Subject to the closing of the Offering, the Underwriter will receive a
non-accountable expense allowance equal to three percent of the amount raised in
the Offering. The Underwriter will further receive a commission of four percent
on sales of Common Stock to persons to whom the Company has referred the
Underwriter in writing (to a maximum of fifty percent of the Offering) and eight
and one-half percent on all other sales. The Underwriter is also receiving a fee
of $10,000 per month ($50,000 through September 1997) for financial advisory
services being provided to the Company. One half of such fee will be credited
against the Underwriter's nonaccountable expense allowance upon completion of
the Offering.
Pursuant to the Underwriting Agreement, the obligations of the Underwriter
to solicit offers to purchase the shares and of investors solicited by the
Underwriter to purchase the Common Stock are subject to approval of certain
legal matters by counsel to the Underwriter and to various other conditions
which are customary in transactions of this type. The Company has agreed that
for a period of two years after the closing of the Offering, it will make
available to the Underwriter, on terms no less favorable than it can secure
elsewhere, securities with respect to which the Company or its subsidiaries may
seek a public or private offering for cash. Certain officers, directors and
major stockholders will also be subject to restrictions on their ability to sell
shares of Common Stock. See "Shares Eligible for Future Sale." The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act.
Francis M. Ricci, a consultant to the Underwriter, serves as a director of
the Company. Mr. Ricci will receive $1,000 for each meeting of the Board of
Directors he attends.
The Underwriter does not intend to sell the Common Stock to any accounts
over which it exercises discretionary authority.
As additional underwriting compensation, the Company has granted to the
Underwriter for a purchase price of $100 warrants to purchase 100,000 shares at
an exercise price of 120% of the offering price. See
37
<PAGE>
"Description of Securities." The warrants will be exercisable during the
four-year period beginning one year after issuance thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Winstead Sechrest & Minick P.C., Houston, Texas. Certain
legal matters related to this Offering will be passed upon for the Underwriter
by Jones & Keller, P.C., Denver, Colorado.
EXPERTS
The audited financial statements of the Founding Companies included in the
Prospectus and Registration Statement have been audited by Karlins Fuller Arnold
& Klodosky P.C., independent public accountants, as set forth in their report.
Such audited financial statements are included in reliance upon the authority of
such firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the SEC. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is hereby
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
For further information with respect to the Company, reference is hereby made to
the Registration Statement and such exhibits and schedules filed as a part
thereof, which may be inspected, without charge, at the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
UNITED OILFIELD SERVICES, INC
PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation ............................................... F-2
Unaudited Pro Forma Combined Balance Sheet June 30, 1997 ............ F-3
Unaudited Pro Forma Combined Statement of Operations For
the Six Months Ended June 30, 1997 ................................ F-4
Unaudited Pro Forma Combined Statement of Operations for
the Six Months Ended June 30, 1996 ................................ F-5
Unaudited Pro Forma Combined Statement of Operations For
the Year Ended December 31, 1996 .................................. F-6
Notes to Unaudited Pro Forma Combined Financial Statements .......... F-7
UNITED WELLHEAD SERVICES, INC. FINANCIAL STATEMENTS
Independent Auditor's Report ........................................ F-9
Consolidated Balance Sheets ......................................... F-10
Consolidated Statements of Operations ............................... F-11
Consolidated Statements of Stockholders' Equity ..................... F-12
Consolidated Statements of Cash Flows ............................... F-13
Notes to Consolidated Financial Statements .......................... F-14
FLARE KING, INC. FINANCIAL STATEMENTS
Independent Auditor's Report ........................................ F-21
Balance Sheets ...................................................... F-22
Statements of Operations ............................................ F-23
Statements of Stockholders' Equity .................................. F-24
Statements of Cash Flows ............................................ F-25
Notes to Financial Statements ....................................... F-26
HI-TECH COMPRESSOR COMPANY, L.C. FINANCIAL STATEMENTS
Independent Auditor's Report ........................................ F-32
Balance Sheets ...................................................... F-33
Statements of Operations ............................................ F-34
Statements of Members' Capital ...................................... F-35
Statements of Cash Flows ............................................ F-36
Notes to Financial Statements ....................................... F-37
F-1
<PAGE>
UNITED OILFIELD SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisitions by United Oilfield Services, Inc. (the "Company") of the
outstanding capital stock of United Wellhead Services, Inc. ("Wellhead") and
Flare King, Inc. ("Flare King") and the membership interests of Hi-Tech
Compressor Company, L.C. ("Hi-Tech"). These acquisitions (the
"Reorganization") will occur simultaneously with and as a condition to the
consummation of the offering by the Company of 1,000,000 shares of its common
stock (the "Offering") and will be accounted for using the purchase method of
accounting.
The unaudited pro forma combined balance sheet gives effect to the
Reorganization and Offering as if they had occurred on June 30, 1997. The
unaudited pro forma combined statements of operations give effect to the
Reorganization and the Offering as if they had occurred on January 1, 1996.
The pro forma adjustments (Reorganization and Offering) are based on
estimates, available information and certain assumptions and may be revised as
additional information becomes available. The pro forma financial data does not
purport to represent what the Company's financial position or results of
operations would actually have been if such transactions had in fact occurred on
those dates and are not necessarily representative of the Company's financial
position or results of operations of the Company for any future period.
Historical combined results may not be comparable to or indicative of future
performance. The unaudited pro forma combined financial statements should be
read in conjunction with the historical Financial Statements of the individual
Founding Companies and notes thereto included elsewhere in this Prospectus.
F-2
<PAGE>
UNITED OILFIELD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED-- PRO FORMA AS ADJUSTED--
REORGANIZATION REORGANIZATION OFFERING REORGANIZATION
WELLHEAD FLARE KING HI-TECH ADJUSTMENTS ONLY ADJUSTMENTS AND OFFERING
-------- ---------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash ............................ $ 333 $ 1 $ 19 $ $ 353 $ 3,890 (1)(2) $ 4,243
Accounts and notes
receivable, net ............... 1,836 270 346 (17)(3) 2,435 2,435
Inventory ....................... 1,039 58 131 1,228 1,228
Prepaid expenses ................ 199 30 12 241 241
Deferred income taxes ........... 25 25 25
-------- ---------- ------- ---------- ---------- ---------- ----------
Total current assets ........ 3,432 359 508 (17) 4,282 3,890 8,172
-------- ---------- ------- ---------- ---------- ---------- ----------
Property, plant and
equipment, at cost ................ 1,488 280 354 2,122 2,122
Less accumulated depreciation ... (1,008) (156) (84) (1,248) (1,248)
-------- ---------- ------- ---------- ---------- ---------- ----------
480 124 270 874 874
-------- ---------- ------- ---------- ---------- ---------- ----------
Other Assets
Investments ..................... 45 120 6 (120)(3) 51 51
Prepaid offering costs .......... 65 65 (65)(1)
Intangibles assets, net ......... 39 295 331(4) 665 665
Other assets .................... 2 4 6 6
Deferred income taxes ........... 96 96 96
-------- ---------- ------- ---------- ---------- ---------- ----------
Total other assets .......... 245 417 10 211 883 (65) 818
-------- ---------- ------- ---------- ---------- ---------- ----------
Total assets ................ $ 4,157 $ 900 $ 788 $ 194 $ 6,039 $ 3,825 $ 9,864
======== ========== ======= ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 347 $ 199 $ 260 $ (17)(3) $ 806 $ (100)(2) $ 706
Accounts payable, trade ......... 559 61 64 667 667
Accrued liabilities ............. 627 75 12 714 714
Income tax payable .............. 273 273 273
-------- ---------- ------- ---------- ---------- ---------- ----------
Total current liabilities ... 1,806 335 336 (17) 2,460 (100) 2,360
-------- ---------- ------- ---------- ---------- ---------- ----------
Long term debt ...................... 144 164 212 520 (120)(2) 400
-------- ---------- ------- ---------- ---------- ---------- ----------
Redeemable preferred stock, net of
discount .......................... 907 907 (907)(2)
-------- ---------- ------- ---------- ---------- ---------- ----------
Stockholders' Equity
Common stock .................... 479 111 (559)(1) 31 (10)(1) 41
Additional paid-in capital ...... 375 890(1) 1,265 4,942(1) 6,207
Retained earnings (deficit) ..... 821 (85) 240 (120)(3) 856 856
-------- ---------- ------- ---------- ---------- ---------- ----------
Total stockholders' equity .. 1,300 401 240 211 2,152 4,952 7,104
-------- ---------- ------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity ...... $ 4,157 $ 900 $ 788 $ 194 $ 6,039 $ 3,825 $ 9,864
======== ========== ======= ========== ========== ========== ==========
</TABLE>
F-3
<PAGE>
UNITED OILFIELD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WELLHEAD FLARE KING HI-TECH ADJUSTMENTS AS ADJUSTED
-------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 5,019 $ 654 $ 510 $ $ 6,183
Cost of goods sold...................... 2,850 341 315 3,506
-------- ---------- ------- ----------- -----------
Gross profit............................ 2,169 314 195 2,677
Selling, general and administrative
expenses.............................. 1,058 180 74 1,312
Depreciation and amortization expense... 64 36 19 11 (5) 130
-------- ---------- ------- ----------- -----------
1,122 215 93 11 1,442
-------- ---------- ------- ----------- -----------
Income from operations.................. 1,047 98 102 (11) 1,235
Income from unconsolidated subsidiary... 47 (47)(6)
Other income (expense), net............. (2) 3 76 (7) 77
Interest expense........................ (18) (16) (12) 10 (8) (36)
-------- ---------- ------- ----------- -----------
(20) (30) (9) 39 41
-------- ---------- ------- ----------- -----------
Income before income tax provision...... 1,027 128 93 28 1,276
Income tax provision.................... (357) (56) (412)
-------- ---------- ------- ----------- -----------
Net income.............................. $ 670 $ 73 $ 93 $ 28 $ 864
======== ========== ======= =========== ===========
Net income per common share............. $ 0.21
===========
Shares used in computing pro forma net
income per share(9)................... 4,118,750
</TABLE>
F-4
<PAGE>
UNITED OILFIELD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WELLHEAD FLARE KING HI-TECH ADJUSTMENTS AS ADJUSTED
-------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 3,455 $ 475 $ 675 $ $ 4,605
Cost of goods sold...................... 2,188 228 458 2,874
Gross profit............................ 1,267 247 217 1,731
-------- ---------- ------- ----------- -----------
Selling, general and administrative
expenses.............................. 914 157 71 1,142
Depreciation and amortization
expenses.............................. 55 24 16 11 (5) 106
969 181 87 11 1,248
Income from operations.................. 298 66 130 (11) 483
Income from unconsolidated subsidiary... 45 (45)(6)
Other income (expense), net............. (32) 76 (7) 44
Interest expense........................ (19) (16) (8) 10 (8) (33)
-------- ---------- ------- ----------- -----------
(19) 29 (40) 41 11
Income before income tax provision...... 279 95 90 30 494
Income tax provision.................... (84) (7) (91)
-------- ---------- ------- ----------- -----------
Net income.............................. $ 195 $ 88 $ 90 $ 30 $ 403
-------- ---------- ------- ----------- -----------
Net income per common share............. $ 0.10
Shares used in computing pro forma net
income(9)............................. 4,118,750
</TABLE>
F-5
<PAGE>
UNITED OILFIELD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WELLHEAD FLARE KING HI-TECH ADJUSTMENTS AS ADJUSTED
-------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 8,011 $ 1,034 $ 1,108 $ $ 10,153
Cost of goods sold...................... 5,160 542 736 6,438
Gross profit............................ 2,851 492 372 3,715
Selling, general and administrative
expenses.............................. 2,082 353 174 2,609
Depreciation and amortization
expenses.............................. 116 73 32 22 (5) 243
2,198 426 206 22 2,852
Income from operations.................. 653 66 166 (22) 863
Income from unconsolidated subsidiary... 73 (73)(6)
-------- ---------- ------- ----------- -----------
Other income (expense), net............. (54) 54 (3) 152 (7) 149
-------- ---------- ------- ----------- -----------
Interest expense........................ (36) (48) (16) 26 (8) (74)
-------- ---------- ------- ----------- -----------
(90) 79 (19) 105 75
Income before income tax provision...... 563 145 147 83 938
Income tax provision.................... (257) (32) (289)
Net income.............................. $ 306 $ 113 $ 147 $ 83 $ 649
-------- ---------- ------- ----------- -----------
Net income per common share............. $ 0.16
Shares used in computing pro forma net
income per share(9)................... 4,118,750
</TABLE>
F-6
<PAGE>
UNITED OILFIELD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
GENERAL
The Company was founded to become a diversified energy service and
manufacturing company through the combination of Wellhead, Flare King and
Hi-Tech (the "Founding Companies"). The Company provides a variety of services
and equipment to the exploration, production and transmission sectors of the oil
and gas industry. The Founding Companies are engaged principally in the business
of manufacturing and reconditioning wellhead equipment for the oil and gas
industry, mainly the drilling and exploration segment (Wellhead), the
manufacture of flare tips and ignition systems for plant production facilities
(Flare King), and the assembling of rotary screw compressor units to enhance the
production of oil and gas wells (Hi-Tech).
In April of 1997, the Founding Companies signed a "Letter of Intent" with
D. E. Frey & Company, Inc. which provided for the Founding Companies'
stockholders to exchange their shares through a business combination to form the
Company, in contemplation of an initial public offering (the "Offering") on a
"best efforts basis."
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' separate financial statements. The periods
included in these financial statements for the individual Founding Companies are
as of and for the six months ended June 30, 1997 and for the twelve months ended
December 31, 1996. The audited historical financial statements included
elsewhere herein have been included in accordance with Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 80.
ACQUISITION OF FOUNDING COMPANIES
Concurrently with and as a condition to the consummation of the Offering,
the Company will acquire all of the outstanding capital stock and membership
interests of the Founding Companies. The acquisitions will be accounted for
using the purchase method of accounting, with Wellhead as the "deemed
acquirer" for accounting purposes.
The following table sets forth the consideration to be paid in shares of
Common Stock to the stockholders and members of each of the Founding Companies.
SHARES OF
COMMON STOCK
------------
Wellhead............................. 2,582,650
Flare King........................... 353,675
Hi-Tech.............................. 182,425
------------
3,118,750
============
For purposes of computing the estimated purchase price, the book value amounts
were used for Flare King and 50% of Hi-Tech because of common control resulting
from (1) two individuals owning 32% of Wellhead and 100% of Flare King and (2)
Flare King owning 50% of Hi-Tech. For the 50% of Hi-Tech not under common
control, the estimated purchase price was determined using a value per share of
$6. The estimated purchase price for the acquisitions and related allocations of
the excess purchase price are based upon preliminary estimates and are subject
to certain purchase price adjustments at and following closing.
PRO FORMA ADJUSTMENTS
BALANCE SHEET
(1) Records the gross proceeds of $6 million from the issuance of shares
of Common Stock, net of estimated offering costs of $1 million (based on an
initial public offering price of $6 per share). Offering
F-7
<PAGE>
UNITED OILFIELD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
costs primarily consist of underwriting commissions, fees and expenses,
accounting fees, legal fees and printing expenses.
(2) Records $1,180,000 used to retire $220,000 of debt and a $960,000
note issued in August 1997 to retire redeemable preferred stock.
(3) Eliminates intercompany investment and balances.
(4) Records the excess purchase price over the fair value of assets
acquired ("goodwill") of $331,023 for the 50% of Hi-Tech not under common
control.
STATEMENTS OF OPERATIONS
(5) Records amortization of goodwill recorded as a result of these
acquisitions over a 15-year estimated life.
(6) Eliminates Flare King's income in its 50% ownership in Hi-Tech.
(7) Records interest income on the remaining cash proceeds of $3.8
million at 4%.
(8) Records anticipated reduction in interest expense due to reduction of
outstanding indebtedness.
ADDITIONAL PRO FORMA INFORMATION
(9) Shares used in computing pro forma net income include 3,118,750
shares issued to owners of the Founding Companies and 1,000,000 shares sold in
the Offering.
(10) Differences in totals result from variances in rounding dollar
amounts to the nearest thousand. Amounts $500 and greater have been rounded up.
All other amounts have been rounded down.
F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
UNITED WELLHEAD SERVICES, INC.
Corpus Christi, Texas
We have audited the accompanying consolidated balance sheets of UNITED
WELLHEAD SERVICES, INC. and subsidiary as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UNITED
WELLHEAD SERVICES, INC. and subsidiary at December 31, 1995 and 1996, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KARLINS FULLER ARNOLD & KLODOSKY P.C.
(SUCCESSORS TO THE PRACTICE OF KARLINS, PATRICK & CO., P.C.
WHO AUDITED THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1995 AND 1994)
The Woodlands, Texas
March 3, 1997 except for Note L,
as to which the dates are April 11, 1997 and October 14, 1997
F-9
<PAGE>
UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
ASSETS
Current Assets
Cash............................ $ 22,707 $ 369,490 $ 333,181
Accounts receivable, trade, net
of allowance of $11,000,
$10,000 and $10,000........... 818,482 2,089,309 1,835,808
Inventory....................... 683,217 738,692 1,039,120
Prepaid expenses................ 79,186 46,733 198,970
Deferred income taxes........... 26,695 25,113 25,113
------------ ------------ ------------
Total current assets....... 1,630,287 3,269,337 3,432,192
------------ ------------ ------------
Property, Plant and Equipment, at
cost............................... 1,287,042 1,387,135 1,487,541
Less accumulated depreciation
and amortization.............. 892,333 973,028 1,007,529
------------ ------------ ------------
394,709 414,107 480,012
------------ ------------ ------------
Other Assets
Investments..................... 40,104 44,169 45,177
Prepaid offering costs.......... 65,000
Intangible assets, net.......... 70,410 49,438 38,953
Deferred income tax............. 179,827 120,832 95,927
------------ ------------ ------------
290,341 214,439 245,057
------------ ------------ ------------
$ 2,315,337 $ 3,897,883 $ 4,157,261
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable................... $ 185,000 $ 140,559 $ 133,320
Current portion of long-term
debt.......................... 92,074 169,739 213,391
Accounts payable, trade......... 350,882 977,259 558,552
Accrued liabilities............. 274,774 561,978 627,347
Income tax payable.............. 175,000 272,557
------------ ------------ ------------
Total current
liabilities............. 902,730 2,024,535 1,805,167
------------ ------------ ------------
Long Term Debt....................... 97,600 310,054 144,198
------------ ------------ ------------
Stockholders' Equity
Preferred stock, liquidation
preference of $960,000........ 960,000 960,000 960,000
Preferred stock discount........ (211,439) (105,720) (52,859)
Common stock.................... 479,210 479,210 479,210
Retained earnings............... 87,436 230,004 821,745
Treasury stock, at cost......... (200) (200) (200)
------------ ------------ ------------
1,315,007 1,563,294 2,207,896
------------ ------------ ------------
$ 2,315,337 $ 3,897,883 $ 4,157,261
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-10
<PAGE>
UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 4,042,595 $ 4,027,042 $ 8,011,372 $ 3,455,132 $ 5,019,299
Cost of goods sold...................... 2,548,396 2,506,941 5,160,076 2,188,424 2,850,422
------------ ------------ ------------ ------------ ------------
Gross Profit............................ 1,494,199 1,520,101 2,851,296 1,266,708 2,168,877
Selling, general and administrative
expenses.............................. 1,200,808 1,336,025 2,082,385 913,915 1,058,414
Depreciation and amortization
expenses.............................. 62,289 98,368 115,823 54,661 63,678
------------ ------------ ------------ ------------ ------------
1,263,097 1,434,393 2,198,208 968,576 1,122,092
------------ ------------ ------------ ------------ ------------
Income from operations.................. 231,102 85,708 653,088 298,132 1,046,785
Other income (expense), net............. (42,541) 10,461 (54,074) 250 (1,759)
Interest expense........................ (35,223) (39,311) (35,860) (19,405) (17,713)
------------ ------------ ------------ ------------ ------------
(77,764) (28,850) (89,934) (19,155) (19,472)
------------ ------------ ------------ ------------ ------------
Income before income tax
provision............................. 153,338 56,858 563,154 278,977 1,027,313
Income tax provision.................... 31,704 171,689 (257,266) (83,739) (356,712)
------------ ------------ ------------ ------------ ------------
Net income before preferred stock
dividends and accretion of preferred
stock discount........................ 185,042 228,547 305,888 195,238 670,601
Preferred stock dividends and accretion
of preferred stock discount........... 61,670 153,720 163,320 81,660 78,860
------------ ------------ ------------ ------------ ------------
Net income available for common
stockholders.......................... $ 123,372 $ 74,827 $ 142,568 $ 113,578 $ 591,741
============ ============ ============ ============ ============
Net income per common share............. $ 0.05 $ 0.03 $ 0.06 $ 0.04 $ 0.23
============ ============ ============ ============ ============
Shares used in computing pro forma net
income per share...................... 2,582,650 2,582,650 2,582,650 2,582,650 2,582,650
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-11
<PAGE>
UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED
PREFERRED STOCK COMMON RETAINED TREASURY
STOCK DISCOUNT STOCK EARNINGS STOCK TOTAL
---------- --------- ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. $ $ $ 1,516 $ 428,249 $ (200) $ 429,565
Distributions........................... (115,267) (115,267)
Reorganization relating to acquisition
of Wellhead Recycling, Inc............ 960,000 (378,829) 477,694 (396,260) 662,605
Common stock dividends.................. (27,485) (27,485)
Accretion of preferred stock discount... 61,670 61,670
Net income available for common
stockholders.......................... 123,372 123,372
---------- --------- ---------- ------------ -------- ------------
Balance, December 31, 1994.............. 960,000 (317,159) 479,210 12,609 (200) 1,134,460
Accretion of preferred stock discount... 105,720 105,720
Net income available for common
stockholders.......................... 74,827 74,827
---------- --------- ---------- ------------ -------- ------------
Balance, December 31, 1995.............. 960,000 (211,439) 479,210 87,436 (200) 1,315,007
Accretion of preferred stock discount... 105,720 105,720
Net income available for common
stockholders.......................... 142,568 142,568
---------- --------- ---------- ------------ -------- ------------
Balance, December 31, 1996.............. 960,000 (105,719) 479,210 230,004 (200) 1,563,295
Accretion of preferred stock discount
(unaudited)........................... 52,860 52,860
Net income available for common
stockholders (unaudited).............. 591,741 591,741
---------- --------- ---------- ------------ -------- ------------
Balance, June 30, 1997 (unaudited)...... $ 960,000 $ (52,859) $ 479,210 $ 871,745 $ (200) $ 2,207,896
========== ========= ========== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-12
<PAGE>
UNITED WELLHEAD SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
---------- ---------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income available for common
stockholders...................... $ 123,372 $ 74,827 $ 142,568 $ 113,578 $ 591,741
Accretion of preferred stock
discount....................... 61,670 105,720 105,720 52,860 52,860
Preferred stock dividends....... 48,000 57,600 28,800 26,000
---------- ---------- ------------ ---------- ----------
Net income before preferred stock
dividends and accretion of
preferred stock discount.......... 185,042 228,547 305,888 195,238 670,601
Adjustments to obtain net cash
provided by (used in) operating
activities:
Change in prepaid offering
costs.......................... (65,000)
Depreciation and amortization... 69,289 98,368 115,823 54,661 63,678
Change in deferred income tax... (31,704) (174,818) 60,577 26,695 24,905
Loss (gain) on disposition of
assets......................... (1,979) 4,222 1,242 (1,997)
Change in cash, restricted...... (315) 8,619
Change in accounts receivable... 30,359 154,387 (1,270,827) (832,322) 253,501
Change in inventory............. 101,226 (79,382) (55,475) 64,881 (300,428)
Change in prepaid expenses...... 108,835 (31,067) 170,664 (135,416) (152,237)
Change in accounts payable...... (42,918) (137) 626,377 282,211 (418,707)
Change in accrued liabilities... 33,362 (15,425) 281,607 267,439 65,369
Change in income tax payable.... 175,000 83,739 97,557
---------- ---------- ------------ ---------- ----------
Total adjustments............. 266,155 (39,455) 107,968 (186,870) (433,359)
---------- ---------- ------------ ---------- ----------
Net cash provided by
operating activities.... 451,197 189,092 413,856 8,368 237,242
---------- ---------- ------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............... (60,667) (17,140) (9,281) (78,238) (121,645)
Proceeds from sale of assets....... 18,142 4,058 1,522 4,545
Acquisition of business, net of
cash acquired..................... (186,532)
Purchase of investments............ (4,065) (4,081) (1,008)
---------- ---------- ------------ ---------- ----------
Net cash used in investing
activities.............. (229,057) (17,140) (9,288) (80,797) (118,108)
---------- ---------- ------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable........ 228,000 100,000 67,885
Principal payments under notes
payable........................... (216,532) (284,000) (131,948) (61,968) (165,091)
Proceeds from long-term debt....... 100,000 315,307 202,381 90,610
Principal payments under long-term
debt.............................. (99,975) (68,498) (189,144) (20,264) (122,847)
Distributions paid................. (115,267)
Common stock dividends paid........ (27,485)
Preferred stock dividends paid..... (24,000) (52,000) (26,000) (26,000)
---------- ---------- ------------ ---------- ----------
Net cash provided by (used
in) financing
activities.............. (231,259) (176,498) (57,785) 94,149 (155,443)
---------- ---------- ------------ ---------- ----------
NET INCREASE (DECREASE) IN
CASH................................ (9,119) (4,546) 346,783 21,720 (36,309)
CASH AT BEGINNING OF PERIOD.......... 36,372 27,253 22,707 22,707 369,490
---------- ---------- ------------ ---------- ----------
CASH AT END OF PERIOD................ $ 27,253 $ 22,707 $ 369,490 $ 44,427 $ 333,181
========== ========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-13
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND LINES OF BUSINESS
The consolidated financial statements include the accounts of United
Wellhead Services, Inc. (UWS) and its wholly owned subsidiary, Wellhead
Recycling, Inc. (Wellhead). The Company is engaged principally in the business
of sales and service of new and used wellhead equipment. All significant
intercompany accounts have been eliminated.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets
using the straight-line method, generally from five to ten years.
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged to earnings as
incurred.
When machinery and equipment are retired or otherwise disposed of, the cost
thereof and the applicable accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is reflected in earnings.
INVENTORY
Inventory consisting of finished goods is valued at the lower of cost or
market, by the specific identification method.
USES 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 these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
inventory, accounts payable and accrued liabilities approximate fair value
because of the short maturity of these items. The carrying amounts of long-term
debt approximate fair value because the interest rates on these instruments
change with market interest rates.
INCOME TAXES
Wellhead utilizes SFAS No. 109, Accounting for Income Taxes, which requires
an asset and liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax basis of assets
and liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to the periods in
which they are expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount that
will more likely than not be realized. Income tax expense is the current tax
payable or refundable for the period plus or minus the net change in the
deferred tax assets and liabilities.
Income tax expense includes federal and state taxes currently payable and
the change in deferred taxes arising from temporary differences between income
for financial reporting and income tax purposes.
F-14
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMORTIZATION OF GOODWILL
The cost in excess of net assets of Wellhead ("goodwill") is being
amortized on a straight-line basis over 5 years. On an annual basis, Wellhead
assesses the carrying value of goodwill in order to determine whether an
impairment has occurred, taking into account both historical and forecasted
results of operations.
CHANGES IN ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Assets to be Disposed of" is applicable to
Wellhead in fiscal 1996. This statement requires that long-lived assets and
certain intangibles to be held and used by Wellhead be reviewed for impairment.
This pronouncement did not have a material impact on the financial statements of
Wellhead.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Wellhead at June 30, 1997, and the results of its operations and cash flows for
the six months ended June 30, 1996 and 1997. 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.
DEFERRED OFFERING COSTS
Deferred offering costs represents costs incurred in connection with the
Company's proposed public offering. Deferred offering costs will be offset
against net proceeds, if successful, or expensed if the offering is
unsuccessful.
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, Wellhead considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. As of December 31, 1996, balances of cash and cash equivalents
at two financial banking institutions exceeded the federally insured limit of
$100,000 by $167,825 and $105,471.
Supplemental disclosures of cash flows information:
Interest paid amounted to $44,733, $38,069, $23,986, $17,713 and $19,405
for the years ended December 31, 1996, 1995 and 1994 and the six months ended
June 30, 1997 and 1996, respectively.
Noncash investing and financing activities consisted of the following:
Long-term debt obligations in the amount of $113,311 and $63,436 were
incurred for the acquisition of transportation equipment for the years ended
December 31, 1996 and 1995, respectively. Notes payable in the amount of
$157,199 and $65,325 were incurred to finance insurance premiums for the years
ended December 31, 1996 and 1995, respectively.
MAJOR CUSTOMERS
Wellhead had sales to five customers that represented 19%, 24%, 26%, 23%
and 22% of total revenue, of which no single customer accounted for over 10%,
for the years ended December 31, 1996, 1995 and 1994 and the six months ended
June 30, 1997 and 1996, respectively.
CHANGE IN ACCOUNTING PRINCIPLE
For the year ended December 31, 1996, in contemplation of filing with the
Securities and Exchange Commission a registration statement with respect to the
Offering (see Note L), Wellhead changed its
F-15
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of accounting for the preferred stock dividends in accordance with APB
No. 20 (see Note F). The change has been applied retroactively in the financial
statements.
PER SHARE DATA
Per share data is calculated based upon the weighted average number of
shares of common stock and dilutive stock options and warrants outstanding.
NOTE B PROPERTY, PLANT AND EQUIPMENT
The major asset categories, together with the related costs and accumulated
depreciation and amortization, are as follows:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Land............................... $ 16,298 $ 16,298 $ 16,298
Machinery and equipment............ 823,200 840,150 831,611
Furniture and fixtures............. 127,450 129,537 130,205
Transportation equipment........... 182,401 263,457 371,734
Leasehold improvements............. 137,693 137,693 137,693
------------ ------------ -----------
1,287,042 1,387,135 1,487,541
Less accumulated depreciation
and amortization................. 892,333 973,028 1,007,529
------------ ------------ -----------
$ 394,709 $ 414,107 $ 480,012
============ ============ ===========
At December 31, 1996 and 1995 plant and equipment which cost $575,645 and
$573,830, respectively, has been fully depreciated but continues to be used in
current operations.
NOTE C NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, finance company for
insurance premiums -- payable $13,100
monthly including interest at 6.17%;
secured by unearned premiums.......... $ $ 25,251 $ 133,320
Notes payable, stockholders -- payable
on December 23, 1997 including
interest at 9.00%; unsecured.......... 115,308
Note payable, stockholder -- payable on
June 6, 1996 with interest at prime
plus 1.25%; secured by the personal
guarantee of another stockholder...... 185,000 See Note D
------------ ------------ -----------
$185,000 $140,559 $ 133,320
============ ============ ===========
</TABLE>
F-16
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, bank -- payable $12,500
quarterly beginning on April 1, 1996,
with interest at prime plus 2.00%;
secured by accounts receivable and
inventory............................. $100,000 $ 62,500 $ 25,000
Note payable, bank -- payable on January
16, 1998, interest payable monthly at
prime plus 2%; the Company may borrow
up to 75% of its eligible receivables
and 25% of eligible inventory with a
maximum availability of $700,000;
secured by accounts receivable,
inventory and guarantee of major
stockholder........................... 200,000 67,885
Note payable, stockholder -- payable
$5,625 monthly with interest at prime
plus 1.25%; secured by the personal
guarantee of another stockholder...... See Note C 101,250 67,500
Note payable, American National
Bank -- payable $779 monthly with
interest at 7.5%; secured by
transportation equipment.............. 4,672
Notes payable, finance
companies -- payable $5,322 (1996) and
$2,514 (1995) monthly with interest
from 8.5% - 11.9%; secured by
transportation equipment.............. 67,730 116,043 197,204
Notes payable, stockholders -- payable
$1,894 monthly with interest varying
from 7.75% to 8.5%.................... 17,272
------------ ------------ -----------
189,674 479,793 357,589
Current portion.................... 92,074 169,739 213,391
------------ ------------ -----------
Long-term portion.................. $ 97,600 $310,054 $ 144,198
============ ============ ===========
</TABLE>
The aggregate principal payments on long-term debt during the years
subsequent to December 31, 1996, are: 1997 -- $169,739; 1998 -- $291,139; and
1991 -- $18,915.
NOTE E LEASES
Wellhead leases transportation equipment and office and warehouse space
under operating leases that expire at various times through July, 1999. Total
rent expense for all operating leases for the years ended December 31, 1996,
1995 and 1994 amounted to $184,739, $175,337 and $162,580, respectively.
Future minimum payments, by year and in aggregate, related to the operating
leases at December 31, 1996 are as follows:
1997.................................... $ 150,539
1998.................................... 60,913
1999.................................... 25,700
----------
$ 237,152
==========
The operating leases include office and warehouse space leased from a
stockholder (See Note H).
F-17
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows:
DECEMBER 31,
------------------------------------ JUNE 30,
1994 1995 1996 1997
---------- ------------ ---------- -----------
(UNAUDITED)
Current................... $ $ (3,100) $ 175,000 $ 331,807
Deferred.................. (31,704) (168,589) 82,264 24,905
---------- ------------ ---------- -----------
$ (31,704) $ (171,689) $ 257,264 $ 356,712
========== ============ ========== ===========
The significant components of the net deferred tax asset (liability) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ JUNE 30,
1994 1995 1996 1997
------------ ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Depreciation of plant and equipment..... $ (42,254) $ (41,917) $ (64,065) $ (63,856)
Accrued liabilities..................... 1,581
Net operating losses.................... 271,971 212,025 210,010 184,896
------------ ---------- ---------- -----------
229,717 171,689 145,945 121,040
Valuation allowance..................... (271,971)
------------ ---------- ---------- -----------
Net deferred tax asset (liability)...... $ (42,254) $ 171,689 $ 145,945 $ 121,040
============ ========== ========== ===========
</TABLE>
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1997
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal income tax statutory rates...... $ 52,020 $ 19,331 $202,880 $ 349,286
State income taxes...................... 8,876 9,736 41,685 40,745
Nondeductible expenses.................. 27,429 25,937 38,226 3,612
Effect of S Corporation income.......... (42,162)
Recognition of net operating loss
benefit............................... (212,025)
Net operating loss deduction............ (77,867) (14,668) (25,527) (36,931)
------------ ------------ ------------ -----------
$(31,704) $ (171,689) $257,264 $ 356,712
============ ============ ============ ===========
</TABLE>
Under the asset and liability method, deferred tax assets and liabilities
are determined based on the differences between the financial statement and tax
basis of assets and liabilities and are measured using enacted tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
As of December 31, 1996, Wellhead has net operating loss carryforwards of
approximately $615,000 for federal income tax purposes available to offset
future financial income, expiring, if not used, periodically through the year
2009. Subsequent to December 31, 1996, as a result of the proposed initial
public offering (Note L), there will be a change in ownership which could
restrict the utilization of net operating loss carryforwards in the future.
F-18
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following:
Redeemable preferred stock -- The preferred stock has a par value of $4.73
per share, 202,960 shares are authorized, issued and outstanding. The preferred
stock has a liquidation value of $4.73 per share. Preferred stock has a voting
power equivalent to common stock. Preferred stock also has preferences in
liquidation or winding up of the affairs of Wellhead. When the redeemable
preferred stock was issued, due to a conversion feature, a discount of $378,829
was recognized, which is being accreted through December 31, 1997, the
anticipated closing date of the Offering. Accrued liabilities at December 31,
1996 and 1995 included dividends payable of $29,600 and $24,000, respectively.
Dividends on the preferred stock are payable as follows:
1996.................................... 6%
1997.................................... 6%
1998.................................... 10%
1999.................................... 11%
2000.................................... 12%
Common stock -- The common stock is no par stock, of which 1,000,000 shares
are authorized, and 526,133 are issued and outstanding.
NOTE H RELATED PARTY TRANSACTIONS
Related party transactions and related balances with the stockholders of
Wellhead and companies owned by stockholders are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1997
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts receivable..................... $ 7,728 $ $ $
Notes payable........................... 219,000 185,000 115,308
Accrued liabilities..................... 17,780 9,118
Long-term debt.......................... 66,663 17,272 101,250 67,500
Rent expense............................ 18,550 53,836 59,102 24,203
Interest expense........................ 21,482 23,146 17,393 5,790
Management fee expense.................. 48,000 52,000 80,300 24,000
</TABLE>
NOTE I CONCENTRATION OF CREDIT RISK
Wellhead sells and services new and used wellhead equipment to oil and gas
industry in Texas and Louisiana. Wellhead grants credit to customers,
substantially all of whom are commercial establishments located in the vicinity
of the operating locations of Wellhead.
NOTE J PROFIT SHARING AND 401(k) PLAN
Wellhead maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code. Under the plan, employees may elect
to defer up to 15% of their salary, subject to the Internal Revenue Code limits.
Wellhead may make a discretionary matching as well as a discretionary
contribution. The contributions of Wellhead totaled $31,346 and $4,000 for the
years ended December 31, 1996, and 1995, respectively. No contributions were
accrued at June 30, 1997 or 1996.
F-19
<PAGE>
UNITED WELLHEAD SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K BUSINESS ACQUISITION
On May 31, 1994, Wellhead acquired all of the outstanding stock of WRI,
Inc. (the holding company for Wellhead Recycling, Inc.), in exchange for 202,960
shares of preferred stock, 12,690 shares of common stock, $200,000 in cash and a
$219,000 note. The purchase price was allocated to the estimated fair value of
assets acquired and liabilities assumed, of approximately $1,471,000 and
$440,000, respectively.
In conjunction with the acquisition, the tax status of Wellhead was
converted from a Subchapter S corporation to a Subchapter C corporation.
NOTE L SUBSEQUENT EVENTS
In April, 1997, Wellhead signed a letter of intent with D.E. Frey &
Company, Inc., which provided that the stockholders of Wellhead, along with the
equityholders of Flare King, Inc., and Hi-Tech Compressor Company, L.C. will
exchange their shares or equity interests through a business combination to form
a new holding company, United Oilfield Services, Inc. United Oilfield Services,
Inc. intends to proceed with an initial public offering (the "Offering") on a
"best efforts basis." There can be no assurances that the Offering will be
consummated.
In August, 1997 (unaudited), the preferred stock was redeemed by issuance
of a promissory note in the amount of $960,000, with interest only at 8% monthly
from September 30, 1997 through January 1, 1998. Beginning February 1, 1998,
principal and interest are payable in monthly installments in the amount of
$19,465. If the Offering referred to above is successful, part of the proceeds
will be used to retire this debt.
Effective as of October 14, 1997, Wellhead and the equity holders of
Wellhead, Flare King and Hi-Tech (the "Founding Companies") entered into an
Agreement and Plan of Reorganization (the "Reorganization"). Pursuant to such
agreement and simultaneously with and as a condition to the closing of the
Reorganization and the Offering, the Company will issue to the holders of the
outstanding equity securities of the Founding Companies shares of its Common
Stock in exchange for the ownership interests of such holders in such companies.
There can be no assurances that the Offering or the Reorganization will be
consummated.
F-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
FLARE KING, INC.
Corpus Christi, Texas
We have audited the accompanying balance sheet of FLARE KING, INC. as of
December 31, 1996 and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. 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 audit.
Except as discussed in the following paragraph, 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.
Since this was our initial examination of the financial statements of the
Company, December 31, 1996, was the only date at which we observed the taking of
physical inventories. However, based on other tests we applied, including tests
of gross profit and review of physical inventory records, we have no reason to
believe that inventories at December 31, 1995, were not also fairly stated.
In our opinion, with the foregoing comment regarding inventories, the
financial statements referred to above present fairly, in all material respects,
the financial position of FLARE KING, INC. at December 31, 1996, and the results
of its operations and its cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KARLINS FULLER ARNOLD & KLODOSKY P.C.
The Woodlands, Texas
March 3, 1997 except for Note J,
as to which the dates are April 11, 1997 and October 14, 1997
F-21
<PAGE>
FLARE KING, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash............................... $ 16,483 $ 1,054
Accounts receivable, trade......... 156,116 178,031
Accounts receivable, other......... 39,770 73,485
Accounts receivable, Hi-Tech
Compressor Company, L.C........... 28,717 17,587
Inventory.......................... 62,243 57,806
Prepaid expenses................... 6,624 30,363
Deferred income taxes.............. 32,228
------------ -----------
Total current assets.......... 342,181 358,326
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, at
cost.................................. 271,392 280,638
Less accumulated depreciation and
amortization...................... 135,319 156,319
------------ -----------
136,073 124,319
------------ -----------
OTHER ASSETS
Investments........................ 83,485 120,177
Intangible assets, net............. 309,321 294,731
Deposits........................... 2,305 2,305
------------ -----------
395,111 417,213
------------ -----------
$ 873,365 $ 899,858
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term
debt.............................. $ 203,647 $ 199,311
Accounts payable, trade............ 103,250 61,002
Accrued liabilities................ 45,421 75,208
------------ -----------
Total current liabilities..... 352,318 335,521
------------ -----------
LONG-TERM DEBT.......................... 193,687 164,061
------------ -----------
STOCKHOLDERS' EQUITY
Common stock....................... 111,455 111,455
Additional paid-in capital......... 374,545 374,545
Retained earnings (deficit)........ (158,640) (85,724)
------------ -----------
327,360 400,276
------------ -----------
$ 873,365 $ 899,858
============ ===========
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
FLARE KING, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
JUNE 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
Revenues............................. $1,033,920 $ 475,252 $ 654,298
Cost of goods sold................... 541,755 228,609 340,517
------------ ---------- ----------
Gross Profit......................... 492,165 246,643 313,781
Selling, general and administrative
expenses........................... 353,403 156,534 179,752
Depreciation and amortization
expenses........................... 72,487 24,003 35,590
------------ ---------- ----------
425,890 180,537 215,342
------------ ---------- ----------
Income from operations............... 66,275 66,106 98,439
------------ ---------- ----------
Income in subsidiary................. 73,140 45,166 46,692
Interest expense..................... (47,842) (16,438) (16,362)
Other income (expense), net.......... 53,730 584 16
------------ ---------- ----------
79,028 29,312 30,346
------------ ---------- ----------
Income before income tax provision... 145,303 95,418 128,785
Income tax provision................. (32,607) (7,538) (55,869)
------------ ---------- ----------
Net income........................... $ 112,696 $ 87,880 $ 72,916
============ ========== ==========
Net income per share................. $ 1.01 $ 0.79 $ 0.65
============ ========== ==========
Shares used in computing pro forma
net income......................... 111,455 111,455 111,455
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
FLARE KING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........... $111,455 $ 374,545 $(271,336) $ 214,664
Net income........................... 112,696 112,696
-------- ---------- --------- ----------
Balance, December 31, 1996........... 111,455 374,545 (158,640) 327,360
Net income (unaudited)............... 72,916 72,916
-------- ---------- --------- ----------
Balance, June 30, 1997 (unaudited)... $111,455 $ 374,545 $ (85,724) $ 400,276
======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
FLARE KING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 112,696 $ 87,880 $ 72,916
------------ ---------- ----------
Adjustments to obtain net cash
provided by (used in) operating
activities:
Depreciation and
amortization............... 79,314 24,003 35,590
Change in deferred income
tax........................ 32,607 32,228
Loss (gain) on disposition of
assets..................... (13,678)
Income from Hi-Tech Compressor
Company, L.C............... (73,140) (45,166) (46,692)
Change in accounts receivable,
trade...................... (81,061) (99,259) (21,915)
Change in accounts receivable,
other...................... 11,136 (18,540) (33,715)
Change in accounts receivable,
Hi-Tech Compressor Company,
L.C........................ 46,769 31,527 11,130
Change in inventory........... (29,637) 17,866 4,437
Change in prepaid expenses.... 25,411 (8,361) (23,739)
Change in deposits............ 697
Change in accounts payable.... (51,939) 9,632 (42,249)
Change in accrued
liabilities................ 43,595 (11,286) 29,787
------------ ---------- ----------
Total adjustments........ (9,926) (99,584) (55,138)
------------ ---------- ----------
Net cash provided
by (used in)
operating
activities....... 102,770 (11,704) 17,778
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from Hi-Tech
Compressor Company, L.C.......... 38,500 13,500 10,000
Capital expenditures............... (7,035) (5,182) (9,246)
Proceeds from sale of assets....... 15,200 388
------------ ---------- ----------
Net cash provided
by (used in)
investing
activities....... 46,665 8,706 754
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 80,800 55,800 14,224
Principal payments under long-term
debt............................. (213,752) (52,802) (48,185)
------------ ---------- ----------
Net cash provided
by (used in)
financing
activities....... (132,952) 2,998 (33,961)
------------ ---------- ----------
Net increase (decrease) in cash......... 16,483 (15,429)
Cash at beginning of period............. 16,483
------------ ---------- ----------
Cash at end of period................... $ 16,483 $ $ 1,054
============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
FLARE KING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINES OF BUSINESS
Flare King, Inc. ("Flare King") is a manufacturer of natural gas flare
stacks and ignition systems for use in oilfield, refinery, and petrochemical
plant applications.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Management believes that all receivables at December 31, 1996 and June 30,
1997 (unaudited), are collectible, therefore no allowance for doubtful accounts
has been recorded. During the year ended December 31, 1996, accounts receivable
in the amount of $5,864 were written off.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets
using the straight-line method, generally from five to twenty years.
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged to earnings as
incurred.
When machinery and equipment are retired or otherwise disposed of, the cost
thereof and the applicable accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is reflected in earnings.
INVENTORY
Inventory is valued at the lower of cost or market, by the first-in,
first-out method. Inventory consisted of the following:
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
Finished goods.......................... $ 28,656 $ 33,150
Work-in-progress........................ 33,587 24,656
------------ ---------
$ 62,243 $ 57,806
============ =========
Work-in-process and finished goods include raw materials, direct labor and
manufacturing overhead at December 31, 1996 and June 30, 1997 (unaudited).
USES 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 these estimates.
INCOME TAXES
Flare King utilizes SFAS No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to financial accounting and reporting
for income taxes. The difference between the financial statement and tax basis
of assets and liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to the periods in
which they are expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount that
will more likely
F-26
<PAGE>
FLARE KING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
than not be realized. Income tax expense is the current tax payable or
refundable for the period plus or minus the net change in the deferred tax
assets and liabilities.
Income tax expense includes federal and state taxes currently payable and
the change in deferred taxes arising from temporary differences between income
for financial reporting and income tax purposes.
CHANGES IN ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Assets to be Disposed of" is applicable to
Flare King in fiscal 1996. This statement requires that long-lived assets and
certain intangibles to be held and used by Flare King be reviewed for
impairment. This pronouncement did not have a material impact on the financial
statements of Flare King.
AMORTIZATION
Patent costs are amortized on a straight-line basis over 17 years. On an
annual basis, Flare King assesses the carrying value of patents in order to
determine whether an impairment has occurred, taking into account both
historical and forecasted sales and gross profits.
PER SHARE DATA
Per share data is calculated based upon the weighted average number of
shares of common stock and dilutive stock options and warrants outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
inventory, accounts payable and accrued liabilities approximate fair value
because of the short maturity of these items. The carrying amounts of long-term
debt approximate fair value because the interest rates on these instruments
change with market interest rates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of Flare
King at June 30, 1997, and the results of its operations and cash flows for the
six months ended June 30, 1996 and 1997. 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.
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, Flare King considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Supplemental disclosures of cash flows information:
Interest paid amounted to $43,558, $16,362 and $16,438 for the year
ended December 31, 1996 and the six months ended June 30, 1997 and 1996
(unaudited), respectively.
Noncash investing and financing activities consisted of the following:
Long-term debt obligations in the amount of $31,722 were incurred for
accounts payable reclassified. Notes payable in the amount of $20,919 were
incurred to finance insurance premiums for the year ended December 31,
1996.
F-27
<PAGE>
FLARE KING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAJOR CUSTOMERS
Flare King had sales to five customers that aggregated to 38%, 54% and 52%
of total revenue, of which no customer accounted for over 10%, for the year
ended December 31, 1996 and the six months ended June 30, 1997 and 1996
(unaudited), respectively.
INVESTMENT IN HI-TECH COMPRESSOR COMPANY, L.C. ("HI-TECH")
The Company accounts for its investment in using the equity method of
accounting.
NOTE B PROPERTY, PLANT AND EQUIPMENT
The major asset categories, together with the related costs and accumulated
depreciation and amortization, are as follows:
DECEMBER 31, JUNE 30,
1996 1997
------------- --------
(UNAUDITED)
Rental equipment..................... $ 67,717 $ 67,717
Machinery and equipment.............. 65,936 69,782
Furniture and fixtures............... 29,600 31,204
Transportation equipment............. 28,560 32,356
Building, and leasehold
improvements......................... 79,579 79,579
------------- --------
271,392 280,638
Less accumulated depreciation........ (135,319) (156,319)
------------- --------
$ 136,073 $124,319
============= ========
NOTE C INTANGIBLE ASSETS
Intangible assets consists principally of two patents, a flare tip ignition
device and flare tip pilot burner. These patents have a basis of $403,802 and
accumulated amortization of $97,469 as of December 31, 1996, for a net book
value of $306,333. The flare tip ignition device is a patent design that is used
in most of Flare King production design flares. The flare tip pilot burner is a
patented design that is included in the majority of the flares manufactured by
Flare King and is used to provide a flame to ignite waste gas that is channeled
through the flare tip. These patents are being amortized over seventeen years.
F-28
<PAGE>
FLARE KING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D INVESTMENT IN HI-TECH COMPRESSOR COMPANY, L.C.
For the year ended December 31, 1996 and the six months ended June 30, 1997
(unaudited) the Company had a 50% investment in Hi-Tech. A summarized balance
sheet and statement of operations for the year ended December 31, 1996 and June
30, 1997 (unaudited) are as follows:
Summarized balance sheets:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
Cash............................ $ 84,614 $ 19,111
Accounts and note receivable.... 253,207 345,709
Inventory....................... 185,589 130,948
Prepaid expenses and other
assets........................ 18,881 22,108
------------ -----------
542,291 517,876
------------ -----------
Property, plant and equipment... 179,977 353,565
Accumulated depreciation........ (64,721) (83,636)
------------ -----------
115,256 269,929
------------ -----------
$ 657,547 $ 787,805
============ ===========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities............. $ 350,847 $ 335,402
Long-term debt, net of current
maturities.................... 139,729 $ 212,048
Members' capital................ $ 166,971 $ 240,355
------------ -----------
$ 657,547 $ 787,805
============ ===========
Summarized Statements of Operations:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Revenue......................... $1,107,638 $ 510,323
Cost of goods sold.............. 735,705 314,960
------------ -----------
Gross profit.................... 371,933 195,363
------------ -----------
Selling, general and
administrative expenses....... $ 174,137 $ 73,793
Depreciation and amortization
expenses...................... 31,913 18,915
Other expense (income), net..... 19,603 9,271
------------ -----------
225,653 101,979
------------ -----------
Net Income........................... $ 146,280 $ 93,384
============ ===========
F-29
<PAGE>
FLARE KING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E LONG-TERM DEBT
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Note payable, bank -- payable $8,770
monthly, with interest at prime plus
2.75%; secured by accounts receivable,
inventory and machinery and
equipment............................. $257,564 $
Note payable, bank -- revolving line of
credit, with maximum borrowings up to
$125,000 at an interest rate of prime
plus 2.75%; secured by accounts
receivable, inventory, machinery and
equipment and personal guarantee of
the stockholder....................... 69,981
Note payable, bank -- payable $4,940
monthly, with interest at prime plus
2.75%; secured by accounts receivable,
inventory, machinery and equipment and
personal guarantee of the major
stockholder........................... 150,000
Note payable, individual -- payable
$2,114 monthly with interest at
10.00%; unsecured..................... 66,422 65,502
Notes payable, two individuals --
payable $2,000 monthly; non-interest
bearing and unsecured................. 56,000 56,000
Notes payable, miscellaneous............ 17,348 21,889
------------ -----------
397,334 363,372
Current portion......................... 203,647 199,311
------------ -----------
Long-term portion....................... $193,687 $ 164,061
============ ===========
The aggregate principal payments on long-term debt during the years
subsequent to December 31, 1996 are: 1997 -- $203,647; 1998 -- $98,467 and
1999 -- $95,220.
NOTE F PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Current................................. $ $ 23,641
Deferred................................ (32,607) 32,228
------------ -----------
$(32,607) $ 55,869
============ ===========
The provision for income taxes differs from the amount computed at the
statutory rates as follows:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Federal income tax at statutory rates... $ 39,918 $ 23,641
Utilization of net operating loss
carryforward.......................... 32,228
Recognition of net operating loss
benefit............................... (72,525)
------------ -----------
$(32,607) $ 55,869
============ ===========
The deferred tax asset at December 31, 1996, consisted of Flare King's
benefit from net operating loss carryforwards. The benefit was recognized for
the six months ended June 30, 1997 (unaudited).
F-30
<PAGE>
FLARE KING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Under the asset and liability method, deferred tax assets and liabilities
are determined based on the differences between the financial statement and tax
basis of assets and liabilities and are measured using enacted tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
As of December 31, 1996, Flare King has net operating loss carryforwards of
approximately $95,000 for federal income tax purposes available to offset future
financial income, expiring, if not used, periodically through the year 2009.
Flare King also has capital loss carryforwards of approximately $6,300.
NOTE G STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following:
Common stock -- The common stock is $1 par stock, 1,000,000 shares are
authorized; 111,455 are issued and outstanding.
NOTE H RELATED PARTY TRANSACTIONS
Related party transactions and related balances with the stockholders of
Flare King and companies owned by stockholders are as follows:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Accounts receivable, stockholder........ $ 39,770 $73,485
Accounts receivable, Hi-Tech Compressor
Company, L.C.......................... 28,717 17,587
Management fee income................... 80,300 24,000
NOTE I CONCENTRATION OF CREDIT RISK
Flare King sells its products and services to the oil and gas industry in
Texas. Flare King grants credit to customers, substantially all of whom are
commercial establishments located in the vicinity of the operating locations of
Flare King.
NOTE J SUBSEQUENT EVENTS
In April, 1997, Flare King signed a Letter of Intent with D.E. Frey &
Company, Inc., which provided for the stockholders of Flare King, along with the
equityholders of Wellhead and Hi-Tech to exchange their shares or equity
interests through a business combination to form a new holding company, United
Oilfield Services, Inc. United Oilfield Services, Inc. intends to proceed with
an initial public offering (the "Offering") on a "best efforts basis." There
can be no assurances that this Offering will be consummated.
Effective as of October 14, 1997, Flare King and the equity holders of
Wellhead, Flare King and Hi-Tech (the "Founding Companies") entered into an
Agreement and Plan of Reorganization (the "Reorganization"). Pursuant to such
agreement and simultaneously with and as a condition to the closing of the
Reorganization and the Offering, the Company will issue to the holders of the
outstanding equity securities of the Founding Companies shares of its Common
Stock in exchange for the ownership interests of such holders in such companies.
There can be no assurances that the Offering or the Reorganization will be
consummated.
F-31
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members of
HI-TECH COMPRESSOR COMPANY, L.C.
Corpus Christi, Texas
We have audited the accompanying balance sheet of HI-TECH COMPRESSOR
COMPANY, L.C. as of December 31, 1996 and the related statements of results of
operations, members' capital, and cash flows for the year then ended. 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 audit.
Except as discussed in the following paragraph, 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.
Since this was our initial examination of the financial statements of the
Company, December 31, 1996, was the only date at which we observed the taking of
physical inventories. However, based on other tests we applied, including tests
of gross profit and review of physical inventory records, we have no reason to
believe that inventories at December 31, 1995, were not also fairly stated.
In our opinion, with the foregoing comment regarding inventories, the
financial statements referred to above present fairly, in all material respects,
the financial position of HI-TECH COMPRESSOR COMPANY, L.C. at December 31, 1996,
and the results of its operations and its cash flows for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
KARLINS FULLER ARNOLD & KLODOSKY P.C.
The Woodlands, Texas
March 3, 1997 except for Note H,
as to which the dates are April 11, 1997 and October 14, 1997
F-32
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------- ---------
(UNAUDITED)
ASSETS
Current Assets
Cash............................ $ 84,614 $ 19,111
Accounts receivable, trade, net
of allowance................... 203,455 314,556
Accounts receivable, other...... 12,775 10,000
Note receivable................. 36,977 21,153
Inventory....................... 185,589 130,948
Prepaid expenses................ 9,005 12,282
------------- ---------
Total Current Assets....... 532,415 508,050
------------- ---------
Property, Plant and Equipment, at
cost............................... 179,977 353,565
Less accumulated depreciation
and amortization............... 64,721 83,636
------------- ---------
115,256 269,929
------------- ---------
Other Assets
Investments..................... 6,000 6,000
Deposits........................ 3,876 3,826
------------- ---------
9,876 9,826
------------- ---------
$ 657,547 $ 787,805
============= =========
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities
Current portion of long-term
debt........................... $ 153,356 $ 259,713
Accounts payable, trade......... 30,990 46,653
Accounts payable, Flare King,
Inc............................ 28,717 17,587
Accrued liabilities............. 17,184 11,449
Deferred income................. 120,600
------------- ---------
Total Current
Liabilities............. 350,847 335,402
------------- ---------
Long-term Debt....................... 139,729 212,048
------------- ---------
Members' Capital..................... 166,971 240,355
------------- ---------
$ 657,547 $ 787,805
============= =========
The accompanying notes are an integral part of these financial statements
F-33
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
STATEMENTS OF OPERATIONS
YEAR ENDED SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
------------- ----------------------
1996 1996 1997
------------- ---------- ----------
Revenues............................. $ 1,107,638 $ 674,782 $ 510,323
Cost of goods sold................... 735,705 457,247 314,960
------------- ---------- ----------
Gross Profit......................... 371,933 217,535 195,363
Selling, general and administrative
expenses........................... 174,137 71,293 73,793
Depreciation and amortization
expenses........................... 31,913 15,968 18,915
------------- ---------- ----------
206,050 87,261 92,708
------------- ---------- ----------
Income from operations............... 165,883 130,274 102,655
------------- ---------- ----------
Interest expense..................... (16,175) (7,510) (12,645)
Other income (expense), net.......... (3,428) (32,433) 3,374
------------- ---------- ----------
(19,603) (39,943) (9,271)
------------- ---------- ----------
Net Income before pro forma
adjustment........................... 146,280 90,331 93,384
Pro forma adjustment --
provision for income taxes.... 40,549 26,979 28,170
------------- ---------- ----------
Pro forma net income............ $ 105,731 $ 63,352 $ 65,214
============= ========== ==========
The accompanying notes are an integral part of these financial statements
F-34
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
STATEMENTS OF MEMBERS' CAPITAL
MEMBERS'
CAPITAL
--------
Balance, December 31, 1995.............. $ 97,691
Distributions........................... (77,000)
Net income.............................. 146,280
--------
Balance, December 31, 1996.............. 166,971
Distributions........................... (20,000)
Net Income.............................. 93,384
--------
Balance, June 30, 1997.................. $240,355
========
The accompanying notes are an integral part of these financial statements
F-35
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 146,280 $ 90,331 $ 93,384
------------ ------------ ------------
Adjustments to obtain net cash
provided by (used in) operating
activities:
Depreciation and
amortization............... 27,836 34,831 18,915
Loss (gain) on disposition of
assets..................... (25,883)
Change in accounts receivable,
trade...................... (16,501) 87,552 (111,101)
Change in accounts receivable,
other...................... (11,225) 2,775
Change in note receivable..... (36,977) 15,824
Change in inventory........... (115,332) (87,950) 54,641
Change in prepaid expenses.... (7,450) (19,806) (3,227)
Change in deposits............ 67
Change in accounts payable.... 13,591 (6,869) 15,663
Change in accounts payable,
Flare King, Inc............ (61,026) (31,527) (11,130)
Change in accrued
liabilities................ (26,553) (3,635) (5,734)
Change in deferred revenue.... 120,600 2,250 (120,600)
------------ ------------ ------------
Total adjustments........ (138,853) (25,154) (143,974)
------------ ------------ ------------
Net cash provided
by (used in)
operating
activities....... 7,427 65,177 (50,590)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (7,007) (1,568) (173,588)
Proceeds from sale of assets....... 99,341 121,590
------------ ------------ ------------
Net cash provided
by (used in)
investing
activities....... 92,334 120,022 (173,588)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....... 538,780 321,226 248,800
Principal payments under long-term
debt............................. (483,380) (453,971) (70,125)
Member distributions............... (77,000) (45,281) (20,000)
------------ ------------ ------------
Net cash provided
by (used in)
financing
activities....... (21,600) (178,026) 158,675
------------ ------------ ------------
Net increase (decrease) in cash......... 78,161 7,173 (65,503)
Cash at beginning of period............. 6,453 6,453 84,614
------------ ------------ ------------
Cash at end of period................... $ 84,614 $ 13,626 $ 19,111
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-36
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
NOTES TO FINANCIAL STATEMENTS
NOTE A BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINES OF BUSINESS
HI-TECH Compressor Company, L.C. ("Hi-Tech") is a packager of natural gas
compressors.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Management believes that all receivables at December 31, 1996 and June 30,
1997 (unaudited), are collectible, therefore no allowance for doubtful accounts
has been recorded. During the year ended December 31, 1996, accounts receivable
in the amount of $6,000 were written off.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets
using the straight-line method, generally from five to twenty years.
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged to earnings as
incurred.
When machinery and equipment are retired or otherwise disposed of, the cost
thereof and the applicable accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is reflected in earnings.
INVENTORY
Inventory is valued at the lower of cost or market, by the first-in,
first-out method. Inventory consisted of the following:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Finished goods.......................... $101,590 $ 114,467
Work-in-progress........................ 83,999 16,480
------------ -----------
$185,589 $ 130,947
============ ===========
Work-in-process and finished goods include raw materials, direct labor and
manufacturing overhead at December 31, 1996 and June 30, 1997 (unaudited).
USES 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 these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
inventory, accounts payable and accrued liabilities approximate fair value
because of the short maturity of these items. The carrying amounts of long-term
debt approximate fair value because the interest rates on these instruments
change with market interest rates.
F-37
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited, but include
all adjustments of a normal recurring nature, which, in the opinion of
management, are necessary to present fairly the financial position of Hi-Tech at
June 30, 1997, and the results of its operations and cash flows for the six
months ended June 30, 1996 and 1997. 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.
INCOME TAXES
The Company currently operates as a limited liability corporation. As such,
no provision for income taxes for the Company has been provided in the
accompanying financial statements as any income or loss is included on the
income tax returns of the individual members. The pro forma tax provision and
net income, assuming a 34% tax rate, discloses the tax expense incurred had the
Company been a C-Corporation subject to federal income taxes.
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, Hi-Tech considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Supplemental disclosures of cash flows information:
Interest paid amounted to $16,175, $12,646 and $7,509 for the year
ended December 31, 1996 and six months ended June 30, 1997 and 1996
(unaudited), respectively.
Noncash investing and financing activities consisted of the following:
Long-term debt obligations in the amount of $26,685 were incurred for
the acquisition of transportation equipment for the year ended December 31,
1996.
MAJOR CUSTOMERS
Hi-Tech had sales to two customers that represented 31% and 25% of total
revenue for the year ended December 31, 1996. For six months ended June 30, 1997
and 1996, sales to these two customers represented 50% and 39% of total revenue,
respectively.
NOTE B PROPERTY, PLANT AND EQUIPMENT
The major asset categories, together with the related costs and accumulated
depreciation and amortization, are as follows:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Rental equipment..................... $133,061 $ 306,649
Machinery and equipment.............. 2,143 2,143
Furniture and fixtures............... 4,177 4,177
Transportation equipment............. 22,715 22,715
Building, and leasehold
improvements....................... 17,881 17,881
------------ -----------
179,977 353,565
Less accumulated depreciation and
amortization....................... (64,721) (83,636)
------------ -----------
$115,256 $ 269,929
============ ===========
F-38
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C NOTE RECEIVABLE
At December 31, 1996 and June 30, 1997 (unaudited), Hi-Tech has a note
receivable with a customer, which is receivable $3,259 monthly including
interest at 10.50%. This note is secured by equipment sold to the customer.
NOTE D LONG-TERM DEBT
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Note payable, bank -- payable $11,800
monthly, plus interest at prime
plus 1.00%; the Company may borrow
up to 80% of its eligible
receivables and 50% of eligible
inventory with a maximum
availability of $425,000; secured
by accounts receivable, inventory
and machinery and equipment........ $266,400 $ 342,400
Note payable, bank -- revolving line
of credit, with interest at 9.5%;
the Company may borrow up to 80% of
its eligible receivables and 50% of
eligible inventory with a maximum
availability of $250,000; secured
by accounts receivable, inventory,
machinery and equipment............ 102,000
Note payable, bank -- payable $629
monthly, including interest at
8.25%; secured by transportation
equipment.......................... 20,000 18,488
Note payable, miscellaneous.......... 6,685 8,873
------------ -----------
293,085 471,761
Current portion...................... 153,356 259,713
------------ -----------
Long-term portion.................... $139,729 $ 212,048
============ ===========
The aggregate principal payments on long-term debt during the years
subsequent to December 31, 1996 are: 1997 -- $153,356; 1998 -- $131,360 and
1999 -- $8,369.
NOTE E DEFERRED INCOME
At December 31, 1996, deferred income in the amount of $120,600 consists of
funds received from a customer in advance of the deliverance of goods.
NOTE F RELATED PARTY TRANSACTIONS
Related party transactions and related balances with the members of Hi-Tech
and companies owned by stockholders are as follows:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Accounts receivable, other........... $ 10,000 $10,000
Accounts receivable, Flare King,
Inc................................ 28,717 17,587
NOTE G CONCENTRATION OF CREDIT RISK
Hi-Tech sells its products and services to the oil and gas industry in
Texas. Hi-Tech grants credit to customers, substantially all of whom are
commercial establishments located in the vicinity of the operating locations of
Hi-Tech.
F-39
<PAGE>
HI-TECH COMPRESSOR COMPANY, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H SUBSEQUENT EVENTS
In April, 1997, Hi-Tech signed a Letter of Intent with D.E. Frey & Company,
Inc., which provided for the members of Hi-Tech, along with the stockholders of
Wellhead and Flare King will exchange their shares and equity interests through
a business combination to form a new holding company, United Oilfield Services,
Inc. United Oilfield Services, Inc. intends to proceed with an initial public
offering (the "Offering") on a "best efforts basis." There can be no
assurances the Offering will be consummated.
Effective as of October 14, 1997, Hi-Tech and the equity holders of
Wellhead, Flare King and Hi-Tech (the "Founding Companies") entered into an
Agreement and Plan of Reorganization (the "Reorganization"). Pursuant to the
such agreement and simultaneously with and as a condition to the closing of the
Reorganization and the Offering, the Company will issue to the holders of the
outstanding equity securities of the Founding Companies shares of its Common
Stock in exchange for the ownership interests of such holders in such companies.
There can be no assurances that the Offering or the Reorganization will be
consummated.
F-40
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT 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 THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ....................................................... 3
Risk Factors ............................................................. 7
Selected Pro Forma Combined Financial Data ............................... 11
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 13
Use of Proceeds .......................................................... 16
Capitalization ........................................................... 17
Dividend Policy .......................................................... 18
Dilution ................................................................. 18
The Company .............................................................. 19
The Reorganization ....................................................... 27
Management ............................................................... 28
Certain Transactions ..................................................... 31
Securities Ownership of Management and Certain Beneficial Holders ........ 33
Description of Securities ................................................ 34
Shares Eligible for Future Sale .......................................... 35
Underwriting ............................................................. 37
Legal Matters ............................................................ 38
Experts .................................................................. 38
Additional Information ................................................... 38
Index to Financial Statements ............................................ F-1
------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
================================================================================
================================================================================
1,000,000 SHARES
[LOGO]
UNITED OILFIELD
SERVICES, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
D. E. FREY & COMPANY, INC.
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of this offering will be paid by United Oilfield Services,
Inc. (the "Registrant") and are estimated as follows:
SEC registration fee.................... $ 2,065
Printing including engraving of share
certificates.......................... 50,000
Legal fees and expenses................. 150,000
Accounting fees and expenses............ 25,000
Officer and director indemnification
insurance premiums.................... 25,000
Underwriting nonaccountable expenses
(other than commissions).............. 180,000
Financial advisory fees................. 35,000
Miscellaneous........................... 17,935
----------
Total.............................. $ 485,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Article 2.02-1 of the Texas Business Corporation Act
(the "TBCA"), which enables a corporation in its original articles of
incorporation or an amendment thereto to limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty, except (i) for any breach of the director's
duty of loyalty to the corporation and to its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to article 2.38 of the TBCA (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions), or (iv) for any transaction from which the director
derived an improper personal benefit. The Registrant's Articles of Incorporation
contain provisions permitted by the TBCA.
The Registrant is incorporated under the laws of the State of Texas.
Section 2.02-1 of the TBCA provides that a Texas corporation may indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was unlawful. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director has actually and reasonably incurred.
Article Ten of the Registrant's Articles of Incorporation requires the
Registrant to indemnify the Registrant's directors to the maximum extent
permitted by the TBCA as set forth in the Registrant's Bylaws.
Section 6.10 of the Registrant's Bylaws provides that the Registrant shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative, arbitrative or investigative (other than an
action by or in the right of the Registrant), by reason of the fact that he is
or was a director or officer of the Registrant, or is or was serving at the
request of the Registrant as a director, officer, partner, venturer, proprietor,
member, employee, trustee, agent or similar functionary of another domestic or
foreign corporation, employee benefit plan, other enterprise or other entity,
against expenses (including attorneys' fees), judgments, penalties,
II-1
<PAGE>
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The determination of
whether an incumbent or former director or officer is entitled to
indemnification because such officer or director has met the applicable
standards of conduct set forth above is to be made, unless ordered by a court:
(i) by a majority vote of a quorum consisting of directors who at the time of
the vote are not parties to the proceeding; (ii) if such quorum cannot be
obtained, by a majority vote of a committee of the Board of Directors,
consisting of disinterested members; (iii) by independent legal counsel in a
written opinion; or (iv) by a vote of disinterested shareholders of the
Registrant. The Bylaws further provide that the expenses (including attorneys'
fees) incurred in any such action by a director of officer of the Registrant may
be paid or reimbursed by the Registrant in advance of the final disposition of
such action, suit or proceeding upon receipt of a written undertaking by or on
behalf of the director or officer to repay the amount paid or reimbursed if it
is ultimately determined that he is not entitled to be indemnified by the
Registrant as authorized therein.
The Registrant's Bylaws also provide that the Registrant may indemnify to
the extent of the provisions set forth therein, any person, other than an
officer or director, who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative or investigative, by reason of the
fact that he is or was an employee or agent of the Registrant, or was serving at
the request of the Registrant as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, employee benefit plan, other enterprise or
other entity, if the Board determines that indemnification is appropriate and
the extent thereof.
The Registrant's Bylaws further provide that the indemnification described
therein is not exclusive, and shall not exclude any other rights to which the
person seeking to be indemnified may be entitled under statute, any bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in his official capacity and to his action in another capacity
while holding such office.
The Registrant intends to sign indemnification agreements with the
directors and executive officers of the Registrant and certain of its
subsidiaries certain of whose executive officers also perform policy-making
functions on behalf of the Registrant pursuant to which the Registrant will
indemnify them in accordance with the Registrant's Articles of Incorporation and
its Bylaws. The Registrant further intends to obtain insurance with respect to
such indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Simultaneously with and as a condition to the consummation of the Offering,
the Registrant will issue shares of its Common Stock in connection with the
Reorganization of the Founding Companies. The issuance of the Registrant's
Common Stock pursuant to the negotiated Reorganization was accomplished without
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) of the Securities Act. See "The Reorganization" in Part I of this
Registration Statement.
ITEM 16. EXHIBITS
(a) Exhibits
EXHIBIT
NO. EXHIBIT
- --------------------------------------------------------------------------------
1.1 -- Underwriting Agreement
1.2 -- Form of Selected Dealer's Agreement
1.3 -- Form of Underwriter's Warrant
1.4 -- Form of Fund Escrow Agreement
II-2
<PAGE>
EXHIBIT
NO. EXHIBIT
- --------------------------------------------------------------------------------
2 -- Agreement and Plan of Reorganization, dated as of
October 14, 1997, by and among United Wellhead Services,
Inc., the Stockholders of United Wellhead Services,
Inc., the Stockholders of Flare King, Inc., and the
Equityholders of Hi-Tech Compressor Company, L.C.
3.1 -- Articles of Incorporation of United Oilfield Services,
Inc.
3.2 -- Bylaws of United Oilfield Services, Inc.
*4 -- Form of certificate evidencing ownership of Common
Stock of United Oilfield Services, Inc.
*5 -- Opinion of Winstead Sechrest & Minick P.C.
10.1 -- Loan Agreement, dated January 16, 1997, between
Community National Bank and United Wellhead Services,
Inc., for $700,000 working capital line of credit.
10.2 -- Commercial Revolving Note, dated June 19, 1997, made by
Flare King, Inc. and Wallace C. Sparkman in favor of
Midland American Bank, Midland, Texas, in the principal
amount of $150,000.
10.3 -- Commercial Draw Note, dated June 19,1997, made by Flare
King, Inc. and Wallace C. Sparkman in favor of Midland
American Bank, Midland, Texas, in the principal amount
of $125,000.
10.4 -- Loan Agreement, dated October 1, 1996, between Norwest
Bank Texas, Midland, Texas and Hi-Tech Compressor
Company, L.C., for $425,000 revolving line of credit.
10.5 -- Loan Agreement, dated May 1, 1997, between Norwest Bank
Texas, Midland, Texas and Hi-Tech Compressor Company,
L.C., for $250,000 revolving line of credit.
10.6 -- Preferred Stock Redemption and Loan Agreement, dated
August 27, 1997, by and between United Wellhead
Services, Inc. and Gay A. Roane, in the principal amount
of $960,000.
10.7 -- Installment Note, dated July 30, 1996, made by United
Wellhead Services, Inc. in favor of J. Richard Espinosa,
in the principal amount of $135,000.
10.8 -- Commercial Lease Agreement, dated June 6, 1994, by and
between United Wellhead Services, Inc. and J. Richard
Espinosa.
10.9 -- Commercial Lease Agreement, dated April 8, 1997, by and
between United Wellhead Services, Inc. and Nolan J.
Guidry.
10.10 -- Commercial Lease Agreement, dated effective as of
January 1, 1997, by and between United Wellhead
Services, Inc. and Bruce Graham Roberts, and others.
10.11 -- Commercial Lease Agreement, dated March 2, 1994, by and
between Hi-Tech Compressor Company, L.C. and Tom
Jackson.
10.12 -- 1997 Incentive Compensation Plan.
*10.13 -- Employment Agreement to be entered into by and between
United Oilfield Services, Inc. and Alvin H. Dueitt.
*10.14 -- Employment Agreement to be entered into by and between
United Oilfield Services and Burnace J. Boles, Jr.
*10.15 -- Employment Agreement to be entered into by and between
United Oilfield Services and Martin L. Tomlin
*10.16 -- Employment Agreement to be entered into by and between
United Oilfield Services and J. Richard Espinosa
21 -- List of Subsidiaries of United Oilfield Services, Inc.
23.1 -- Consent of Karlins Fuller Arnold & Klodosky PC.
*23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibit 5)
24 -- Power of Attorney (included herein on Signature Page).
27 -- Financial Data Schedule
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules
II-3
<PAGE>
All schedules for which provision is made in the applicable accounting
regulation of the Commission are not required under the related instructions,
are inapplicable or the information is included in the financial statements and
therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
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 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 directors, 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 being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To provide to the Underwriter at the closing specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(2) (i) For purposes of determining any liability under the
Securities Act of 1933, 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.
(ii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON THE DAY OF OCTOBER, 1997.
UNITED OILFIELD SERVICES, INC.
By: __________________________________
ALVIN H. DUEITT
PRESIDENT AND CHIEF OPERATING
OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Alvin H. Dueitt and Earl R. Wait with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the Commission, to sign any and all applications, registration
statements, notices and other documents necessary or advisable to comply with
the applicable state securities laws, and to file the same, together with all
other documents in connection therewith, with the appropriate state securities
authorities, granting unto said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, full power and authority to perform and
do each and every act and thing necessary and advisable as fully to all intents
and purposes as he might or could perform and do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER , 1997.
SIGNATURE TITLE
- -------------------------- ----------------------------------------------------
ALVIN H. DUEITT President and Chief Operating Officer
(Principal Executive Officer)
EARL R. WAIT Chief Accounting Officer and Secretary/Treasurer
(Principal Accounting Officer)
ALVIN H. DUEITT Director
L. MELVIN COOPER Director
CHARLES K. MILLER, JR. Director
FRANCIS M. RICCI Director
WALLACE O. SELLERS Director
II-5
UNITED OILFIELD SERVICES, INC.
UNDERWRITING AGREEMENT
Denver, Colorado
September ___, 1997
D.E. Frey & Company, Inc.
1700 Lincoln Street, Suite 2200
Denver, Colorado 80203
Gentlemen:
United Oilfield Services, Inc., a Texas corporation (the "Company"),
proposes to issue and sell through you (the "Underwriter") 1,000,000 shares of
the Company's $.01 par value common stock (the "Shares"). The offering of the
Shares is further described in the Registration Statement filed on Form S-1 with
the United States Securities and Exchange Commissions (the "Commission").
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce the
Underwriter to enter into this Agreement, the Company represents and warrants as
follows:
(a) The Company has filed a Registration Statement (No. 333-_________) on
Form S-1 pursuant to the Securities Act of 1933 (the "Act"), as amended, and the
Registration Statement was declared effective on ______________, 1997 (the
"Effective Date"). The Company has furnished to the Underwriter and to its legal
counsel such copies, including original signature pages, as required under the
rules and regulations of the Commission. As used in this Agreement, the term
"Registration Statement" means the Registration Statement, including its
Prospectus, the exhibits and financial statements, and all amendments including
any amendments after the effective date of the Registration Statement. The term
"Prospectus" means the prospectus filed as a part of Part I of the Registration
Statement, including all pre-effective and post-effective amendments and
supplements thereto.
(b) The Registration Statement and all other documents previously filed or
filed after the date hereof with the Commission conform and will conform with
all of the requirements of the Act in all material respects. Neither the
Registration Statement, the Prospectus nor the other material filed or to be
filed with the Commission contains nor will contain any untrue statements of
material fact nor are there or will there be any omissions of material facts
required to be stated therein or that are necessary to make the statements
therein not misleading, except that this warranty does not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by and with respect to you, or any dealer
through you, expressly for use in the Registration Statement or Prospectus or
any amendment or supplement thereto.
<PAGE>
D.E. Frey & Company, Inc.
Page 2
September ___, 1997
(c) The Company has obtained a CUSIP number for its common stock and the
Company has used its best efforts to qualify the Shares for offering in every
state reasonably designated by the Underwriter. The materials previously filed
or filed after the date hereof with any state do not and will not contain any
untrue statements of material fact nor are there or will there be any omissions
of material facts required to be stated therein or that are necessary to make
the statements therein not misleading.
(d) Karlins, Fuller, Arnold & Klodosky, P.C., whose reports appear in the
Prospectus are, and during the periods covered by their reports were,
independent accountants as required by the Securities Act and the applicable
Rules and Regulations. The financial statements and schedules (including the
related notes) included in the Registration Statement, any preliminary
Prospectus or the final Prospectus, present fairly the financial position, the
results of operations, and changes in financial position of the entities
purported to be shown thereby at the dates and for the periods indicated; and
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
indicated.
The financial information and related notes and schedules included
in the Registration Statement, any preliminary Prospectus or the final
Prospectus comply in all material respects with the requirements of the
Securities Act and the Rules and Regulations and present fairly the financial
position of the Company and its subsidiaries as of the dates indicated, and the
results of operation for the periods therein specified. Such financial
information, including the related notes and schedules, have been prepared on a
basis consistent with the historical financial statements included in the
Registration Statement, the Preliminary Prospectus and the Final Prospectus and
give effect to assumptions made on a reasonable basis to give effect to
historical and proposed transactions described in the Registration Statement,
any preliminary Prospectus and the final Prospectus. The financial information
and statistical data, and other data, set forth in the final Prospectus under
the captions "Prospectus Summary--Financial and Operating Data," "Selected
Financial Data," "Dilution" and "Capitalization" are derived from and prepared
on a basis consistent with such financial information.
(e) The outstanding capital stock of the Company has been duly and validly
authorized, issued and is fully paid and nonassessable and conforms to all
statements made in the Registration Statement and Prospectus with respect
thereto. The Shares, Warrants (as defined in paragraph 6 hereof) and Warrant
Shares (as defined in paragraph 6 hereof) have been duly and validly authorized
and, when issued and delivered against payment as provided in this Agreement,
will be validly issued, fully paid and nonassessable. The Shares and Warrant
Shares, upon issuance, will not be subject to the preemptive rights of any
shareholders of the Company. The Warrants, when sold and delivered, will
constitute valid and binding obligations of the Company enforceable in
accordance with their terms. A
<PAGE>
D.E. Frey & Company, Inc.
Page 3
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sufficient number of shares of common stock have been reserved for issuance upon
exercise of the Warrants. The Shares, Warrant Shares and Warrants will conform
to all statements in the Registration Statement and Prospectus. Upon delivery of
and payment for the Warrants to be sold by the Company as set forth in this
Agreement, the Underwriter and its designees will receive good and marketable
title thereto, free and clear of all liens, encumbrances, charges and claims
except those created by, through or under the Underwriter and except
restrictions on transfer arising under federal and state securities laws and
their rules and regulations. The Company will have on the Effective Date (as
defined in paragraph 1(a) hereof) of the Registration Statement and at the time
of delivery of such Warrants full legal right and power and all authorization
and approval required by law to sell, transfer and deliver such Warrants in the
manner provided hereunder.
(f) The Company has been legally incorporated and is now, and always
during the period of the offering will be, a validly existing corporation under
the laws of the State of Texas, lawfully qualified to conduct the business for
which it was organized and which it proposes to conduct. The Company is, and
will continue to be, qualified to conduct business as a foreign corporation in
each jurisdiction where the nature of its business requires such qualification.
(g) The Company has an authorized capitalization of 15,000,000 shares of
common stock ($.01 par value) and 3,000,000 shares of preferred stock. If all
Shares are sold, the Shares will represent at least 20% of the Company's shares
of common stock outstanding after the public offering. Common stock underlying
outstanding options and warrants except the Warrants will be deemed to
outstanding for purposes of determining the number of shares of the Company's
common stock outstanding after the public offering. There are no outstanding
options, warrants or other rights to purchase securities of the Company, however
characterized, except as described in the Registration Statement. There are no
securities of the Company, however characterized, held in its treasury. With
respect to the offer to sell, sale, offer to purchase or purchase of any of its
securities, the Company has not made any intentional or reckless violation of
the antifraud provisions of the federal securities laws, rules or regulations
promulgated thereunder or the laws, rules or regulations of any jurisdiction
wherein such securities transactions or solicitations occurred.
(h) The Company has caused each of its officers and directors and has used
its best efforts to cause each of its other shareholders to enter into an
agreement with the Underwriter pursuant to the terms of which each such person
has agreed not to sell any shares owned directly or indirectly by such person
for a period of 12 months from the effective date of the Registration Statement
without the Underwriter's prior written consent. The Company has obtained such
an agreement from shareholders owning at least ___% of the Company's outstanding
common stock and no shareholders have refused to sign such an agreement.
<PAGE>
D.E. Frey & Company, Inc.
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(i) The Company has no subsidiaries except as described in the
Registration Statement. As described in the Registration Statement, the
Company's business strategy includes the acquisition of additional business
operations. However, the Company has no agreement, plans, arrangements or
understandings with respect to acquiring additional subsidiaries, businesses,
existing business operations or engaging in mergers with or the acquisition of
any companies.
(j) Except as disclosed in the Registration Statement and the Prospectus,
the Company does not have any contingent liabilities, obligations, or claims nor
has it received threats of claims or regulatory action. Further, except as
disclosed in the Registration Statement and the Prospectus, subsequent to the
date information is given in the Registration Statement and Prospectus, and
prior to the close of the offering: (a) there shall not be any material adverse
change in the management or condition, financial or otherwise, of the Company or
in its business taken as a whole; (b) there shall not have been any material
transaction entered into bv the Company other than transactions in the ordinary
course of business; (c) the Company shall not have incurred any material
obligations, contingent or otherwise, which are not disclosed in the
Registration Statement and the Prospectus; (d) there shall not have been nor
will there be any change in the capital or long term debt (except current
payments) of the Company; and (e) the Company has not and will not have paid or
declared any dividends or other distributions on its common shares.
(k) The Company's securities, however characterized, are not subject to
preemptive rights.
(l) The Company will have the legal right and authority to enter into this
Underwriting Agreement upon its execution, to effect the proposed sale of the
Shares, to execute the Warrants and to effect all other transactions
contemplated by this Agreement.
(m) The Company knows of no person who rendered any services in connection
with the introduction of the Company to the Underwriter. No broker's or other
finder's fees are due and payable by the Company and none will be paid by it.
(n) The Company is eligible to use Form S-l for the offering of the
Shares.
(o) The Company and its affiliates are not currently offering any
securities nor has the Company or its affiliates offered or sold any securities
except as required to be described in the Registration Statement.
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D.E. Frey & Company, Inc.
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(p) The Company will not file any amendment or supplement to the
Registration Statement, Prospectus, or exhibits if the Underwriter and its
counsel have not been furnished a copy three days prior to any such filing, or
if the Underwriter or its counsel have objected in writing to the filing of the
amendment or supplement.
(q) The Company possesses adequate certificates or permits issued by the
appropriate federal, state and local regulatory authorities necessary to conduct
its business and to retain possession of its properties. The Company has not
received any notice of any proceeding relating to the revocation or modification
of any of these certificates or permits.
(r) The Company has filed all tax returns required to be filed and is not
in default in the payment of any taxes which have become due pursuant to any law
or any assessment.
(s) The Company has marketable title to all properties including
intellectual properties described in the Registration Statement as owned by it.
The properties are free and clear of all liens, charges, encumbrances, or
restrictions, however characterized, except as described in the Registration
Statement. All of the contracts, leases, subleases, patents, copyrights,
licenses and agreements, however characterized, under which the Company holds
its properties as described in the Registration Statement are in full force and
effect. The Company is not in default under any of the material terms or
provisions of any contracts, leases, subleases, patents, copyrights, licenses or
agreements under which the Company holds its properties. There are no known
claims against the Company concerning the Company's rights under the leases,
subleases, patents, copyrights, licenses and agreements and concerning its right
to continued possession of its properties.
(t) All original documents and other information relating to the Company's
affairs has and will continue to be made available upon request to the
Underwriter or to its counsel at the Underwriter's office or at the office of
the Underwriter's counsel and copies of any such documents will be furnished
upon request to the Underwriter and to its counsel. Included within the
documents made available have been at least the Articles of Incorporation and
any Amendments, Minutes of all of the meetings of the Incorporators, Directors
and Share holders, all financial statements and copies of all contracts, leases,
patents, copyrights, licenses or agreements to which the Company is a party or
in which the Company has an interest
(u) The Company has appointed American Securities Transfer & Trust, Inc.
Denver, Colorado, as the Company's transfer agent. The Company will continue to
retain a transfer agent reasonably satisfactory to the Underwriter for so long
as the Company is subject to the reporting requirements under Section 12(g)or
Section 15(d) of the Securities Exchange Act of 1934. The Company will make
arrangements to have available at the office
<PAGE>
D.E. Frey & Company, Inc.
Page 6
September ___, 1997
of the transfer agent sufficient quantities of the Company's common stock
certificates as may be needed for the quick and efficient transfer of the
Shares.
(v) The Company will use the proceeds from the sale of the Shares as set
forth in the Registration Statement and Prospectus.
(w) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(x) The Company is not in material default under any of the contracts,
leases, licenses or agreements to which it is a party. The proposed offering of
the Shares will not cause the Company to become in material default under an of
its contracts, leases, subleases, patents, copyrights, licenses or agreements
nor will it create a conflict between the Company and any of the contracting
parties to the contracts, leases and other agreements. Further, the Company is
not in material default in the performance of any obligation, agreement or
condition contained in any debenture, note or other evidence of indebtedness or
any indenture or loan agreement of the Company. The execution and delivery of
this Agreement and the consummation of the transactions herein contemplated and
compliance with the terms of this Agreement will not conflict with or result in
a breach of any of the material terms, conditions or provisions of, or
constitute a material default under, the Articles of Incorporation or Bylaws of
the Company, as amended, or any note, indenture, mortgage, deed of trust, or
other agreement or instrument to which the Company is a party or by which it or
any of its property is bound, or any existing law, order, rule, regulation,
writ, injunction, or decree of any government, governmental instrumentality,
agency or body, arbitration tribunal or court, domestic or foreign, having
jurisdiction over the Company or its property. The consent, approval,
authorization, or order of a court or governmental instrumentality, agency or
body is not required for the consummation of the transactions herein
contemplated except such as may be required under the Act, under the Blue Sky or
securities laws of any state or jurisdiction, or the rule of the NASD (as
defined herein). There are no contracts or other documents which are required to
be filed as exhibits to the Registration Statement by the Act or its rules and
regulations which have not been so filed. Each contract to which the Company is
a party has been duly and validly executed, is in full force and effect in all
material respects in accordance with its respective terms, and no contracts have
been assigned by the Company, except as disclosed in the Registration Statement
and Prospectus. The Company knows of no present situation, condition or fact
which would prevent compliance with the terms of such contracts. Except for
amendments or modifications of contracts in the ordinary course of business and
except as disclosed in the Registration Statement and Prospectus, the Company
has no intention of exercising any right which would cancel any of its
obligations under any contract, and has no knowledge
<PAGE>
D.E. Frey & Company, Inc.
Page 7
September ___, 1997
that any other party to any contract, in which the Company has an interest, has
any intention not to render full performance under such contract.
(y) The Company has not made any representation, whether oral or in
writing, to anyone, whether an existing shareholder or not, that any of the
Shares will be reserved or directed to them during the proposed public offering.
(z) Except as disclosed in the Registration Statement and Prospectus,
there is and prior to the close of the offering of the Shares to the public
there will be, no action, suit or proceeding before any court or governmental
agency, authority or body pending or to the knowledge of the Company threatened
which might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company, or would materially affect the properties or assets of the Company.
(aa) No unregistered securities of the Company, of an affiliate or of a
predecessor of the Company have been sold within three years prior to the date
hereof, except as disclosed in the Registration Statement.
(bb) Except as set forth in the Effective Prospectus and the Final
Prospectus, there is, and at the Closing Date there will be, no action, suit or
proceeding before any court, arbitration tribunal or governmental agency
pending, or to the knowledge of the Company, threatened, which might result in
judgments against the Company not adequately covered by insurance or which
collectively might result in any material adverse change in the condition
(financial or otherwise), the business or the prospects of the Company, or which
would materially affect the properties or assets of the Company.
(cc) Neither the Company nor any of its subsidiaries has, directly or
indirectly, at any time (x) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law; (y) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or allowed by all applicable
laws; or (z) violated nor is it in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(dd) Neither the Company nor any of its subsidiaries has any liability,
known or unknown, matured or not matured, absolute or contingent, assessed or
unassessed, imposed or based upon any provision of, or has received notice of
any potential liability under, any foreign, federal, state or local law, rule or
regulation or the common law, or any tort, nuisance or absolute liability
theory, or under any code, order, decree, judgment or injunction applicable to
the Company or any of its subsidiaries relating to public health or
<PAGE>
D.E. Frey & Company, Inc.
Page 8
September ___, 1997
safety, worker health or safety or pollution, damage to or protection of the
environment, including, without limitation, laws relating to damage to natural
resources, emissions, discharges, releases or threatened releases of hazardous
materials into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), or otherwise
relating to the manufacture, processing, use treatment, storage, generation,
disposal, transport or handling of hazardous materials. As used herein,
"hazardous material" includes chemical substances, wastes, pollutants,
contaminants, hazardous or toxic substances, constituents, materials or wastes,
whether solid, gaseous or liquid in nature.
(ee) The Company knows of no promoter, founder, affiliate, control person
or other person who by contract or otherwise exerts any influence over
management policies or decisions, either directly or indirectly except as set
forth in the Registration Statement and Prospectus.
All of the above representations and war warranties shall survive the
performance or termination of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter
represents and warrants as follows:
(a) It is registered as a broker-dealer with the Commission, in good
standing with the Colorado Division of Securities and is registered, to the
extent registration is required, with the appropriate governmental agency in
each state in which it offers or sells the shares and is a member of the
National Association of Securities Dealers, Inc. ("NASD") and will use its best
efforts to maintain such registrations, qualifications and memberships
throughout the term of the offering.
(b) To the knowledge of the Underwriter, no action or proceeding is
pending against the Underwriter or any of its officers or directors concerning
the Underwriter's activities as a broker or dealer that would affect the
Company's offering of the Shares.
(c) The Underwriter will offer the Shares only in those states and in the
quantities that are identified in the Blue Sky Memorandum from the Company's
counsel to the Underwriter that the offering of the Shares has been qualified
for sale under the applicable state statutes and regulations. The Underwriter,
however, may offer the Shares in other states if (i) the transaction is exempt
from the registration requirements in that state, (ii) the Company's counsel has
received notice ten days prior to the proposed sale, and (iii) the Company's
counsel does not object within said ten day period.
<PAGE>
D.E. Frey & Company, Inc.
Page 9
September ___, 1997
(d) The Underwriter, in connection with the offer and sale of the Shares
and in the performance of its duties and obligations under this Agreement,
agrees to use its best efforts to comply with all applicable federal laws; the
laws of the states or other jurisdictions in which the Shares are offered and
sold; and the Rules and Regulations of the NASD.
(e) The Underwriter is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado with all requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
(f) This Agreement has been duly authorized, executed and delivered by the
Underwriter and is a valid agreement on the part of the Underwriter.
(g) Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in any breach of any of the terms
or conditions of, or constitute a default under, the articles of incorporation
or bylaws of the Underwriter or any indenture, agreement or other instrument to
which the Underwriter is a party or violate any order directed to the
Underwriter of any court or any federal or state regulatory body or
administrative agency having jurisdiction over the Underwriter or its
affiliates.
(h) The Underwriter knows of no person who rendered any services in
connection with the introduction of the Company to the Underwriter. No person
acting by, through or under the Underwriter will be entitled to receive from the
Underwriter or from the Company any finder's fees or similar payments.
(i) The written information provided by the Underwriter for inclusion in
the Registration Statement and Prospectus consists of certain information on the
front and back Prospectus cover pages, and that set forth under "Underwriting"
in the Prospectus.
(j) The Underwriter will, reasonably promptly after the Closing date,
supply the Company with such information as the Company may reasonably request
to be supplied to the securities commissions of such states in which the Shares
have been qualified for sale.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
3. EMPLOYMENT OF THE UNDERWRITER. In reliance upon the representations and
warranties and subject to the terms and conditions of this Agreement:
(a) The Company employs the Underwriter as its exclusive agent to sell for
the Company's account the Shares, on a cash basis only, at a price of $______
per Share. The Underwriter agrees to use its best efforts, as agent for the
Company, to sell the Shares
<PAGE>
D.E. Frey & Company, Inc.
Page 10
September ___, 1997
subject to the terms and conditions set forth in this Agreement. It is
understood between the parties that there is no firm commitment by the
Underwriter to purchase any or all of the Shares.
(b) The obligation of the Underwriter to offer the Shares is subject to
receipt by it of written advice from the Commission that the Registration
Statement is effective, is subject to the Shares being qualified for offering
under applicable laws in the states as may be reasonably designated by the
Underwriter, is subject to the absence of any prohibitory action by any
governmental body, agency or official, and is subject to the terms and
conditions contained in this Agreement and in the Registration Statement
covering the offering to which this Agreement relates.
(c) The Company and the Underwriter agree that unless the Shares to be
offered, as set forth in the Registration Statement and Prospectus, are sold
within 30 days after the Effective Date (which period may be extended for an
additional period not to exceed 30 days by mutual agreement between the Company
and the Underwriter), the agency between the Company and the Underwriter will
terminate. If the agency between the Company and the Underwriter terminates, the
full proceeds which have been paid for the Shares shall be returned to the
purchasers. Prior to the sale of all of the Shares to be offered, all proceeds
received from subscriptions will be deposited in an escrow account entitled
"United Oilfield Services, Inc. Escrow Account" with Colorado State Bank, N.A.,
Denver, Colorado.
(d) The Company, the Underwriter and Colorado State Bank, N.A., Denver,
Colorado, will, prior to the beginning of the offering of the Shares, enter into
a fund escrow agreement in form satisfactory to the parties. The parties
mutually agree to faithfully perform their obligations under the fund escrow
agreement. The Underwriter will promptly deliver the funds into the escrow
account in accordance with Rule 15(c)2-4 of the Securities Exchange Act of 1934,
as amended, but in any event not to exceed five business days after receipt of
such funds.
(e) The Underwriter shall have the right to associate with other
underwriters and dealers as it may determine and shall have the right to grant
to such persons such concessions out of the commissions to be received by the
Underwriter as the Underwriter may determine, under and pursuant to a Select
Dealers Agreement in the form filed as an exhibit to the Registration Statement.
(f) Subject to the sale of all of the Shares, the Company agrees to pay to
the Underwriter a sales commission computed at the rate of $_____ (8 1/2% of the
public offering price) for each of the Shares sold by the Underwriter at the
public offering price of $____ per Share; provided however that the Company
shall have delivered a list of potential purchasers to the Underwriter 10 days
prior to the date hereof and sales to persons named in such list
<PAGE>
D.E. Frey & Company, Inc.
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will entitle the Underwriter to a 4% sales commission in lieu of the 8 1/2%
sales commission set forth herein. This commission shall be payable upon the
release of the funds which have been deposited in the escrow account.
4. EXPENSES OF THE UNDERWRITER.
(a) Subject to the sale of all of the Shares and subject to the provisions
of paragraph 13(e) hereof, the Company shall reimburse the Underwriter for its
expenses on a nonaccountable basis in an amount equal to 3% of the gross
proceeds received in the offering. The Underwriter acknowledges that it has
received $25,000 of the nonaccountable expense allowance as of the date hereof.
Subject to the provisions of paragraph 13(e) hereof, the remaining
nonaccountable expense allowance is due on the release of the funds in the
escrow account to the Company.
(b) Except as stated in subparagraph 13(e) of this Agreement, the
Underwriter agrees that out of its nonaccountable expense allowance the
Underwriter will pay all costs incurred or to be incurred by the Underwriter or
by its personnel in connection with the offering of the Shares, except those to
be paid by the Company as described in paragraph 5 hereof.
5. EXPENSES OF THE COMPANY. The Company agrees that it will pay the
following fees and expenses:
(a) All fees and expenses of its legal counsel who will be engaged to
prepare certain information, documents and papers for filing with the Commission
and with state or local securities authorities;
(b) All fees and expenses of its accountants incurred in connection with
the offering of the Shares and the preparation of all documents and filings made
as part of the offering;
(c) All costs in issuing and delivering the Shares;
(d) All costs of printing and delivering to the Underwriter and dealers as
many copies of the Registration Statement and amendments, preliminary
Prospectuses and definitive Prospectuses as reasonably requested by the
Underwriter;
(e) All of the Company's mailing, telephone, travel, clerical and other
office costs incurred or to be incurred in connection with the offering of the
Shares;
<PAGE>
D.E. Frey & Company, Inc.
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(f) All fees and costs which may be imposed by the Commission, the various
state or local securities authorities and the NASD for review of the offering of
the Shares;
(g) All other expenses incurred by the Company in performance of its
obligations under this Agreement.
6. WARRANTS.
(a) Subject to the sale of all of the Shares, the Company agrees to sell
to the Underwriter warrants to purchase common stock ("Warrants") for a purchase
price of $100 entitling the Underwriter to purchase shares of the Company's
common stock in an amount equal to 10% of the Shares sold in the offering.
(b) The Warrants may not be exercised for a period of 12 months following
the Effective Date. However, if the Company plans to merge, reorganize or take
any other action that would terminate the Warrants, the Warrants will be
exercisable immediately prior to such action. The Company will provide the
Underwriter with notice of any tender offer being made for the Company's shares
as soon as practicable after the Company becomes aware of such tender offer. The
Warrants will be exercisable for a period of four years, such period to begin 12
months after the Effective Date. If the Warrants are not exercised during their
term, they will by their terms automatically expire. The purchase price of the
shares underlying the Warrants will be 120% of the offering price of the Shares
hereunder during the period that the Warrants are exercisable. The Company will
set aside and at all times have available a sufficient number of shares of its
common stock to be issued upon the exercise of the Warrants. The shares
underlying the warrants are hereinafter called "Warrant Shares" which term shall
include all shares of common stock that have been issued upon the exercise of
the Warrants and all unissued shares of common stock underlying the Warrants.
The Warrants may not be sold, transferred, assigned, or hypothecated for a
period of 12 months after the Effective Date except to officers of the
Underwriter, except as a result of the death of any such officer and except to
successors to the Underwriter's business.
(c) The Warrants will be evidenced by certificates issued by the Company
and delivered to the Underwriter, which shall contain such terms and conditions
as are required by the Underwriter, including anti-dilution provisions
reasonably acceptable to the Underwriter relating to stock splits, stock
dividends and other like matters. Any transfer of the Warrants by the
Underwriter to any person must be made in compliance with the Act.
(d) The Underwriter agrees that the Warrants and any certificates
representing the Warrant Shares will bear the following legend:
<PAGE>
D.E. Frey & Company, Inc.
Page 13
September ___, 1997
"The securities represented by this Certificate may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Securities Act of 1933
(the "Act"), or pursuant to an exemption from registration under the
Act, the availability of which is to be established to the
satisfaction of the Company."
(e) Upon written request of the Underwriter made at any time within the
period beginning one year and ending five years after the Effective Date, the
Company will file, no more than once, a registration statement under the Act,
registering the Warrants and Warrant Shares. The Company will use its best
efforts to qualify or register the Warrants and Warrant Shares for sale in at
least the same states as the Shares were registered or qualified. If Warrants
are registered or qualified, the Company agrees to take whatever actions are
necessary so that during the next 12 months after the effective date of such
registration or qualification, a current registration statement relating to the
Warrant Shares will be effective with the Commission. The Company agrees to use
its best efforts to cause the registration statement to become effective. All
expenses of such registration or qualification including, but not limited to,
legal, accounting, and printing fees, will be borne by the Company.
(f) The Company agrees that, if at any time within the period beginning
one year and ending 5 years after the Effective Date, it should file a
registration statement with the Commission pursuant to the Act or file a
Regulation A Offering Statement under the Act, regardless of whether some of the
holder(s) of the Warrants and Warrant Shares have availed itself (themselves) of
the right provided in paragraph 6(e) above, the Company, at its own expense,
will offer the holders the opportunity to register or qualify the Warrants and
Warrant Shares, limited in the case of a Regulation A offering to the amount of
the available exemption. This paragraph is not applicable to a registration
statement filed by the Company with the Commission on Form S-8 or any other
inappropriate form.
(g) In addition, the Company will cooperate, within the period beginning
one year and ending five years after the Effective Date, with the then holder(s)
of at least 51% of the Warrant Shares in preparing and signing any registration
statement or Regulation A Offering Statement, in addition to the registration
statements and Regulation A Offering Statements discussed above, required in
order to sell or transfer the Warrants or Warrant Shares and will supply all
information required, but such additional registration statement or Offering
Statement shall be at the then holders' cost and expense.
(h) The Company will not be required to pay any underwriting commissions,
discounts or similar expenses relating to the Warrants and/or Warrant Shares
that are registered or qualified pursuant to paragraph 6(e), (f) or (g) of this
Agreement.
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D.E. Frey & Company, Inc.
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7. THREAT OF REGULATORY ACTION. The Company and the Underwriter agree to
advise each other immediately and confirm in writing the receipt of any threat
of or the initiation of any steps or procedures which would impair or prevent
the right to offer the Shares or the issuance of any "suspension orders" or
other prohibitions or preventing or impairing the proposed offering of the
Shares. In the case of the happening of any such event, neither the Company nor
the Underwriter will acquiesce in such steps, procedures or suspension orders if
such acquiescence would adversely affect the other party and, in such event,
each party agrees to actively defend any such actions or orders unless both
parties agree in writing to acquiesce in such actions or orders or unless
counsel for each party advises the parties that the probability of successfully
defending against such actions or orders is remote.
8. FURTHER AGREEMENTS OF THE COMPANY. The Company further agrees with the
Underwriter as follows:
(a) The Company will advise the Underwriter as soon as the Company is
advised of any comments by the Commission, of any request made by the Commission
for an amendment to the Registration Statement or Prospectus or for supplemental
information, and of any order or of the institution of any adverse proceedings
with respect to the offering of the Shares. The Company will immediately deliver
to the Underwriter copies of any papers involved.
(b) The Company will use its best efforts to qualify the sale of the
Shares in such states as shall be reasonably designated by the Underwriter. The
officers, directors, promoters and shareholders of the Company will comply with
applicable state escrow requirements, including those pertaining to the escrow
of shares, provided that the period of escrow shall not exceed two years from
the Effective Date and provided that the period of escrow shall only be based
upon the passage of time.
(c) The Company will provide the Underwriter and its counsel with copies
of all applications for the registration of Shares filed with the various state
authorities and will provide the Underwriter and its counsel with copies of all
comments and orders received from these authorities.
(d) The Company will deliver to the Underwriter and to other
broker-dealers as directed by the Underwriter as many copies of preliminary
Prospectuses as the Underwriter may reasonably request. The Company will deliver
to the Underwriter and to other broker-dealers as requested by the Underwriter
as many copies of the definitive Prospectus as the Underwriter may reasonably
request during the period of the offering and for 25 days thereafter.
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D.E. Frey & Company, Inc.
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(e) The Company will furnish the Underwriter for so long as the Company's
common stock is registered under the Securities Exchange Act of 1934 with:
(i) Within 90 days after the close of each fiscal year of the
Company, a financial report of the Company and its subsidiaries on a
consolidated basis, such report to include such information in such form
as the Company shall be required to include in reports for that fiscal
year to be filed with the Commission and such report to he certified by
independent public accountants;
(ii) Within 60 days after the end of each quarterly fiscal period of
the Company other than the last quarterly fiscal period in any fiscal
year, copies in printable form of the financial statements of the Company
and its subsidiaries on a consolidated basis, for that period and as of
the end of that period, which financial statements shall include a
narrative discussion of such financial statements and of the business
conducted by the Company and its subsidiaries during such fiscal quarter
and such information in such form as the Company shall be required to
include in reports for that period to be filed with the Commission, all
subject to year-end adjustment, signed by the principal financial or
accounting officer of the Company;
(iii) As soon as is available, a copy of each report of the Company
mailed to shareholders or filed with the Commission;
(iv) Copies of all news, press or public information releases 24
hours prior to when such are made; and
(v) Upon request in writing from the Underwriter, such other
information as may reasonably be requested concerning the properties,
business and affairs of the Company and its subsidiaries.
(f) The Company agrees to notify the Underwriter immediately within the 90
day period after the Effective Date of any event that materially affects the
Company or its securities and that should be set forth in an amendment or
supplement to the Prospectus in order to make the statements made therein not
misleading. Similarly, the Company agrees to as soon as possible thereafter
prepare and furnish to the Underwriter as many copies as the Underwriter may
request of an amended Prospectus or a supplement to the Prospectus in order that
the Prospectus as amended or supplemented will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or that is necessary in order to make the statements made therein not
misleading.
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D.E. Frey & Company, Inc.
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(g) The Company will file with the appropriate state securities
commissioners any sales and other reports required by the rules and regulations
of such agencies and will supply copies to the Underwriter.
(h) The Company will make a filing under Section 12(g) of the Securities
Exchange Act of 1934, as amended, on Form 8-A with respect to its common stock
and will cause it to become effective on or before the Effective Date. The
Company agrees to deliver a copy of the Form 8-A to the Underwriter and to its
counsel when filed.
(i) Except with the Underwriter's approval, the Company agrees that the
Company will not do the following until (a) the completion of the offering of
the Shares, or (b) the termination of this Agreement, or (c) 90 days after the
Effective Date, whichever occurs later:
(i) Undertake or authorize any change in its capital structure or
authorize, issue, or permit any public or private offering of additional
securities;
(ii) Authorize, create, issue, or sell any funded obligations, notes
or other evidences of indebtedness, except in the ordinary course of
business and within 12 months of their creation;
(iii) Consolidate or merge with or into any other corporation; or
(iv) Create any mortgage or any lien upon any of its properties or
assets except in the ordinary course of its business.
(j) For so long as the Company's common stock is registered under the
Securities Exchange Act of 1934, as amended, the Company will hold an annual
meeting of shareholders for the election of directors within 180 days after the
end of each of the Company's fiscal years and, within 180 days, after the end of
each of the Company's fiscal years, will provide the Company's shareholders with
the audited financial statements of the Company as of the end of the fiscal year
just completed prior thereto. Such financial statements shall be those required
by Rule 14a-3 under the Securities Exchange Act of 1934, as amended, and shall
be included in an annual report meeting the requirements of the Rule. Further,
the Company agrees to make available to the Underwriter and the Company's
shareholders in printable form within 60 days after the end of each fiscal
quarter of the Company (other than the last fiscal quarter in any fiscal year)
reasonably itemized financial statements of the Company and its subsidiaries for
the fiscal quarter just ended and a narrative discussion of such financial
statements and the business conducted bv the Company and its subsidiaries during
such quarter.
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(k) As soon as practical, but in any event not later than 15 months after
the Effective Date, the Company will make generally available to its securities
holders, according to Section 11(a) of the Act, a consolidated statement of
operations of the Company and its subsidiaries in reasonable detail covering a
period of at least 12 months beginning after the Effective Date and will advise
the Underwriter in writing that such statement has been made available.
(l) Within 30 days after the successful termination of the offering of the
Shares, the Company agrees to submit information about the Company to be
included in various securities manuals, including Moody's OVER-THE-COUNTER
MANUAL and Standard & Poor's STANDARD CORPORATION RECORDS to facilitate
secondary trading in the Shares.
(m) The Company agrees to cause the stock certificates of all of the
current shareholders of the Company and of any future officers or directors of
the Company to be clearly legended as being restricted against transfer without
compliance with the Act and to cause the Company's transfer agent to put stop
transfer instructions against such stock certificates.
(n) Subject to the sale of all of the Shares, the Company agrees that for
a period of two years from the Effective Date, the Underwriter shall have a
preferential right to purchase for its account or to sell for the account of the
Company or its subsidiaries any securities with respect to which the Company or
its subsidiaries may seek a public or private offering for cash. The Company
will consult the Underwriter with regard to any such covered offering for cash
and will offer the Underwriter the opportunity to purchase or sell any such
securities on terms not less favorable to the Company or its subsidiaries than
it or they can secure elsewhere. The Underwriter shall have 20 days in which to
accept such offer. If the Underwriter rejects such offer, the Company shall be
able to sell such securities on terms not less favorable than those offered to
the Underwriter. If such securities are not sold within a period of 120 days,
the Underwriter shall once again have the rights specified herein with respect
to the sale or purchase of such securities.
(o) The officers and directors of the Company at the time of the filing of
the Company's Registration Statement and at the effective date of the Company's
Registration Statement must be reasonably acceptable to the Underwriter.
9. COMPANY'S INDEMNIFICATION. The Company shall indemnify and hold
harmless each Underwriter and their respective officers, directors, employees
and agents against any and all loss, claim, damage or liability, joint or
several, to which such Underwriter or such person ("covered person") may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, or liability (or action with respect thereto) arises out of or is based
upon (a) any violation of any registration requirements; (b) any improper use of
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D.E. Frey & Company, Inc.
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sales literature by the Company; (c) any untrue statement or alleged untrue
statement made by the Company in Paragraph 1 hereof; (d) any untrue statement or
alleged untrue statement of a material fact contained (i) in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus, or the Final
Prospectus or any amendment or supplement thereto, or (ii) in any application or
other document, executed by the Company specifically for such application or
based upon written information furnished by the Company, filed in order to
qualify the Shares under the securities laws of the states where filings were
made (any such application, document, or information being hereinafter called
"Blue Sky Application"); or (e) the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Final Prospectus or any
amendment or supplement thereto or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and shall reimburse the Underwriter or covered person for any legal
or other reasonable expenses incurred by such Underwriter or covered person in
connection with investigating or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the person receiving them shall promptly
refund them; except that the Company shall not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company through the Underwriter
specifically for use in the preparation of the Registration Statement, any
Preliminary Prospectus, and the Final Prospectus or any amendment or supplement
thereto, or any Blue Sky Application.
10. UNDERWRITER'S INDEMNIFICATION. The Underwriter shall indemnify and
hold harmless the Company against any and all loss, claim, damage or liability,
joint or several, to which the Company may become subject under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability (or action in
respect thereto) arises out of or are based upon (a) any untrue statement or
alleged untrue statement of a material fact contained (i) in the Registration
Statement, any Preliminary Prospectus, or the Final Prospectus or any
amendment or supplement thereto or (ii) in any Blue Sky Application; or (b) the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Final Prospectus or any amendment or supplement
thereto or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading; except that
such indemnification shall be available in each such case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon information and in
conformity with written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof; and shall
reimburse any legal or other expenses reasonably incurred by the Company in
connection with the investigation or defending against any such loss, claim,
damage, liability, or action.
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D.E. Frey & Company, Inc.
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10A. RIGHT TO PROVIDE DEFENSE. Promptly after receipt by an indemnified
party under Paragraph 9 or 10 above of written notice of the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such section, notify the indemnifying party
in writing of the claim or the commencement of that action; the failure to
notify the indemnifying party shall not relieve it of any liability which it may
have to an indemnified party, except to the extent that the indemnifying party
did not otherwise have knowledge of the commencement of the action and the
indemnifying party's ability to defend against the action was prejudiced by such
failure. Such failure shall not relieve the indemnifying party from any other
liability which it may have to the indemnified party or any person identified in
Paragraph 11 below. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under such
section for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof other than reasonable costs of
investigation.
11. CONTRIBUTION. If the indemnification provided for in Paragraphs 9 and
10 of this Agreement is unavailable or insufficient to hold harmless an
indemnified party, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, or liabilities referred to in Paragraphs 9 or 10 above (a) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriter on the other from the offering of
the Shares; or (b) if the allocation provided by clause (a) above is not
permitted by applicable law, in such proportion as is appropriate to reflect the
relative benefits referred to in clause (a) above but also the relative fault of
the Company on the one hand and the Underwriter on the other in connection with
the statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Underwriter shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
commission and un-itemized expenses received by the Underwriter, in each case as
set forth in the table on the cover page of the Final Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Underwriter and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such untrue statement or omission. For purposes of this Paragraph 11, the term
"damages" shall include any counsel fees or other expenses reasonably incurred
by the Company or the Underwriter
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D.E. Frey & Company, Inc.
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in connection with investigating or defending any action or claim which is the
subject of the contribution provisions of this Paragraph 11. Notwithstanding the
provisions of this Paragraph 11, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
sold by it and distributed to the public were offered to the public exceeds the
amount of any damages which the Underwriter has otherwise been required to pay
by reason of any such untrue statements or omissions. No person adjudged guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise.
11A. REIMBURSEMENT OF UNDERWRITER. In addition to its obligations under
Paragraph 9 of this Agreement, the Company agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any loss, claim, damage, or liability
described in Paragraph 9 of this Agreement, it will reimburse the Underwriter on
a monthly basis (or more often, if requested) for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any portion, or all, of any
such interim reimbursement payments are so held to have been improper, the
Underwriter shall promptly return such amounts to the Company together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit rating) announced
from time to time by Colorado State Bank of Denver, Denver, Colorado (the "Prime
Rate"). Any such interim reimbursement payments that are not made to the
Underwriter within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request until the date paid.
11B. REIMBURSEMENT OF THE COMPANY. In addition to their obligations under
Paragraph 10 of this Agreement, the Underwriter agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any loss, claim, damage or
liability described in Paragraph 10 of this Agreement, it will reimburse the
Company on a monthly basis (or more often, if requested)
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D.E. Frey & Company, Inc.
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September ___, 1997
for all reasonable legal or other expenses incurred by the Company in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriter's obligation to reimburse
the Company for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any portion, or all, of any such interim reimbursement payments are
so held to have been improper, the Company shall promptly return such amounts to
the Underwriter together with interest, compounded daily, determined on the
basis of the Prime Rate. Any such interim reimbursement payments that are not
made to the Company within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request until the date paid.
12. CONDITIONS PRECEDENT TO THE CLOSING OR RELEASE DATE. All obligations
of the Underwriter and the Closing or Release Date (as defined below) under this
Agreement are subject to the following conditions precedent:
(a) Counsel for the Underwriter shall have completed a review of the form
and content of the Registration Statement and Prospectus, of the organization
and present legal status of the Company and of the legality and validity of the
authorization and issuance of the issued and outstanding stock of the Company
and of the Shares.
(b) The Company shall have performed all of its obligations under this
Agreement. All of the statements, representations and warranties contained in
this Agreement shall be complete and true.
(c) From the date of this Agreement until the completion of the offering,
no material adverse changes shall have occurred in the business, properties and
assets of the Company other than changes occurring in the ordinary course of
business.
(d) From the date of this Agreement until the completion of the offering,
no claims or litigation shall have been instituted or threatened against the
Company for substantial amounts or which would materially adversely affect the
Company, its business or its property and no reasonable basis exists for such
claims or threats. Further, no proceeding shall have been instituted or
threatened against the Company before any regulatory body wherein an unfavorable
ruling would have a material adverse effect on the Company.
(e) From the date of this Agreement until the completion of the offering
of the Shares, no material adverse change shall have occurred in the operation,
financial condition, management or credit of the Company or in any conditions
affecting the prospects of its business.
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D.E. Frey & Company, Inc.
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(f) From the date of this Agreement until the completion of the offering,
the Company shall not have sustained any loss on account of fire, flood,
accident or calamity of such character as materially adversely affects its
business or property, regardless of whether or not the loss has been insured.
(g) The Commission shall have declared the Company's Form 8-A effective
and the Shares shall have been approved for trading on either of the NASDAQ
SmallCap Market or American Stock Exchange.
(h) The Underwriter shall have received from the independent public
accountants for the Company two letters addressed to the Underwriter, one dated
the Effective Date and one dated the date of the release of the funds from the
Escrow Account ("Release Date") to the Company, to the effect that they are
independent public accountants with respect to the Company within the meaning of
the Act and the published Rules and Regulations. In the letter dated the date of
this Agreement, they shall state their conclusions and findings with respect to
such financial, accounting, and statistical information and other matters
contained in the Registration Statement as have been approved by the Underwriter
prior to the execution of this Agreement. In the letter dated the Release Date,
they shall state as of such date their conclusions and findings with respect to
the financial information and other matters covered by their letter dated the
date of this Agreement, the purpose of the letter to be delivered on the Release
Date being to update in all respects the conclusions and findings set forth in
the prior letter or letters.
(i) On the Release Date, the Underwriter shall have received from the
president or vice president of the Company and the treasurer of the Company
certificates dated as of such date, in form satisfactory to the Underwriter, to
the effect that:
(i) The representations and warranties of the Company contained in
paragraph 1 of this Agreement are complete and true.
(ii) All of the conditions precedent in paragraphs 12(b)-12(g) of
this Agreement have been performed and the representations of these
conditions precedent are true.
(iii) No stop order or other proceedings have been instituted or
threatened by the Commission or any state authority which would adversely
affect the offering of the Shares.
(iv) This Agreement and the Warrants have been duly authorized and
executed and constitute valid agreements of the Company and with respect
to the Warrants are binding agreements and are enforceable according to
their terms.
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(v) The respective signers have each carefully examined the
Registration Statement and definitive Prospectus and any amendments and
supplements, and to the best of their knowledge the Registration Statement
and definitive Prospectus and any amendments and supplements contain all
statements required to be stated therein. All statements contained therein
are true and correct, and neither the Registration Statement, definitive
Prospectus nor any amendment, supplement or sticker thereto includes any
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. Since the Effective Date of the Registration Statement,
there has occurred no event required to be stated therein or necessary to
make the statements therein not misleading, and since the Effective Date
of the Registration Statement, there has occurred no event required to be
set forth in an amended or supplemented Prospectus which has not been so
set forth.
(j) On the Effective Date and on the closing date, the Underwriter shall
have received from the Company's legal counsel a Blue Sky memorandum setting
forth the states in which the Shares may be sold and the number of Shares that
may be sold in each such state.
(k) On the Release Date the Company and the Underwriter shall have
received a written opinion from the Company's counsel stating that:
(i) The Company has filed a Registration Statement on Form S-1
relating to the Shares with the Commission pursuant to the Act, the
Registration Statement has become effective under the Act, and the
Registration Statement, Prospectus and all other documents filed with the
Commission comply as to form with all requirements of the Act in all
material respects (except for the financial statements and other financial
data included therein, as to which counsel need express no opinion). The
Company has also filed Form 8-A under the Securities Exchange Act of 1934
which has become effective.
(ii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas,
and has the corporate power and authority to own its properties and to
carry on its business as described in the Registration Statement and
Prospectus.
(iii) The Company and its subsidiaries duly qualified and in good
standing as foreign corporations authorized to do business in all
jurisdictions in which the character of the properties owned or held under
lease or the nature of the business conducted requires such qualification
except where the failure to qualify would not have a material adverse
effect on the business of the Company.
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D.E. Frey & Company, Inc.
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(iv) To the best knowledge of counsel and after reasonable
investigation, the Company possesses adequate licenses, certificates,
authorizations or permits issued by the appropriate federal, state and
local regulatory authorities necessary to conduct its business as
described in the Prospectus and to retain possession of its properties.
Counsel is unaware of any notice of any proceeding relating to the
revocation or modification of any of these certificates or permits having
been received by the Company.
(v) That certain Agreement and Plan of Reorganization of even date
herewith has become effective, is legally binding in accordance with its
terms and United Wellhead Services, Inc., Flare King, Inc. and Hi-Tech
Compression, Inc. are, as of the date hereof, wholly owned subsidiaries of
the Company; Counsel is unaware of any other subsidiaries of the Company.
(vi) This Agreement and the Warrants to be issued to the Underwriter
or its designatees have been fully authorized and executed by the Company
and constitute valid agreements of the Company except that no opinion need
be expressed as to the validity of the indemnification provisions insofar
as they are or may be held to be violative of public policy (under either
state or federal law), the availability of specific performance or other
equitable remedies, the effects of bankruptcy, insolvency, moratorium and
all other similar laws and decisions affecting the rights of creditors
generally.
(vii) The authorized and outstanding capital stock of the Company is
as set forth in the Prospectus; the Common Stock of the Company and the
Warrants to be issued to the Underwriter conform in all material respects
to the statements concerning them in the Prospectus; the outstanding
Common Stock of the Company contain no preemptive rights; the Shares to be
sold in the offering and the Articles of Incorporation and the Warrants
have been, and the Common Stock issuable upon exercise of the Warrants,
will be, duly and validly authorized and, upon issuance thereof and
payment therefor validly issued, fully paid and nonassessable, and will
not be subject to the preemptive rights of any shareholder of the Company.
(viii) A sufficient number of shares of Common Stock have been duly
reserved for issuance upon the exercise of the Warrants.
(ix) To the best knowledge of counsel and after reasonable
investigation, the Company is not in default of any of the contracts,
leases or agreements to which it is a party.
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September ___, 1997
(x) To such counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory
authorities are required for the valid authorization, issuance or sale of
the Common Stock or the Warrants contemplated by this Agreement, except
for those consents, approvals, authorizations, and orders which the
Company has obtained and which are in full force and effect under the
Securities Act, the Exchange Act, and under applicable state securities
laws in connection with the purchase and distribution of such securities
by the Underwriter, and the clearance of the underwriting compensation by
the NASD.
(xi) The issuance and sale of the Shares as described in the
Prospectus and the Warrants, the consummation of the transactions herein
contemplated, and the compliance with the terms of this Agreement will not
conflict with or result in a breach of any of the terms, conditions, or
provisions of or constitute a default under the articles of incorporation
or by-laws of the Company; nor, to such counsel's knowledge, will they
conflict with or result in a breach of any of the terms, conditions, or
provisions of any note, indenture, mortgage, deed of trust, or other
agreement or instrument to which the Company is a party or by which the
Company or any of its property is bound, other than for which the Company
has received a consent or waiver of such conflict, breach or default, or
where such conflict or breach would not have a material adverse effect on
the business of the Company; or any existing law (provided this paragraph
shall not relate to federal or state securities laws), order, rule,
regulation, writ, injunction, or decree known to such counsel of any
government, governmental instrumentality, agency, body, arbitration
tribunal, or court, domestic or foreign, having jurisdiction over the
Company or its property.
(xii) Counsel is unaware of any contracts or other documents
required to be described in the Registration Statement or in the
Prospectus or to be filed as exhibits to the Registration Statement which
have not been described or filed as required.
(xiii) Counsel is unaware of any contracts or documents that have
not been disclosed in the Prospectus that are material to the
representations in the Prospectus and that would require disclosure in
order to make statements made not misleading.
(xiv) To the best knowledge of counsel and after reasonable
investigation, and except as described in the Prospectus, the Company has
marketable title to all properties described in the Prospectus as owned by
it; the properties are free and clear of all liens, charges, encumbrances
or restrictions; all of the leases, subleases and other agreement under
which the Company holds its properties are in full force and effect; the
Company is not in default under any of the material terms or provisions of
any of the leases, subleases or other agreements; and there are no claims
against
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September ___, 1997
the Company concerning its rights under the leases, subleases and other
agreements and concerning its right to continued possession of its
properties.
(xv) Counsel has no knowledge of any promoter, affiliate, parent or
control person of the Company except as are described in the Registration
Statement and Prospectus.
(xvi) To the knowledge of counsel, the Company has paid all taxes
which are shown as due and owing on the financial statements included in
the Registration Statement and Prospectus.
(xvii)To the best knowledge of counsel and after reasonable
investigation, no stop order or other proceedings have been instituted or
threatened by the Commission or any state or local authority which would
adversely affect the offering of the Shares.
(xviii) To the best knowledge of counsel and after reasonable
investigation, no claim or litigation has been instituted or threatened
against the Company.
(xix) To the best knowledge of counsel and after reasonable
investigation, all material documents and contracts relating to the
Company's affairs have been furnished to the Underwriter's counsel.
(xx) To the best knowledge of counsel and after reasonable
investigation, neither the Company nor its affiliates is currently
offering any securities for sale except as described in the Registration
Statement.
(xxi) On the basis of a reasonable inquiry by such counsel,
including participation in conferences with representatives of the Company
and its accountants at which the contents of the Registration Statement
and the Prospectus and related matters were discussed, and without
expressing any opinion as to the financial statements or other financial
data contained therein: (i) nothing has come to such counsel's attention
which leads them to believe that the Registration Statement and the
Prospectus, do not comply as to form in all material respects with the
require ments of the Securities Act; and (ii) nothing has come to their
attention which leads them to believe that the Registration Statement or
the Prospectus contains any 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, in light of the circumstances under which
they were made, not misleading.
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As to all factual matters, including without limitation the issuance of
stock certificates and receipt of payment therefor, the states in which the
Company transacts business, and the adoption of resolutions reflected by the
Company's minute book, such counsel may rely on the certificate of an
appropriate officer of the Company. Counsel's opinion as to the validity and
enforceability of any and all contracts and agreements referenced herein may
exclude any opinion as to the validity or enforceability of any indemnification
or contribution provisions thereof, or as the validity or enforceability of any
such contract or agreement may be limited by bankruptcy or other laws relating
to or affecting creditors' rights generally and by equitable principles.
13. TERMINATION.
(a) This Agreement may be terminated by the Underwriter by notice to the
Company in the event that the Company shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Company to be performed, complied with or fulfilled within the respective
times herein provided for, unless compliance therewith or performance or
satisfaction thereof shall have been expressly waived by the Underwriter in
writing.
(b) This Agreement may be terminated bv the Underwriter bv notice to the
Company if the Underwriter believes in its sole judgment that any adverse
changes have occurred in the management of the Company, that material adverse
changes have occurred in the financial condition or obligations of the Company
or if the Company shall have sustained a loss by strike, fire, flood, accident
or other calamity of such a character as, in the sole judgment of the
Underwriter, may interfere materially with the conduct of the Company's business
and operations regardless of whether or not such loss shall have been insured.
(c) This Agreement may be terminated by the Underwriter by notice to the
Company at any time if, in the sole judgment of the Underwriter, payment for and
delivery of the Shares is rendered impracticable or inadvisable because (i)
additional material governmental restrictions not in force and effect on the
date hereof shall have been imposed upon the trading in securities generally, or
minimum or maximum prices shall have been generally established on the New York
or American Stock Exchange, or trading in securities generally on either such
Exchange shall have been suspended, or a general moratorium shall have been
established by federal or state authorities, or (ii) a war or other national
calamity shall have occurred, or (iii) substantial and material changes in the
condition of the market (either generally or with reference to the sale of the
Shares to be offered hereby) beyond normal fluctuations are such that it would
be undesirable, impracticable or inadvisable in the sole judgment of the
Underwriter to proceed with this Agreement or with the public offering or (iv)
of any matter materially adversely affecting the Company.
<PAGE>
D.E. Frey & Company, Inc.
Page 28
September ___, 1997
(d) In the event any action or proceeding shall be instituted or
threatened against the Underwriter, either in any court of competent
jurisdiction, before the Commission or any state securities commission
concerning its activities as a broker or dealer that would prevent the
Underwriter from acting as such, at any time prior to the effective date
hereunder, or in any court pursuant to any federal, state, local or municipal
statute, a petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of the Underwriter's assets or if the
Underwriter makes an assignment for the benefit of creditors, the Company shall
have the right on three days' written notice to the Underwriter to terminate
this Agreement without any liability to the Underwriter of any kind except for
the payment of expenses as provided paragraphs 4(a) and 5 herein.
(e) Any termination of this Agreement pursuant to this paragraph 13 shall
be without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party hereto,
except that in such event (i) the Underwriter shall provide the Company with a
statement of its accountable expenses, which shall include but are not limited
to, the Underwriter's counsel fees, consultants' fees, entertainment expenses,
travel expenses, postage expenses, office costs, advertising costs, clerical
costs, due diligence meeting expenses, duplication expenses, long-distance
telephone expenses, and general and administrative expenses incurred in
connection with the proposed offering and (ii) if such accountable expenses are
more than the amount of the nonaccountable expense payments the Company has made
to the Underwriter, the Underwriter shall bear such excess or if such
accountable expenses are less than the amount of the nonaccountable expense
payments the Underwriter has received from the Company, the Underwriter shall
return the difference to the Company.
14. FEE UPON OCCURRENCE OF CERTAIN EVENTS. If after signing this Agreement
and before the closing of the offering of the Shares, the Company agrees to a
merger, consolidation or other business combination, or to any acquisition of
its assets, or if the holders of at least 50% of the Company's outstanding
common stock agree to sell or transfer their common stock, the Company will pay
the hereinafter described fee to the Underwriter upon consummation of any such
transaction if the offering of the Shares is thereafter abandoned by the Company
or the Underwriter. If the Company and/or the Company's shareholders receive
only cash in any such transaction, the fee that the Company will pay to the
Underwriter is $100,000 in cash which will be paid upon consummation of the
transaction. In all other cases, the fee payable to the Underwriter by the
Company will have a value of $100,000 but the actual form of such fee and the
time of the payment thereof will be negotiated between the Company and the
Underwriter.
15. NOTICES. All notices shall be in writing and shall be delivered at or
mailed to the following addresses to the following addresses with written
confirmation thereafter:
<PAGE>
D.E. Frey & Company, Inc.
Page 29
September ___, 1997
To the Company:
UNITED WELLHEAD SERVICES, INC.
615 Upper North Broadway, Suite 950
Corpus Christi, Texas 78477
To the Underwriter:
D.E. FREY & COMPANY, INC.
1700 Lincoln Street, Suite 2200
Denver, Colorado 80203
16. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the Company and the Underwriter (including the participating
dealers as provided in paragraphs 9 and 10) and their successors. Nothing
expressed in this Agreement is intended to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under this Agreement. However, the representations, warranties and
indemnity and defense obligations of the Company included in this Agreement also
inure to the benefit of any person who controls the Underwriter and
participating dealers within the meaning of Section 15 of the Act and the
representations, warranties, indemnities and defense obligations of the
Underwriter and participating dealers inure to the benefit of each officer who
signs the Registration Statement, each director of the Company and each person
who controls the Company within the meaning of Section 15 of the Act.
17. MISCELLANEOUS PROVISIONS.
(a) Time shall be of the essence of this Agreement.
(b) This Agreement shall be construed according to the laws of the State
of Colorado.
(c) The representations and warranties made in this Agreement shall
survive the termination of this Agreement and shall continue in full force and
effect regardless of any investigation made by the party relying upon any such
representation or warranty.
(d) This Agreement is made solely for the benefit of the Company and its
officers, directors and controlling persons within the meaning of Section 15 of
the Act and of the Underwriter and its officers, directors and controlling
persons within the meaning of Section 15 of the Act, and their respective
successors, heirs and personal representatives, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
<PAGE>
D.E. Frey & Company, Inc.
Page 30
September ___, 1997
"successor" as used in this Agreement shall not include any purchaser, as such,
of the Shares.
(e) The Underwriter will provide upon closing a list of all the names and
addresses of all participating dealers and shall provide the Company with such
changes of the addresses or names of such participating dealers as occur and of
which the Underwriter is notified. Further, the Underwriter shall use its best
efforts to maintain the current names and addresses of all participating dealers
during the terms of this Agreement.
If this Agreement correctly sets forth our understanding, please indicate
your acceptance in the space provided below for that purpose.
Very truly yours,
UNITED OILFIELD SERVICES, INC.,
a Texas corporation
By:____________________________________
Wallace Sellers, Chief Executive Officer
Confirmed and accepted as of the date of this Agreement:
D.E. FREY & COMPANY, INC.,
a Colorado corporation
By:___________________________
Dale E. Frey, President
EXHIBIT 1.2
DRAFT - OCTOBER 21, 1997
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO OFFER TO
BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE
RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
UNITED OILFIELD SERVICES, INC.
SELECTED DEALERS AGREEMENT
____________, 1997
Dear Ladies and Gentlemen:
1. D.E. FREY & COMPANY, INC., named as the Underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a best efforts
basis, subject to the terms and conditions and execution of the Underwriting
Agreement, 1,000,000 shares of the $0.01 par value common stock (the "Shares")
of UNITED OILFIELD SERVICES, INC. (the "Company"). The Shares are more
particularly described in the enclosed Preliminary Prospectus, additional copies
of which as well as the Prospectus (after effective date) will be supplied in
reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, for a part of the Shares from Selected Dealers, who are to
act as broker on behalf of purchasers of the Shares, including you, who are
registered with the Securities and Exchange Commission (the "Commission") as
broker-dealers under the Securities Exchange Act of 1934, as amended, and
members in good standing with the National Association of Securities Dealers,
Inc. (the "NASD"). Shares are to be offered at a price of $_____ a share.
Selected Dealers will be allowed a concession of not less than ___% of the
offering price. You will be notified of the precise amount of such concession
prior to the effective date of the Registration Statement. The offer is
solicited subject to the issuance and delivery of the Shares, their acceptance
by the Underwriter, completion of the offering on a best efforts, all or nothing
basis, and to the approval of legal matters by counsel and to the terms and
conditions as herein set forth.
3. Your offer to purchase as broker on behalf of purchasers, if made
prior to the effective date of the registration statement, may be revoked in
whole or in part without obligation or commitment of any kind by you any time
prior to acceptance and no offer may be accepted by us and no sale can be made
until after the registration statement covering the Shares has become effective
with the Securities and Exchange Commission. Subject to the foregoing, upon
execution by you of the Offer to Purchase below and the return of same to us,
you shall be deemed to have offered to purchase in the capacity of broker on
behalf of the purchaser the number of Shares set forth in your offer on the
basis set forth in paragraph 2 above. Any oral offer to purchase made by you
shall be deemed subject to this Agreement and shall be confirmed by you by the
subsequent execution and return of this Agreement. Any oral notice by us of
acceptance of your offer shall be followed by written or telegraphic
confirmation preceded or accompanied by a copy of the prospectus. lf a
contractual commitment arises
-1-
<PAGE>
DRAFT - OCTOBER 21, 1997
hereunder, all the terms of this Selected Dealers Agreement shall be applicable.
All references hereafter in this Agreement to the purchase and sale of Shares
assume and are applicable only if contractual commitments to purchase are
completed in accordance with the foregoing.
4. Any of the Shares purchased pursuant to this Agreement are to be at
the public offering price, subject to the terms hereof. Shares shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Unless all of the Shares, as set forth in the Registration Statement
and Prospectus, are sold within 30 days after the Effective Date (which period
may be extended for an additional period not to exceed 30 days by mutual
agreement between the Company and the Underwriter), the agency between the
Company and the Underwriter will terminate. If the agency between the Company
and the Underwriter terminates, the full proceeds which have been paid for the
Shares shall be returned to the purchasers. Prior to the sale of all of the
Shares, all proceeds received from the sale of the Shares will be deposited into
an escrow account entitled "United Oilfield Services, Inc. Escrow Account" with
Colorado State Bank, N.A., Denver, Colorado, as escrow agent (the "Escrow
Agent"). The Company, the Underwriter and the Escrow Agent, will, prior to the
beginning of the offering of the Shares, enter into a fund escrow agreement,
certain provisions of which will be binding upon you. On behalf of the
Underwriter, you agree to promptly deliver the funds to the Escrow Agent and
otherwise cooperate in such delivery and perform such other procedures as may be
requested by the Underwriter, in accordance with the escrow agreement and Rule
15(c)2-4 of the Securities Exchange Act of 1934, as amended. Until all of the
Shares are sold, you shall promptly, upon receipt of any and all checks, drafts,
and money orders received from prospective purchasers of the Shares, deliver the
same to the Escrow Agent by noon of the next business day following the receipt,
together with a written account of each purchaser which sets forth, among other
things, the name and address of the purchaser, the number of Shares purchased
and the amount paid therefor. Any checks, drafts or money orders received which
are made payable to any party other than the Escrow Agent shall be returned to
the purchaser who submitted the check and not accepted. Certificates for the
securities shall be delivered as soon as practicable after delivery instructions
are received by the Underwriter.
6. A registration statement covering the offering has been filed with
the Securities and Exchange Commission in respect to the Shares. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Shares pursuant hereto agrees (which agreement shall
also be for the benefit of the Company) that it will comply with the applicable
requirements of the Securities Act of 1933 and of the Securities Exchange Act of
1934 and any applicable rules and regulations issued under said Acts. No person
is authorized by the Company or by the Underwriter to give any information or to
make any representations other than those contained in the Prospectus in
connection with the sale of the Shares. Nothing contained herein shall render
the Selected Dealers a member of the Underwriting Group or partners with the
Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Shares have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Shares in any state.
-2-
<PAGE>
DRAFT - OCTOBER 21, 1997
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell any Shares, except in accordance with the provisions of
paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD
and registered as a broker-dealer with the Commission. Your attention is called
to the following: (a) Article III, Section 1 of the Rules of Fair Practice of
the NASD and the interpretations of said Section promulgated by the Board of
Governors of the NASD, including the interpretation with respect to "Free-Riding
and Withholding"; ( b) Section 10(b) of the 1934 Act and Rules 10b-6 and 10b-10
of the general rules and regulations promulgated under said Act; (c) Securities
Act Release #3907: (d) Securities Act Release #4150; and (e) Securities Act
Release #4968 requiring the distribution of a Preliminary Prospectus to all
persons reasonably expected to be purchasers of shares from you at least 48
hours prior to the time you expect to mail confirmations. You, if a member of
the NASD, by signing this Agreement, acknowledge that you are familiar with the
cited law, rules and releases, and agree that you will not directly and/or
indirectly violate any provisions of applicable law in connection with your
participation in the distribution of the Shares.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Shares in the open
market or otherwise make a market in the Shares or otherwise attempt to induce
others to purchase shares in the open market. Nothing contained in this
paragraph 11 shall, however, preclude you from acting as agent in the execution
of unsolicited orders of customers in transactions effectuated for them through
a market maker.
12. All communications from you should be directed to us at the office
of the D.E. Frey & Company, Inc., 1700 Lincoln Street, Suite 2200, Denver,
Colorado 80203. All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
D.E. FREY & COMPANY, INC.
By:__________________________
Dale E. Frey, President
-3-
<PAGE>
DRAFT - OCTOBER 21, 1997
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) __________________* Shares in accordance
with the terms and conditions set forth above.
--------------------------------
By:_____________________________
name:___________________________
title:__________________________
______________________________
* If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number to a lesser or mutually agreed upon
number by crossing out the number, inserting such different number, and
initialing the change.
-4-
EXHIBIT 1.3
UNITED OILFIELD SERVICES, INC.
D.E. FREY & COMPANY, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
Dated as of ______________ ___, 1997
<PAGE>
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
UNITED OILFIELD SERVICES, INC.
Warrant to Purchase 100,000 Shares
(Subject to adjustment as set forth herein)
Exercise Price $______ Per Share
(Subject to adjustment as set forth herein)
VOID AFTER 5:00 P.M., DENVER, COLORADO TIME __________, 200__
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
REGISTERED OR QUALIFIED UNDER ANY OTHER APPLICABLE FEDERAL OR STATE SECURITIES
LAWS. THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
QUALIFICATION FILED IN ACCORDANCE WITH THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATIONS AND QUALIFICATIONS.
UNITED OILFIELD SERVICES, INC., a Texas corporation (the "Company"),
hereby certifies, as of this ___ day of ______________, 1997, that for value
received, D.E. FREY & COMPANY, INC., a Colorado corporation ("Frey"), or any
Holder, as defined below, is entitled, subject to the terms and conditions set
forth below, to purchase from the Company up to ______________ shares of the
Company's $.01 par value Common Stock at a purchase price of $______ per share.
The number and character of the securities purchasable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as provided below.
SECTION 1. DEFINITIONS
The following terms used in this Warrant shall have the following meanings
(unless otherwise expressly provided herein):
1.1. THE "ACT." The Securities Act of 1933, as amended.
1.2. THE "COMMISSION." The Securities and Exchange Commission.
1.3. THE "COMPANY." United Oilfield Services, Inc., a Texas corporation.
1.4. "COMMON STOCK." The Company's $.01 par value Common Stock.
1.5. "CURRENT MARKET PRICE." The Current Market Price shall be determined
as follows:
<PAGE>
(a) if the security at issue is listed on a national securities
exchange or admitted to unlisted trading privileges on such an exchange or
quoted on either the Nasdaq National Market or the Nasdaq Small Cap
Market, the Current Market Price shall be the last reported sale price of
that security on such exchange or system on the day for which the Current
Market Price is to be calculated; or, if no such sale is made on such day,
the average of the highest closing bid and lowest asked price for such day
on such exchange or system; or
(b) if the security at issue is not so listed or quoted or admitted
to unlisted trading privileges, the Current Market Price shall be the last
reported sale price of that security on the OTC Bulletin Board on the day
for which the Current Market Price is to be calculated; or if no such sale
is made on such day, the average of the last reported highest bid and
lowest asked prices quoted on the OTC Bulletin Board on the last business
day on such day; or
(c) if the security at issue is not so listed or quoted or admitted
to unlisted trading privileges and bid and asked prices are not reported,
the Current Market Price shall be determined in such reasonable manner as
may be prescribed from time to time by the Board of Directors of the
Company, subject to the objection and arbitration procedure as described
in Section 18 below.
1.6. "EFFECTIVE DATE." _______________ ___, 1997.
1.7. "EXERCISE DATE." _______________ ___, 1998.
1.8. "EXERCISE PRICE." $___ per share of Common Stock, as modified in
accordance with Section 4, below.
1.9. "EXPIRATION DATE." ____________, 200__.
1.10. "HOLDER." D.E. Frey & Company, Inc., and any valid transferee
thereof pursuant to Section 3.1. below.
1.11. "NASD." The National Association of Securities Dealers, Inc.
1.12."PUBLIC OFFERING." The public offering by the Company of 1,000,000
shares of Common Stock pursuant to an underwriting agreement dated as
of___________ ___, 1997, between the Company and Frey as the Underwriter named
in the underwriting agreement.
1.13. "UNDERWRITER." D.E. Frey & Company, Inc. as the broker-dealer
identified as the Underwriter in the Final Prospectus for the Public Offering.
1.14. "WARRANT" OR "WARRANTS." This Warrant and any Warrants issued in
substitution or replacement of this Warrant, or any Warrants into which this
Warrant may be divided or exchanged.
-2-
<PAGE>
1.15. "WARRANT CERTIFICATE." A certificate substantially in the form set
forth as Exhibit A to this Agreement, issued to a Holder to evidence the Warrant
held by such Holder.
1.16. "WARRANT SHARES." The shares of Common Stock issued or issuable upon
exercise of a Warrant.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANT
2.1. EXERCISE OF WARRANT. Subject to the terms of this Agreement, the
Holder shall have the right, at any time during the four-year period commencing
one year after the Effective Date and ending at 5:00 p.m., Denver Time, on the
Expiration Date to purchase from the Company up to the number of fully paid and
nonassessable Warrant Shares to which the Holder may at the time be entitled to
purchase pursuant to this Agreement, upon surrender to the Company, at its
principal office, of the certificate evidencing the Warrants to be exercised,
together with the purchase form on the reverse thereof, duly filled in and
signed, and upon payment to the Company of the Exercise Price for the number of
Warrant Shares in respect of which such Warrants are then exercised. If the
Warrants are called for redemption, or would for any other reason terminate
before the Exercise Date, the Holder may exercise all or any portion of this
Warrant; but notwithstanding any such early exercise, the Warrant Shares
received by the Holder may not be sold, transferred, assigned, pledged, or
hypothecated until the Exercise Date.
2.2. PAYMENT OF EXERCISE PRICE. Payment of the aggregate Exercise Price
shall be made by a combination of any one or more of the following: (i) by
application, to the extent permitted by applicable law, of (A) shares of Common
Stock or other securities of the Company owned by the Holder, (B) Warrant Shares
issuable upon such exercise of this Warrant as provided in Section 4.5 below,
(C) options, warrants or similar rights to acquire shares of Common Stock or
other securities of the Company owned by the Holder, or (D) other securities
owned by the Holder which are convertible into shares or other securities of the
Company, the value of any of which for such purpose shall be the fair market
value thereof determined in good faith by the Company and the Holder at the time
of such exercise; or (ii) in cash or by check; provided however that the
Warrants may be converted into Warrant Shares as set forth in Section 4.5 below.
2.3. DELIVERY OF WARRANT CERTIFICATE. Subject to the provisions of Section
11, upon receipt of an Warrant Certificate with the Notice of Exercise thereon
duly executed, together with payment in full of the Exercise Price for the
Warrant Shares being purchased by such exercise, or upon conversion of such
Warrant as provided in Section 4.5 below, the Company shall requisition from any
transfer agent for the Warrant Shares, and upon receipt shall make delivery of
certificates evidencing the total number of Warrant Shares for which Warrants
are then being exercised. The certificates shall be in such names and
denominations as are required for delivery to, or in accordance with the
instructions of the Holder; provided that if fewer than all Warrant Shares
issuable on exercise of an Warrant Certificate are purchased, the Company (if so
requested) shall issue such balance Warrant Certificate for the balance of the
Warrant Shares. Such certificates for the Warrant Shares shall be deemed to be
issued, and the person to whom such Warrant Shares are issued of record shall be
deemed to have become a holder of record of such Warrant Shares, as of
-3-
<PAGE>
the date of the surrender of such Warrant Certificate and payment of the
Exercise Price, whichever shall last occur; provided further that if the books
of the Company with respect to the Warrant Shares shall be closed as of such
date, the certificates for such Warrant Shares shall be deemed to have been
issued, and the person to whom such Warrant Shares are issued of record shall be
deemed to have become a record holder of such Warrant Shares, as of the date on
which such books shall next be open (whether before, on or after the applicable
Expiration Date) but at the Exercise Price and upon the other conditions in
effect upon the date of surrender of the Warrant Certificate and payment of the
Exercise Price, whichever shall have last occurred, to the Company.
SECTION 3. TRANSFERABILITY AND FORM OF WARRANT
3.1. LIMITATION ON TRANSFER. The Warrants may not be sold, transferred,
assigned, pledged or hypothecated until the Exercise Date, except for (a) the
sale, transfer, or assignment, in whole or in part, to or among the officers of
Frey (b) the transfer by operation of law as a result of the death of any
transferee to whom all or a portion of the Warrants may be transferred, and (c)
the transfer to any successor to the business of the Underwriter. All sales,
transfers, assignments or hypothecations of the Warrants after the Exercise Date
must be in compliance with Section 10 hereof. Any assignment or transfer of a
Warrant shall be made by the presentation and surrender of the Warrant to the
Company at its principal office or the office of its transfer agent, if any,
accompanied by a duly executed Assignment Form, in the form attached to and by
this reference incorporated in this Warrant Agreement as Exhibit C. Upon the
presentation and surrender of these items to the Company, the Company, at its
sole expense, shall execute and deliver to the new Holder or Holders a new
Warrant or Warrants, subject to the terms and conditions of this Warrant
Agreement, in the name of the new Holder or Holders as named in the Assignment
Form, and the Warrant shall at that time be canceled.
3.2. EXCHANGE OF CERTIFICATE. Any Warrant Certificate may be exchanged for
another certificate or certificates entitling the Holder to purchase a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitled such Holder to purchase. Any Holder desiring to
exchange an Warrant Certificate shall make such request in writing delivered to
the Company, and shall surrender, properly endorsed, the certificate evidencing
the Warrant to be so exchanged. Thereupon, the Company shall execute and deliver
to the person entitled thereto a new Warrant Certificate as so requested.
3.3. MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATE. In case the
certificate or certificates evidencing the Warrant shall be mutilated, lost,
stolen or destroyed, the Company shall, at the request of the Holder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant Certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount, at the applicant's cost. Applicants for such
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
-4-
<PAGE>
3.4. FORM OF CERTIFICATE. The text of the Warrant and of the form of
election to purchase Warrant Shares shall be substantially as set forth in
Exhibits A and B, respectively, attached hereto. The number of Warrant Shares
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Warrant
Certificates shall be executed on behalf of the Company by its President or by a
Vice President and attested to by its Secretary or an Assistant Secretary. An
Warrant Certificate bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such officer prior to the delivery of
such Warrant Certificate or did not hold such office on the date of this
Agreement.
3.5. DATE OF CERTIFICATE. The Warrant Certificates shall be dated as of
the date of signature thereof by the Company either upon initial issuance or
upon division, exchange, substitution or transfer.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES
4.1. ADJUSTMENTS. The adjustments to the number of Warrant Shares
purchasable upon the exercise of the Warrants and the adjustments to the
exercise price of such Warrants shall be made to the Warrant Shares,
notwithstanding that such Warrants shall not have been exercised at the time of
the event which causes such adjustment.
4.2. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
purchasable upon exercise of the Warrants is adjusted as herein provided, the
Company shall cause to be promptly mailed to the Holder by first class mail,
postage prepaid, notice of such adjustment and a certificate of the chief
financial officer of the Company setting forth the number of Warrant Shares
purchasable upon the exercise of the Warrants after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by which
such adjustment was made.
4.3. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION, CONSOLIDATION,
ETC. In case of any consolidation of the Company with or merger of the Company
into another corporation, or in case of any sale or conveyance to another
corporation of the property, assets, or business of the Company as an entirety
or substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Holder an agreement that
the Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such action to purchase, or upon conversion of the
Warrants pursuant to Section 4.5 below, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale, or conveyance
had the Warrants been exercised or converted immediately prior to such action.
In the event of a merger described in Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, in which the Company is the surviving corporation, the
right to purchase Warrant Shares under the Warrants shall terminate on the date
of such merger and thereupon the Warrants shall become null and void, but only
if the controlling corporation shall agree to substitute for the Warrants, its
warrants which entitle the holder thereof to purchase upon their exercise the
kind and amount of shares of common stock and other securities and property
which it
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would have owned or been entitled to receive had the Warrants been
exercised immediately prior to such merger. Any such agreements referred to in
this subsection 4.3 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 4
hereof. The provisions of this subsection 4.3 shall similarly apply to
successive consolidations, mergers, sales, or conveyances.
4.4. INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this Section 4, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 4.
4.5. CONVERSION RIGHT. In addition to and without limiting the rights of
the Holder under the terms of the Warrant Agreement, the Holder shall have the
right (the "Conversion Right") during the Exercise Period to convert the Warrant
evidenced by a certificate or any portion thereof into Warrant Shares as
provided in this Section 4.5 at any time or from time to time prior to its
expiration.
(a) Upon exercise of the Conversion Right with respect to a
particular number of Warrants Shares underlying the Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder,
without payment by the Holder of any Exercise Price or any cash or other
consideration, that number of Converted Warrant Shares equal to the
quotient obtained by dividing the Net Value (as hereinafter defined in
this paragraph 4.5(a)) of the Converted Warrant Shares by the Current
Market Price of a single Warrant Shares, determined in each case as of the
close of business on the Conversion Date (as hereinafter defined). The
"Net Value" of the Converted Warrant Shares shall be determined by
subtracting the aggregate Exercise Price of the Converted Warrant Shares
from the aggregate Current Market Price of the Converted Warrant Shares on
the Conversion Date. Notwithstanding Section 11 hereof, partial Warrant
Share shall be issuable upon exercise of the Conversion Right, and if the
number of Warrant Shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder
an amount in cash equal to the Current Market Price of the resulting
partial Warrant Share.
(b) The Conversion Right may be exercised by the Holder by the
surrender of the Warrant Certificate at the principal office of the
Company or at the office of the Company's stock transfer agent, if any,
together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the number of
Warrant Shares subject to the Warrants Shares which are being surrendered
(referred to in subparagraph 4.5(a) above as the Converted Warrant
Shares), on the reverse side of the Warrant Certificate or as in Exhibits
D and D-1 attached hereto, in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of the Warrant
Certificate, or on such later date as is specified therein (the
"Conversion Date"), but not later than the Expiration Date. Certificates
for the Converted Warrant Shares issuable upon exercise of the Conversion
Right, together with a check in payment of any partial Warrant Shares
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and, in the case of a partial exercise a new Warrant evidencing the
Warrant Shares remaining subject to the Warrant, shall be issued as of the
Conversion Date and shall be delivered to the Holder within seven (7) days
following the Conversion Date.
SECTION 5. NOTICE TO HOLDERS
If, prior to the expiration of the Warrants either by their terms or by
their exercise in full, any of the following shall occur:
(i) the Company shall declare a dividend or authorize any other
distribution on its Common Stock; or
(ii) the Company shall authorize the granting to the shareholders of
its Common Stock of rights to subscribe for or purchase any securities or any
other similar rights; or
(iii) any reclassification, reorganization or similar change of the
Common Stock, or any consolidation or merger to which the Company is a party, or
the sale, lease, or exchange of any significant portion of the assets of the
Company; or
(iv) the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(v) any purchase, retirement or redemption by the Company of its
Common Stock;
then, and in any such case, the Company shall deliver to the Holder or
Holders written notice thereof at least 30 days prior to the earliest applicable
date specified below with respect to which notice is to be given, which notice
shall state the following:
(i) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights, or, if a record is not to be taken, the
date as of which the shareholders of Common Stock of record to be entitled to
such dividend, distribution or rights are to be determined;
(ii) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, dissolution, liquidation, winding up or
purchase, retirement or redemption is expected to become effective, and the
date, if any, as of which the Company's shareholders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, transfer, dissolution, liquidation, winding up, purchase,
retirement or redemption; and
if any matters referred to in the foregoing clauses are to be voted upon
by shareholders of Common Stock, the date as of which those shareholders to be
entitled to vote are to be determined.
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SECTION 6. OFFICERS' CERTIFICATE
Whenever the Exercise Price or the aggregate number of Warrant Shares
purchasable pursuant to this Warrant Agreement shall be adjusted as required by
the provisions of Section 4 above, the Company shall promptly file with its
Secretary or an Assistant Secretary at its principal office, and with its
transfer agent, if any, an officers' certificate executed by the Company's
President and Secretary or Assistant Secretary, describing the adjustment and
setting forth, in reasonable detail, the facts requiring such adjustment and the
basis for and calculation of such adjustment in accordance with the provisions
of this Warrant Agreement. Each such officers' certificate shall be made
available to the Holder or Holders of the Warrants for inspection at all
reasonable times, and the Company, after each such adjustment, shall promptly
deliver a copy of the officers' certificate relating to that adjustment to the
Holder or Holders of the Warrants. The officers' certificate described in this
Section 6 shall be deemed to be conclusive as to the correctness of the
adjustment reflected therein if, and only if, no Holder of an Warrant delivers
written notice to the Company of an objection to the adjustment within 30 days
after the officers' certificate is delivered to the Holder or Holders of the
Warrants. The Company will make its books and records available for inspection
and copying during normal business hours by the Holder so as to permit a
determination as to the correctness of the adjustment. If written notice of an
objection is delivered by a Holder to the Company and the parties cannot
reconcile the dispute, the Holder and the Company shall submit the dispute to
arbitration pursuant to the provisions of Section 18 below. Failure to prepare
or provide the officers' certificate shall not modify the parties' rights
hereunder.
SECTION 7. RESERVATION OF WARRANT SHARES
There has been reserved, and the Company shall at all times keep reserved
so long as the Warrants remain outstanding, out of its authorized and unissued
Common Stock, such number of shares of Common Stock as shall be subject to
purchase under the Warrants. Every transfer agent for the Common Stock and other
securities of the Company issuable upon the exercise of the Warrants will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares and other securities as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with every transfer agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants. The Company will supply every such transfer agent with
duly executed stock and other certificates, as appropriate, for such purpose.
SECTION 8. REGISTRATION RIGHTS
8.1. DEMAND REGISTRATION RIGHTS. Upon the written request of a Frey, made
at any time after the Exercise Date, but before the Expiration Date, the Company
shall file within 90 days of such written request a registration statement or
Regulation A offering statement pursuant to the Act, and all necessary
amendments thereto, to register or qualify the Warrant Shares. No additional
securities shall be included in such registration statement or offering
statement without the written consent of Frey. The Company may use the
Regulation A exemption if available, but the Company must file a registration
statement if the securities that are to be covered cannot be sold pursuant to
Regulation A because of the limitations
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applicable to the use of the Regulation A exemption. The Company agrees to use
its best efforts to cause this registration or qualification to become effective
as promptly as practicable and to keep such registration effective for a period
of the lesser of 180 days or the date of completion of the distribution
described in the Registration Statement; and its officers, directors,
consultants, auditors and counsel shall cooperate in all matters necessary or
advisable to pursue this objective. All of the expenses of this registration or
qualification shall be borne by the Company, including, but not limited to,
legal, accounting, consulting, printing, filing and NASD fees, out-of-pocket
expenses incurred by counsel, accountants, and consultants retained by the
Company and miscellaneous expenses directly related to the registration
statement or offering statement and the offering, and the underwriter's
accountable and nonaccountable expense allowances and fees; but the Company
shall not pay any brokerage fees, commissions or underwriting discounts except
to the extent they are attributable to other securities that the Company has
been permitted to register or qualify or to offer in conjunction with the
registration and qualification of the Warrant Shares. Notwithstanding the
foregoing, if, as a qualification of any offering in any state or jurisdiction
in which the Company (by vote of its Board of Directors) or any underwriter
determines in good faith that it wishes to offer securities registered in the
offering, it is required that offering expenses be allocated in a manner
different from that provided above, then the offering expenses shall be
allocated in whatever manner is most nearly in compliance with the provisions
set out above. Frey shall be entitled to exercise the rights described in this
subsection 8.1 one time only.
Within 10 days after the delivery by Frey to the Company of the notice
described above, the Company shall deliver written notice to all other Holders
of the Warrants and holders of the Warrant Shares, if any, advising them that
the Company is proceeding with a registration statement or offering statement
and offering them the right to include the Warrant Shares of those Holders or
holders therein. If any Holder of a Warrant and/or Warrant Shares delivers
written acceptance of that offer to the Company within 30 days after the
delivery of the Company's notice, the Company shall be obligated to include that
holder's Warrant Shares in the contemplated registration statement or offering
statement.
8.2. "PIGGY-BACK" REGISTRATION RIGHTS. If at any time prior to the
Expiration Date the Company files a registration statement with the Commission
pursuant to the Act, or pursuant to any other act passed after the date of this
Agreement, which filing provides for the sale of securities by the Company to
the public, or files a Regulation A offering statement under the Act, the
Company shall offer to the Holder or Holders of the Warrants and the holders of
any Warrant Shares the opportunity to register or qualify the Warrant Shares, at
the Company's sole expense, regardless of whether the Holder or Holders of the
Warrants or the holders of Warrant Shares or both may have previously availed
themselves of any of the registration rights described in this Section 8;
provided, however, that in the case of a Regulation A offering, the opportunity
to qualify shall be limited to the amount of the available exemption after
taking into account the securities that the Company wishes to qualify.
Notwithstanding anything to the contrary, this subsection 8.2 shall not be
applicable to a registration statement registering securities issued pursuant to
an employee benefit plan or as to a transaction subject to Rule 145 promulgated
under the Act or which a Form S-4 registration statement could be used.
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The Company shall deliver written notice to the Holder or Holders of the
Warrants and to any holders of Warrant Shares of its intention to file a
registration statement or Regulation A offering statement under the Act at least
60 days prior to the filing of such registration statement or offering
statement, and the Holder or Holders and holders of Warrant Shares shall have 30
days thereafter to request in writing that the Company register or qualify the
Warrant Shares in accordance with this subsection 8.2. Upon the delivery of such
a written request within the specified time, the Company shall be obligated to
include in its contemplated registration statement or offering statement all
information necessary or advisable to register or qualify the Warrant Shares, if
the Company does file the contemplated registration statement or offering
statement; provided, however, that neither the delivery of the notice by the
Company nor the delivery of a request by a Holder or by a holder of Warrant
Shares shall in any way obligate the Company to file a registration statement or
offering statement. Furthermore, notwithstanding the filing of a registration
statement or offering statement, the Company may, at any time prior to the
effective date thereof, determine not to offer the securities to which the
registration statement or offering statement relates, other than the Warrant
Shares. Notwithstanding the foregoing, if, as a qualification of any offering in
any state or jurisdiction in which the Company (by vote of its Board of
Directors) or any underwriter determines in good faith that it wishes to offer
securities registered in the offering, it is required that offering expenses be
allocated in a manner different from that provided above, then the offering
expenses shall be allocated in whatever manner is most nearly in compliance with
the provisions set out above.
The Company shall comply with the requirements of this subsection 8.2 at
its own expense. That expense shall include, but not be limited to, legal,
accounting, consulting, printing, federal and state filing fees, NASD fees,
out-of-pocket expenses incurred by counsel, accountants and consultants retained
by the Company, and miscellaneous expenses directly related to the registration
statement or offering statement and the offering. However, this expense shall
not include the portion of any underwriting commissions, transfer taxes and the
underwriter's accountable and nonaccountable expense allowances attributable to
the offer and sale of the Warrant Shares, all of which expenses shall be borne
by the Holder or Holders of the Warrants and the holders of the Warrant Shares
registered or qualified.
8.3. INCLUSION OF INFORMATION. In the event that the Company registers or
qualifies the Warrant Shares pursuant to subsections 8.1 or 8.2 above, the
Company shall include in the registration statement or qualification, and the
prospectus included therein, all information and materials necessary or
advisable to comply with the applicable statutes and regulations so as to permit
the public sale of the Warrant Shares. As used in subsections 8.1 and 8.2,
reference to the Company's securities shall include, but not be limited to, any
class or type of the Company's securities or the securities of any of the
Company's subsidiaries or affiliates.
8.4. REGISTRATION STATEMENT FILED BY HOLDER. In addition to the
registration rights described in subsections 8.1 and 8.2 above, upon the written
request of Frey, the Company, as promptly as possible after delivery of such
request, shall cooperate with the requesting Holder or holder in preparing and
signing any registration statement or offering statement that the Holder or
holder may desire to file in order to sell or transfer the Warrant Shares.
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Within 10 days after the delivery of the written request described above, the
Company shall deliver written notice to all other Holders of the Warrants and
holders of Warrant Shares, if any, advising them that the Company is proceeding
with a registration statement or offering statement and that their Warrant
Shares will be included therein if they so desire and agree to pay their pro
rata share of the cost of registration or qualification and provided that the
Holder or holder delivers written notice to the Company of their desire to be
included and their agreement to pay their pro rata share of the cost within 30
days after the delivery of the Company's notice to them. The Company will supply
all information necessary or advisable for any such registration statements or
offering statements; provided, however, that all the costs and expenses of such
registration statements or offering statements shall be borne, in a manner
proportionate to the number of securities for which they indicate a desire to
register, by the Holders of the Warrants and the holders of Warrant Shares who
seek the registration or qualification of their Warrant Shares. In determining
the amount of costs and expenses to be borne by those Holders or holders, the
only costs and expenses of the Company to be included are the additional costs
and expenses that would not have otherwise been incurred by the Company if those
Holders or holders had not desired to file a registration statement or offering
statement. As an example, and without limitation, audit fees would not be
charged to those Holders or holders if or to the extent that the Company would
have incurred the same audit fees for its year-end or other use in the absence
of the registration statement or offering statement. The Holders or holders
responsible for the costs and expenses shall reimburse the Company for those
reimbursable costs and expenses reasonably incurred by the Company within 30
days after the initial effective date of the registration statement or
qualification at issue.
8.5. PAYMENT OF EXERCISE PRICE FROM PROCEEDS. In the event that any
registration statement is utilized for a public offering of any of the Warrant
Shares to be received upon exercise of the Warrants pursuant to this Section 8,
the Holder may elect to pay the Exercise Price of the Warrants to the Company
out of the proceeds of the sale of the Warrant Shares pursuant to the
registration statement concurrently with the closing of such sale of the Warrant
Shares; provided that if such sale is not closed within 90 days of the effective
date of such registration statement, then the Holder shall be obligated to pay
the Exercise Price of the Warrants to the Company on such 90th day.
8.6. CONDITION OF COMPANY'S OBLIGATIONS. As to each registration statement
or offering statement, the Company's obligations contained in this Section 8
shall be conditioned upon a timely receipt by the Company in writing of the
following:
(a) Information as to the terms of the contemplated public offering
furnished by and on behalf of each Holder or holder intending to make a public
distribution of the Warrant Shares; and
(b) Such other information as the Company may reasonably require
from such Holders or holders, or any underwriter for any of them, for inclusion
in the registration statement or offering statement.
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8.7. ADDITIONAL REQUIREMENTS. In each instance in which the Company shall
take any action to register or qualify the Warrant Shares, if any, pursuant to
this Section 8, the Company shall do the following:
(a) supply to Frey, as the representative of the Holders of the
Warrant and the holders of Warrant Shares whose Warrant Shares are being
registered or qualified, two (2) manually signed copies of each registration
statement or offering statement, and all amendments thereto, and a reasonable
number of copies of the preliminary, final or other prospectus or offering
circular, all prepared in conformity with the requirements of the Act and the
rules and regulations promulgated thereunder, and such other documents as Frey
shall reasonably request;
(b) cooperate with respect to (i) all necessary or advisable actions
relating to the preparation and the filing of any registration statements or
offering statements, and all amendments thereto, arising from the provisions of
this Section 8, (ii) all reasonable efforts to establish an exemption from the
provisions of the Act or any other federal or state securities statutes, (iii)
all necessary or advisable actions to register or qualify the public offering at
issue pursuant to federal securities statutes and the state "blue sky"
securities statutes of each jurisdiction that the Holders of the Warrant or
holders of Warrant Shares shall reasonably request, and (iv) all other necessary
or advisable actions to enable the Holders of the Warrant Shares to complete the
contemplated disposition of their securities in each reasonably requested
jurisdiction; and
(c) keep all registration statements or offering statements to which
this Section 8 applies, and all amendments thereto, effective under the Act for
a period of at least 180 days after their initial effective date and cooperate
with respect to all necessary or advisable actions to permit the completion of
the public sale or other disposition of the securities subject to a registration
statement or offering statement.
8.8. INDEMNIFICATION AGREEMENTS. In each instance in which pursuant to
this Section 8 the Company shall take any action to register or qualify the
Warrant Shares, prior to the effective date of any registration statement or
offering statement, the Company and each Holder or holder of Warrants or Warrant
Shares being registered or qualified shall enter into reciprocal indemnification
agreements, in the form customarily used by reputable investment bankers with
respect to public offerings of securities. These indemnification agreements also
shall contain an agreement by the Holder or holder at issue to indemnify and
hold harmless the Company, its officers and directors from and against any and
all losses, claims, damages and liabilities, including, but not limited to, all
expenses reasonably incurred in investigating, preparing, defending or settling
any claim, directly resulting from any untrue statements of material facts, or
omissions to state a material fact necessary to make a statement not misleading,
contained in a registration statement or offering statement to which this
Section 8 applies, if, and only if, the untrue statement or omission directly
resulted from information provided in writing to the Company by the indemnifying
Holder or shareholder expressly for use in the registration statement or
offering statement at issue.
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8.9. SURVIVAL. The Company's obligations described in this Section 8 shall
continue in full force and effect regardless of the exercise, surrender,
cancellation or expiration of the Warrants, unless the Warrant expire
unexercised.
SECTION 9. PAYMENT OF TAXES
The Company will pay all documentary stamp taxes, if any, attributable to
the initial issuance of the Warrants or the Warrant Shares; provided, however,
the Company shall not be required to pay any tax which may be payable in respect
of any transfer of the Warrants or the Warrant Shares.
SECTION 10. RESTRICTIONS ON TRANSFER
10.1. RESTRICTIONS ON TRANSFER. The Warrants and the Warrant Shares may
not be offered, sold or transferred, in whole or in part, except in compliance
with the Act, and except in compliance with all applicable state securities
laws. The Holder agrees that prior to making any disposition of the Warrants,
other than to persons or entities identified in Section 3.1, the Holder shall
give written notice to the Company describing briefly the manner in which any
such proposed disposition is to be made; and no such disposition shall be made
if the Company has notified the Holder that in the opinion of counsel reasonably
satisfactory to the Holder a registration statement or other notification or
post-effective amendment thereto (hereinafter collectively a "Registration
Statement") under the Act is required with respect to such disposition and no
such Registration Statement has been filed by the Company with, and declared
effective, if necessary, by, the Commission.
10.2. RESTRICTIVE LEGEND. The Company may cause substantially the
following legends, or their equivalents, to be set forth on each certificate
representing the Warrants and the Warrant Shares, or any other security issued
or issuable upon exercise of the Warrants, not theretofore distributed to the
public or sold to underwriters, as defined by the Act, for distribution to the
public pursuant to Section 8 above:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN
ANY MANNER EXCEPT IN COMPLIANCE WITH THE AGREEMENT PURSUANT TO WHICH
THEY WERE ISSUED."
Any legend required by applicable state securities laws.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Act"), or the securities
represented thereby) shall also bear the above legends unless, in the opinion of
the Company's counsel, the securities represented thereby need no longer be
subject to such restrictions.
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SECTION 11. FRACTIONAL SHARES
No fractional share of Common Stock shall be issued upon the exercise of
all or any part of an Warrant. In any case in which other than a full number of
Warrant Shares would be issuable hereunder, the number of Warrant Shares
issuable shall be rounded up to the next whole number.
SECTION 12. NO RIGHTS AS SHAREHOLDER; NOTICES TO HOLDER
Nothing contained in this Agreement or in the Warrants shall be construed
as conferring upon the Holder or its transferees any rights as a shareholder of
the Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder in respect to any meeting of shareholders for the
election of directors of the Company or any other matter. The Company covenants,
however, that for so long as an Warrant is unexercised, it will furnish any
Holder of an Warrant with copies of all reports and communications furnished to
the shareholders of the Company. In addition, if at any time prior to the
expiration of the Warrants and prior to their exercise, any one or more of the
following events shall occur:
(i) any action which would require an adjustment pursuant to Section
4; or
(ii) a dissolution, liquidation, or winding up of the Company (other
than in connection with a consolidation, merger, or sale of its property,
assets, and business as an entirety or substantially as an entirety) shall be
proposed:
then the Company shall give notice in writing of such event to the Holder, as
provided in Section 15 hereof, at least 20 days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the shareholders entitled to any relevant dividend, distribution, subscription
rights or other rights or for the determination of shareholders entitled to vote
on such proposed dissolution, liquidation, or winding up. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to mail or receive notice or any defect therein shall not affect
the validity of any action taken with respect thereto.
SECTION 13. CHARGES DUE UPON EXERCISE
The Company shall pay any and all issue or transfer taxes, including, but
not limited to, all federal or state taxes, that may be payable with respect to
the transfer of the Warrants or the issue or delivery of Warrant Shares upon the
exercise of an Warrant.
SECTION 14. WARRANT SHARES TO BE FULLY PAID
The Company covenants that all Warrant Shares that may be issued and
delivered to a Holder of an Warrant upon the exercise of an Warrant and payment
of the Exercise Price will be, upon such delivery, validly and duly issued,
fully paid and nonassessable.
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SECTION 15. NOTICES
Any notice pursuant to this Agreement by the Company or by an Holder or a
holder of Warrant Shares shall be in writing and shall be deemed to have been
duly given if delivered or mailed by certified mail, return receipt requested:
If to an Holder or a holder of Warrant Shares, addressed to Frey &
Associates, Inc., 1700 Lincoln Street, Suite 2200, Denver, Colorado 80203,
Attention: Corporate Finance Department; or
If to the Company, addressed to it at 615 Upper North Broadway, Suite 950,
Corpus Christi, Texas, 78477, Attention: Wallace Sellers, Chief Executive
Officer.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 4 are complied with.
SECTION 17. APPLICABLE LAW
The Warrants and this Warrant Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado, and courts located in
Colorado shall have exclusive jurisdiction over all disputes arising hereunder.
SECTION 18. ARBITRATION
The Company and the Holder, and all subsequent Holders or holders of
Warrant Shares, agree to submit all controversies, claims, disputes and matters
of difference with respect to the Warrants and this Warrant Agreement,
including, without limitation, the application of this Section 18 to arbitration
in Denver, Colorado, according to the rules and practices of the American
Arbitration Association from time to time in force; provided, however, that if
such rules and practices conflict with the applicable procedures of Colorado
courts of general jurisdiction or any other provisions of Colorado law then in
force, those Colorado rules and provisions shall govern. This agreement to
arbitrate shall be specifically enforceable. Arbitration may proceed in the
absence of any party if notice of the proceeding has been given to that party.
The parties agree to abide by all awards rendered in any such proceeding. These
awards shall be final and binding on all parties to the extent and in the manner
provided by the rules of civil procedure enacted in Colorado. All awards may be
filed, as a basis of judgment and of the issuance of execution for its
collection, with the clerk of one or more courts, state or federal, having
jurisdiction over either the party against whom that award is rendered or its
property. No party shall be considered in default hereunder during the pendency
of arbitration proceedings relating to that default.
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SECTION 19. MISCELLANEOUS PROVISIONS
(a) Subject to the terms and conditions contained herein, this
Warrant Agreement shall be binding on the Company and its successors and shall
inure to the benefit of the original Holder, its successors and assigns and all
holders of Warrant Shares and the exercise of the Warrants in full shall not
terminate the provisions of this Warrant Agreement as it relates to holders of
Warrant Shares.
(b) If the Company fails to perform any of its obligations
hereunder, it shall be liable to the Holder for all damages, costs and expenses
resulting from the failure, including, but not limited to, all reasonable
attorney's fees and disbursements.
(c) This Warrant Agreement cannot be changed or terminated or any
performance or condition waived in whole or in part except by an agreement in
writing signed by the party against whom enforcement of the change, termination
or waiver is sought; provided, however, that any provisions hereof may be
amended, waived, discharged or terminated upon the written consent of the
Company and Frey.
(d) If any provision of this Warrant Agreement shall be held to be
invalid, illegal or unenforceable, such provision shall be severed, enforced to
the extent possible, or modified in such a way as to make it enforceable, and
the invalidity, illegality or unenforceability shall not affect the remainder of
this Warrant Agreement.
(e) The Company and the Holders agree to execute such further
agreements, conveyances, certificates and other documents as may be reasonably
to effectuate the intent and provisions of this Warrant Agreement.
(f) Paragraph headings used in this Warrant Agreement are for
convenience only and shall not be taken or construed to define or limit any of
the terms or provisions of this Warrant Agreement. Unless otherwise provided, or
unless the context shall otherwise require, the use of the singular shall
include the plural and the use of any gender shall include all genders.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
UNITED OILFIELD SERVICES, INC.
By:___________________________________
Wallace Sellers, Chief Executive Officer
D.E. FREY & COMPANY, INC.
By:____________________________________
Dale E. Frey, President
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<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH THE
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. ________
CERTIFICATE FOR
WARRANT TO PURCHASE __________ SHARES OF COMMON STOCK
UNITED OILFIELD SERVICES, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF TEXAS
This certifies that, for value received, _______________, the registered
holder hereof or assigns (the "Holder"), is entitled to purchase from United
Oilfield Services, Inc. (the "Company"), at any time during the period
commencing at 9:00 a.m., Texas time, on _______________ and ending at 5:00 p.m.
Texas time on ___________ at the purchase price of $__________ per share (the
"Exercise Price"), the number of Warrants of the Company set forth above (the
"Warrants"). The number of Warrants purchasable upon exercise of the Warrants
evidenced hereby shall be subject to adjustment from time to time as set forth
in the Warrant Agreement (defined below).
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Notice of Exercise attached
hereto duly executed (with a signature guarantee as provided thereon) and
simultaneous payment of the Exercise Price at the principal office of the
Company. Payment of such price shall be made as provided in Section 2.2 of the
Warrant Agreement.
The Warrants evidenced hereby represent the right to purchase an aggregate
of up to 100,000 Warrant Shares and are issued under and in accordance with a
Warrant to Purchase Shares of Common Stock dated as of _______________ ___,
1997, between the Company and D.E. Frey & Company, Inc. (the "Warrant
Agreement") and are subject to the terms and provisions contained in the Warrant
Agreement, to all of which the Holder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Holder a new Warrant Certificate in respect of the
Warrants as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Warrants as here evidenced by the
Warrant or Warrants exchanged. No fractional Warrant Shares will be issued upon
the exercise of rights to purchase hereunder, but the Warrant Shares shall be
rounded up to the next whole number, except as provided in Section 4.5 of the
Warrant Agreement. These Warrants are transferable at the office of the Company
in the manner and subject to the limitations set forth in the Representative's
Warrant Warrant Agreement.
-1-
<PAGE>
This Warrant Certificate does not entitle any Holder to any of the rights
of a shareholder of the Company.
UNITED OILFIELD SERVICES, INC.
Dated: ________________________ By:______________________________
Wallace Sellers,
[Seal] Chief Executive Officer
Attest:
________________________________
Secretary
-2-
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE
(To be executed by a Holder desiring to exercise the right to purchase Warrant
Shares pursuant to a Warrant.)
The undersigned Holder of a Warrant hereby
(a) irrevocably elects to exercise the Warrant to the extent of purchasing
_______________ Warrant Shares;
(b) makes payment in full of the aggregate Exercise Price for those
Warrant Shares in the amount of $_________________ by the delivery of
_____________________;
(c) requests that certificates evidencing the Warrants be issued in the
name of the undersigned, or, if the name and address of some other person is
specified below, in the name of such other person:
________________________________________________________________________________
(Name and address of person OTHER than the undersigned in whose name Warrant
Shares are to be registered)
(d) requests, if the number of Warrant Shares purchased are not all the
Warrant Shares purchasable pursuant to the unexercised portion of the Warrant,
that a new Warrant of like tenor for the remaining Warrant Shares purchasable
pursuant to the Warrant be issued and delivered to the undersigned at the
address stated below.
Dated: _______________________
___________________________________________________
Signature: (This signature must conform in all respects
to the name of the Holder as specified on
the face of the Warrant.)
Printed Name:_____________________________________
______________________________
Social Security Number
or Employer ID Number
Address:
-3-
<PAGE>
EXHIBIT C
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned, __________________________________, hereby
sells, assigns and transfers unto:
Name: _________________________________________________
(Please type or print in block letters)
Address: _________________________________________________
_________________________________________________
the right to purchase _________________ Warrant Shares of United Oilfield
Services, Inc. (the "Company") pursuant to the terms and conditions of the
Warrant held by the undersigned. The undersigned hereby authorizes and directs
the Company (i) to issue and deliver to the above-named assignee at the above
address a new Warrant pursuant to which the rights to purchase being assigned
may be exercised, and (ii) if there are rights to purchase Warrant Shares
remaining pursuant to the undersigned's Warrant after the assignment
contemplated herein, to issue and deliver to the undersigned at the address
stated below a new Warrant evidencing the right to purchase the number of
Warrant Shares remaining after issuance and delivery of the Warrant to the
above-named assignee. Except for the number of Warrant Shares purchasable, the
new Warrants to be issued and delivered by the Company are to contain the same
terms and conditions as the undersigned's Warrant. To complete the assignment
contemplated by this Assignment Form, the undersigned hereby irrevocably
constitutes and appoints ____________________________________ as the
undersigned's attorney-in-fact to transfer the Warrants and the rights
thereunder on the books of the Company with full power of substitution for these
purposes.
_________________________________________
Signature (This signature must conform in
all respects to the name of the Holder as
specified on the face of the Warrant.)
Printed Name:___________________________________________
Address:
-4-
<PAGE>
EXHIBIT D
WARRANT CONVERSION EXERCISE FORM
TO: United Oilfield Services, Inc.
Pursuant to Section 4.5 of the Warrant Agreement, the Holder hereby
irrevocably elects to convert Warrants into ____ Warrant Shares of the Company.
A conversion calculation is attached hereto as Exhibit D-1.
The undersigned requests that certificates for such Warrant Shares be
issued as follows:
Name: ___________________________________________________________
Address: _____________________________________________________
Deliver to: _____________________________________________________
and that a new Certificate for the balance remaining of the Warrants, if any, be
registered in the name of, and delivered to, the undersigned at the address
stated above.
Signature_________________________
Dated____________________________
-5-
<PAGE>
EXHIBIT D-1
CALCULATION OF WARRANT CONVERSION
Number of Warrant Shares converted: __________________________
Converted Securities = Net Value
--------------------
Current Market Price
Current Market Price = $_______________
Net Value = Aggregate Current Market Price
- Aggregate Exercise Price
= $_______________ - ________________
= $_______________
Converted Warrant Shares = ________________
Fractional Converted
Warrant Shares = ________________(1)
- ------------------
(1) ________________________ to pay for partial Warrants in cash @ $__________
per Warrant Share.
-6-
EXHIBIT 1.4
FUND ESCROW AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of October, 1997
by and among the following:
United Oilfield Services, Inc. (the "Company"), a Texas corporation,
whose address is 615 Upper North Broadway, Suite 950, MT-198, Corpus Christi,
Texas 78477;
D. E. Frey & Company, Inc. (the "Underwriter"), a Colorado corporation,
whose address is 1700 Lincoln Street, Suite 2200, Denver, Colorado 80203;
Colorado State Bank and Trust, N.A. (the "Escrow Agent") whose address
is 1600 Broadway, Denver, Colorado 80202.
R E C I T A L S:
A. The Company has filed a Registration Statement on Form S-1 and
amendments thereto (the "Registration Statement"), pursuant to which the Company
proposes to issue and offer for public sale (the "Public Offering") 1,000,000
shares of common stock, $.01 par value (the "Shares"). The offering will be made
on a best efforts, all or nothing, basis through the Underwriter;
B. Pursuant to the terms of the Registration Statement, provision must
be made to impound in escrow for certain periods, as more particularly described
in paragraph 2 hereof, commencing upon the effective date of the Registration
Statement (the "Effective Date") and for the benefit of purchasers in the Public
Offering, the gross proceeds from the sale of the Shares; and
C. The Company and the Underwriter desire to enter into an agreement
with the Escrow Agent for the purpose of fulfilling the escrow requirements as
set forth in the Registration Statement.
NOW THEREFORE, in consideration of the foregoing recitals, and the
mutual promises and covenants contained herein, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT. The Company and the Underwriter
hereby appoint the Escrow Agent, and the Escrow Agent accepts said appointment
to receive from the Underwriter the monies paid by the subscribers for the
Shares and to hold such subscription payments in accordance with the terms
herein. The Underwriter agrees to deliver to the Escrow Agent within two
business days following receipt, all proceeds, including customer checks,
drafts, or money orders payable to the Escrow Agent, from the sale of the Shares
in the Public Offering, together with a written account of each sale, which
account shall set forth, among other things, the names, addresses and social
security or taxpayer identification numbers of the purchasers, the number of
Shares purchased by each, the amount paid therefor, and whether the
consideration received was in the form of cash or evidenced by a check, draft,
or money order. The Escrow Agent shall have the right to reject and return to
the Underwriter any funds that are not accompanied by the
<PAGE>
required information or that do not reconcile to the amount set forth in the
written account of the sale at the time of deposit with the Escrow Agent. The
Escrow Agent shall establish a segregated non-interest-bearing escrow account,
which shall be entitled "United Oilfield Services, Inc. Escrow Account (the
"Escrow Account") into which all subscription amounts shall be deposited. The
Escrow Account shall be created and maintained subject to the customary rules
and regulations of the Escrow Agent pertaining to such accounts. During the
Escrow Period (as hereinafter defined), none of the amounts deposited in the
Escrow Account shall become the property of the Company or any other entity, or
subject to the debts of the Company or any other entity, and the Escrow Agent
shall not make or permit any disbursements from the Escrow Account. The Escrow
Agent shall have no obligation to invest any of the deposited funds or to pay
interest thereon.
2. ESCROW PERIOD. The Escrow Period shall begin on the Effective Date
and shall terminate on:
(a) the expiration of 60 days from the Effective Date, which
period may be extended by up to an additional 30 days by mutual written
consent of the Company and the Underwriter; or
(b) the election of the Company to terminate the Offering.
3. DISBURSEMENT OF FUNDS. Unless all of the Shares are sold within the
period referred to in paragraph 2, the agency between the Company and the
Underwriter will terminate. In the event the Public Offering is not fully
subscribed within the period referred to in paragraph 2, the Escrow Agent, as
promptly as possible, shall return to each of the purchasers of the Shares the
amount paid in by them for the purchase of the Shares and collected by the
Escrow Agent, without interest and without any deductions. Each amount paid or
payable to each purchaser pursuant to this paragraph shall be deemed to be the
property of each purchaser, free and clear of any and all claims of the Company
or any of its creditors, and the respective agreements to purchase the Shares
made and entered into in the Public Offering thereupon shall be deemed to be
cancelled, without any further liability of said purchasers to pay for the
Shares purchased. The Escrow Agent shall be required to make such payment only
to the person named in the written account of each sale to be furnished by the
Underwriter pursuant to paragraph 1 hereof at the address set forth in the
written account. Any funds payable to the purchasers of the Shares which the
Escrow Agent cannot disburse to the purchasers because the address given in the
written account is defective or which the Escrow Agent cannot disburse for any
other reason to said purchaser shall be retained by the Escrow Agent and dealt
with in accordance with applicable Colorado law. At such time as the Escrow
Agent shall have made all payments and remittances provided for in this
paragraph, the Escrow Agent shall be completely discharged and released of any
and all further liabilities and responsibilities hereunder.
4. ESCROW AGENT FEE. The Company shall pay the Escrow Agent a fee in
the amount of $_______, which shall cover all fees and expenses of the Escrow
Agent in connection with the actions taken under this Agreement, and such fee
shall be paid regardless of whether this Agreement terminates pursuant to
paragraph 2. In addition, the Company shall pay the Escrow Agent a refundable
deposit of $_________ which shall be used to pay for costs and expenses incurred
by Escrow Agent if funds deposited in the subject escrow are returned to
investors pursuant to
2
<PAGE>
paragraph 2 or otherwise. Any remaining portion of the refundable deposit
referred to in this paragraph shall be returned by the Escrow Agent to the
Company upon termination of this Agreement.
5. DUTIES AND RESPONSIBILITIES OF ESCROW AGENT. The Escrow Agent shall
not issue any certificates of deposit, stock certificates, or any other
instrument or document representing any interest in the deposited funds, but
written notice acknowledging receipt of the deposited funds will be delivered
from time to time, but no more frequently than once per week, by the Escrow
Agent to the Company and the Underwriter. The Escrow Agent shall give the
Company and the Underwriter prompt written notice when funds deposited in the
Escrow Account total $_________. The Escrow Agent shall not be responsible for
fees in conjunction with the issuance or transfer of securities. The Company and
the Underwriter agree to provide to the Escrow Agent all information necessary
to facilitate the administration of this Agreement, and the Escrow Agent may
rely upon such information provided. In performing any of its duties hereunder,
the Escrow Agent shall not incur any liability to anyone for any claims,
damages, losses, costs or expenses, except for willful misconduct or gross
negligence, and it shall accordingly not incur any such liability with respect
to (i) any action taken or omitted in good faith upon advice of counsel given
with respect to any questions relating to the duties and responsibilities of the
Escrow Agent under this Agreement or (ii) any action taken or omitted in
reliance upon any instrument, including the written advice provided for herein,
not only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and accuracy of any information contained
therein, which the Escrow Agent shall in good faith believe to be genuine, to
have been signed or presented by a proper person or persons, and to conform with
the terms of this Agreement.
The Escrow Agent shall not be obligated to take any action which it is
not expressly directed to take in this Agreement unless and until it shall have
received written instruction from the Company and/or the Underwriter. The Escrow
Agent shall have no duty to know or determine performance or non-performance of
any provision of any agreement between the other parties hereto, and the
original, or a copy, of any such agreement deposited with the Escrow Agent shall
not bind such agent in any manner. The Escrow Agent assumes no responsibility
for the validity or sufficiency of any documents or paper or payments deposited
or called for hereunder except as may be expressly and specifically set forth in
this Agreement in clear and unambiguous language, and the duties and
responsibilities of the Escrow Agent are limited to those expressly and
specially stated in this Agreement in such language.
6. INDEMNIFICATION. The Company and the Underwriter hereby agree to
indemnify and hold harmless the Escrow Agent against any and all losses, claims,
damages, liabilities, costs and expenses, including reasonable costs of
investigation and attorneys' fees and disbursements, which may be imposed upon
the Escrow Agent or incurred by the Escrow Agent hereunder, or their performance
of its duties hereunder, including any litigation arising from this Agreement or
involving the subject matter hereof. The Escrow Agent in its actions pursuant to
this Agreement shall be fully protected in every reasonable exercise of its
discretion and shall have no obligations hereunder to the Company or to any
other party, except as expressly set forth herein.
3
<PAGE>
7. DISPUTES. If at any time a dispute shall exist as to the duties of
the Escrow Agent and the terms hereof, or if funds deposited hereunder are not
withdrawn on or before thirty (30) days after the end of the Escrow Period set
forth in paragraph 2, the Escrow Agent may, in its discretion, deposit said
funds with the Clerk of the District Court for the city and county of Denver,
State of Colorado and may interplead the parties hereto as to the rights, if
any, in such funds. Upon so depositing such funds and filing its complaint in
interpleader, the Escrow Agent shall be completely discharged and released from
all further liability or responsibility under the terms hereof. The parties
hereto, for themselves, their successors and assigns, do hereby consent to the
jurisdiction of said Court and do hereby appoint the Clerk of said Court as
their agent for service of all process in connection with the proceeding
mentioned in this paragraph.
8. NOTICES. All notices, demands, or requests required or authorized
hereunder shall be deemed given sufficiently if in writing and sent by
registered mail or certified mail, return receipt requested, and postage
prepaid, or by facsimile, telex, telegram or cable. No notice shall be given
until given in writing and shall be sent, postage prepaid, addressed as follows:
(a) If to the Company, notice is deemed given when received by:
UNITED OILFIELD SERVICES, INC.
615 Upper North Broadway, Suite 950 MT-198
Corpus Christi, Texas 78477
(b) If to the Underwriter, notice is deemed given when received
by:
D. E. FREY & COMPANY, INC.
1700 Lincoln Street, Suite 2200
Denver, Colorado 80203
(c) If to the Escrow Agent, notice is deemed given when received
by:
COLORADO STATE BANK AND TRUST, N.A.
1600 Broadway
Denver, Colorado 80202
9. TERMINATION. This Agreement may be terminated by either the Company
and the Underwriter or the Escrow Agent upon three days prior written notice
given by either the Company and the Underwriter or the Escrow Agent to the other
party or parties hereto; provided however, that in the event such notice of
termination is given by the Escrow Agent hereunder, the Escrow Agent agrees that
it shall continue to serve as escrow agent and to perform all of its duties and
obligations hereunder until such time as the Company has designated a qualified
successor entity to serve as escrow agent. If such notice of termination is
given by the Escrow Agent as aforesaid, the Company shall use all reasonable
efforts to designate a successor entity to serve as escrow agent as promptly as
practicable.
4
<PAGE>
10. MISCELLANEOUS.
(a) The Company agrees to give the Escrow Agent appropriate written
notice of the Effective Date and of any extension of the Escrow Period referred
to in paragraph 2.
(b) This Agreement shall be governed and interpreted by the laws of the
State of Colorado and shall not be amended except by written instrument duly
executed by the parties hereto, or their respective successors and assigns.
(c) This Agreement may be executed in counterparts.
(d) This Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Fund Escrow
Agreement on the date first written above.
COLORADO STATE BANK AND TRUST, N.A.,
Escrow Agent
By: _________________________________
Authorized Officer
UNITED OILFIELD SERVICES, INC.,
Company
By: _________________________________
Authorized Officer
D. E. FREY & COMPANY, INC.,
Underwriter
By: _________________________________
Authorized Officer
5
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
UNITED WELLHEAD SERVICES, INC.,
THE STOCKHOLDERS OF UNITED WELLHEAD SERVICES, INC.,
THE STOCKHOLDERS OF FLARE KING, INC.
AND
THE EQUITYHOLDERS OF HI-TECH COMPRESSOR
COMPANY, L.C.
DATED OCTOBER 14, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
REORGANIZATION........................ 1
1.1 Incorporation of Parent .................................... 1
1.2 Agreement to Contribute Capital to Parent .................. 1
1.3 Consideration for Company Contribution ..................... 2
1.4 Consideration for Flare King Contribution .................. 2
1.5 Consideration for Hi-Tech Contribution ..................... 2
1.6 Closing .................................................... 3
1.7 Post-Funding and Consummation .............................. 3
1.8 Public Announcements ....................................... 4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY .............. 4
2.1 Organization and Good Standing ............................. 4
2.2 Capitalization of the Company .............................. 4
2.3 Subsidiaries and Other Ownership Interests ................. 4
2.4 Authority .................................................. 5
2.5 No Conflicts ............................................... 5
2.6 Consents and Approvals ..................................... 5
2.7 Title to Company Assets; Condition ......................... 5
2.8 Financial Statements ....................................... 6
2.9 Customary Business Practice ................................ 7
2.10 Absence of Certain Changes or Events ....................... 7
2.11 Absence of Defaults ........................................ 9
2.12 Compliance with Laws ....................................... 9
2.13 Tax Returns and Reports .................................... 10
2.14 Litigation ................................................. 10
2.15 Customers and Suppliers .................................... 11
2.16 Accounts Receivable and Accounts Payable ................... 11
2.17 No Undisclosed Liabilities or Agreements ................... 11
2.18 Employee Benefit Plans ..................................... 11
2.19 Contracts and Commitments .................................. 13
2.20 Insurance .................................................. 14
2.21 Employees .................................................. 14
2.22 Labor Agreements; Disputes ................................. 15
2.23 Environmental and Health Safety Matters .................... 15
2.24 Power of Attorney .......................................... 18
2.25 Bank Accounts .............................................. 18
2.26 Regulatory Filings ......................................... 18
2.27 Brokers and Financial Advisers ............................. 18
2.28 Transactions with Affiliates ............................... 18
2.29 Disclosure ................................................. 18
i
<PAGE>
TABLE OF CONTENTS (cont.)
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY STOCKHOLDERS ....... 19
3.1 Ownership; Voting Rights ......................................... 19
3.2 Authority ........................................................ 19
3.3 No Conflicts ..................................................... 19
3.4 Consents and Approvals ........................................... 20
3.5 Brokers and Financial Advisers ................................... 20
3.6 Investment Representation ........................................ 20
3.7 Disclosure ....................................................... 20
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE FK STOCKHOLDERS ............ 21
4.1 Organization and Good Standing ................................... 21
4.2 Capitalization of Flare King ..................................... 21
4.3 Ownership; Voting Rights ......................................... 21
4.4 Subsidiaries or Other Ownership Interests ........................ 21
4.5 Authority ........................................................ 22
4.6 No Conflicts ..................................................... 22
4.7 Consents and Approvals ........................................... 22
4.8 Title to Flare King Assets; Condition ............................ 22
4.9 Financial Statements ............................................. 23
4.10 Customary Business Practice ...................................... 24
4.11 Absence of Certain Changes or Events ............................. 24
4.12 Absence of Defaults .............................................. 26
4.13 Compliance with Laws ............................................. 26
4.14 Tax Returns and Reports .......................................... 26
4.15 Litigation ....................................................... 27
4.16 Customers and Suppliers .......................................... 27
4.17 Accounts Receivable and Accounts Payable ......................... 27
4.18 No Undisclosed Liabilities or Agreements ......................... 28
4.19 Employee Benefit Plans ........................................... 28
4.20 Contracts and Commitments ........................................ 29
4.21 Insurance ........................................................ 31
4.22 Employees ........................................................ 31
4.23 Labor Agreements; Disputes ....................................... 31
4.24 Environmental and Health Safety Matters .......................... 32
4.25 Power of Attorney ................................................ 33
4.26 Bank Accounts .................................................... 33
4.27 Regulatory Filings ............................................... 33
4.28 Brokers and Financial Advisers ................................... 33
ii
<PAGE>
TABLE OF CONTENTS (cont.)
4.29 Transactions with Affiliates ................................... 33
4.30 Investment Representation ...................................... 33
4.31 Disclosure ..................................................... 34
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE HT EQUITYHOLDERS ......... 34
5.1 Organization and Good Standing ................................. 34
5.2 Capitalization of Hi-Tech ...................................... 34
5.3 Ownership; Voting Rights ....................................... 34
5.4 No Subsidiaries or Other Ownership Interests ................... 35
5.5 Authority ...................................................... 35
5.6 No Conflicts ................................................... 35
5.7 Consents and Approvals ......................................... 35
5.8 Title to Hi-Tech Assets; Condition ............................. 35
5.9 Financial Statements ........................................... 36
5.10 Customary Business Practice .................................... 37
5.11 Absence of Certain Changes or Events ........................... 37
5.12 Absence of Defaults ............................................ 39
5.13 Compliance with Laws ........................................... 39
5.14 Tax Returns and Reports ........................................ 39
5.15 Litigation ..................................................... 40
5.16 Customers and Suppliers ........................................ 40
5.17 Accounts Receivable and Accounts Payable ....................... 40
5.18 No Undisclosed Liabilities or Agreements ....................... 41
5.19 Employee Benefit Plans ......................................... 41
5.20 Contracts and Commitments ...................................... 42
5.21 Insurance ...................................................... 43
5.22 Employees ...................................................... 44
5.23 Labor Agreements; Disputes ..................................... 44
5.24 Environmental and Health Safety Matters ........................ 44
5.25 Power of Attorney .............................................. 45
5.26 Bank Accounts .................................................. 45
5.27 Regulatory Filings ............................................. 45
5.28 Brokers and Financial Advisers ................................. 45
5.29 Transactions with Affiliates ................................... 46
5.30 Investment Representation ...................................... 46
5.31 Disclosure ..................................................... 46
iii
<PAGE>
TABLE OF CONTENTS (cont.)
ARTICLE 6
ACTIONS BY FLARE KING AND HI-TECH PENDING CLOSING .............. 46
6.1 Conduct of Business ............................................ 47
6.2 Records ........................................................ 47
6.3 Maintenance of Insurance ....................................... 47
6.4 Tax Filings and Payments ....................................... 47
ARTICLE 7
COVENANTS OF THE FK STOCKHOLDERS AND THE HT EQUITYHOLDERS ...... 47
7.1 Approvals ...................................................... 47
7.2 Compliance with Legal Requirements ............................. 48
7.3 Books and Records .............................................. 48
7.4 Investigation by the Company ................................... 48
7.5 Certain Acts or Omissions ...................................... 48
7.6 Reports ........................................................ 49
7.7 Confidentiality ................................................ 49
7.8 Additional Disclosure .......................................... 49
7.9 Best Efforts ................................................... 49
7.10 Information for Registration Statement and Other Filings - The FK
Stockholders ................................................... 49
7.11 Information for Registration Statement and Other Filings - The HT
Equityholders .................................................. 50
7.12 No Transfer .................................................... 51
ARTICLE 8
ACTIONS BY THE COMPANY AND COMPANY
STOCKHOLDERS PENDING CLOSING .................. 51
8.1 Conduct of Business ............................................ 51
8.2 Records ........................................................ 51
8.3 Maintenance of Insurance ....................................... 51
8.4 Tax Filings and Payments ....................................... 51
8.5 Registration of Parent Common Stock - Consummation of IPO ...... 51
8.6 Information for Registration Statement and Other Filings -
The Company Stockholders ....................................... 52
ARTICLE 9
COVENANTS OF THE COMPANY ....................................... 52
9.1 Approvals ...................................................... 52
9.2 Compliance with Legal Requirements ............................. 53
9.3 Books and Records .............................................. 53
iv
<PAGE>
TABLE OF CONTENTS (cont.)
9.4 Investigations by the FK Stockholders and the HT Equityholder .. 53
9.5 Certain Acts or Omissions ...................................... 53
9.6 Reports ........................................................ 53
9.7 Confidentiality ................................................ 54
9.8 Additional Disclosure .......................................... 54
9.9 Best Efforts ................................................... 54
9.10 No Transfer .................................................... 54
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE COMPANY STOCKHOLDERS .................. 54
10.1 Representations and Warranties ................................. 54
10.2 Compliance with Agreement ...................................... 54
10.3 Officer's Certificate .......................................... 55
10.4 No Action or Proceeding ........................................ 55
10.5 Consents, Authorizations, etc .................................. 55
10.6 Opinion of Counsel ............................................. 55
10.7 Employment and Noncompetition Agreements ....................... 55
10.8 No Adverse Change .............................................. 55
10.9 Due Diligence .................................................. 55
10.10 Delivery of Other Documents and Instruments .................... 56
10.11 Public Offering ................................................ 56
ARTICLE 11
CONDITIONS TO OBLIGATIONS OF THE FK STOCKHOLDERS ............... 56
11.1 Representations and Warranties ................................. 56
11.2 Compliance with Agreement ...................................... 56
11.3 Certificate .................................................... 57
11.4 No Action or Proceeding ........................................ 57
11.5 Consents, Authorizations, etc .................................. 57
11.6 Corporate Action by the Company ................................ 57
11.7 Opinions of Counsel ............................................ 57
11.8 Employment and Noncompetition Agreements ....................... 57
11.9 Other Requested Documents ...................................... 58
11.10 Due Diligence .................................................. 58
11.11 Public Offering ................................................ 58
ARTICLE 12
CONDITIONS TO OBLIGATIONS OF THE HT EQUITYHOLDERS .............. 58
12.1 Representations and Warranties ................................. 58
v
<PAGE>
TABLE OF CONTENTS (cont.)
12.2 Compliance with Agreement ...................................... 58
12.3 Certificate .................................................... 58
12.4 No Action or Proceeding ........................................ 59
12.5 Consents, Authorizations, etc .................................. 59
12.6 Corporate Action by the Company ................................ 59
12.7 Opinions of Counsel ............................................ 59
12.8 Employment and Noncompetition Agreements ....................... 59
12.9 Due Diligence .................................................. 59
12.10 Other Requested Documents ...................................... 59
12.11 Public Offering ................................................ 60
ARTICLE 13
SURVIVAL OF REPRESENTATIONS AND WARRANTIES ...................... 60
ARTICLE 14
INDEMNIFICATION ................................................. 60
14.1 Indemnification of the Company Indemnitees ...................... 60
14.2 Indemnification of FK Indemnitees ............................... 61
14.3 Indemnification of HT Indemnitees ............................... 61
14.4 Method of Asserting Claim, etc .................................. 62
14.5 Payment of Indemnity ............................................ 64
14.6 Flare King as HT Equityholder, Hi-Tech and Company Stockholder .. 64
14.7 Parent Priority ................................................. 65
ARTICLE 15
TERMINATION ..................................................... 65
ARTICLE 16
NOTICES ......................................................... 66
ARTICLE 17
MISCELLANEOUS ................................................... 67
17.1 Incorporation of Schedules and Appendices; Entire Agreement ..... 67
17.2 Waiver .......................................................... 68
17.3 Amendment ....................................................... 68
17.4 Counterparts .................................................... 68
17.5 Headings ........................................................ 68
17.6 Governing Law ................................................... 68
17.7 Binding Effect .................................................. 68
17.8 Expenses ........................................................ 68
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TABLE OF CONTENTS (cont.)
17.9 Specific Performance............................................ 68
17.10 Further Assurances............................................. 68
17.11 Acknowledgment ................................................. 68
SCHEDULES
Schedule 2.2 Capitalization - the Company
Schedule 2.3 Subsidiaries and Other Ownership Interests - the Company
Schedule 2.6 Consents and Approvals - the Company
Schedule 2.7 Title to Company Assets; Condition - the Company
Schedule 2.8 Financial Statements - the Company
Schedule 2.10 Absence of Certain Changes or Events - the Company
Schedule 2.11 Absence of Defaults - the Company
Schedule 2.14 Litigation - the Company
Schedule 2.15 Customers and Suppliers - the Company
Schedule 2.17 Undisclosed Liabilities - the Company
Schedule 2.18 Employee Plans - the Company
Schedule 2.19 Contracts and Commitments - the Company
Schedule 2.20 Insurance Policies - the Company
Schedule 2.21 Employees - the Company
Schedule 2.22 Labor Agreements; Disputes - the Company
Schedule 2.23 Environmental Health and Safety Matters - the Company
Schedule 2.25 Bank Accounts - the Company
Schedule 4.3 Ownership; Voting Rights - Flare King
Schedule 4.2 Capitalization - Flare King
Schedule 4.8 Title to Flare King Assets; Condition - Flare King
Schedule 4.9 Financial Statements - Flare King
Schedule 4.11 Absence of Certain Changes or Events - Flare King
Schedule 4.12 Absence of Defaults - Flare King
Schedule 4.15 Litigation - Flare King
Schedule 4.16 Customers and Suppliers - Flare King
Schedule 4.18 No Undisclosed Liabilities or Agreements - Flare King
Schedule 4.19 Employee Benefit Plan - Flare King
Schedule 4.20 Contracts and Commitments - Flare King
Schedule 4.21 Insurance - Flare King
Schedule 4.22 Employees - Flare King
Schedule 4.24 Environmental and Health Safety Matters - Flare King
Schedule 4.26 Bank Accounts - Flare King
Schedule 5.2 Capitalization - Hi-Tech
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Schedule 5.8 Title to Hi-Tech Assets; Condition - Hi-Tech
Schedule 5.9 Financial Statements - Hi-Tech
Schedule 5.11 Absence of Certain Changes or Events - Hi-Tech
Schedule 5.12 Absence of Defaults - Hi-Tech
Schedule 5.15 Litigation - Hi-Tech
Schedule 5.16 Customers and Suppliers - Hi-Tech
Schedule 5.18 No Undisclosed Liabilities or Agreements - Hi-Tech
Schedule 5.19 Employee Benefit Plan - Hi-Tech
Schedule 5.20 Contracts and Commitments - Hi-Tech
Schedule 5.21 Insurance - Hi-Tech
Schedule 5.22 Employees - Hi-Tech
Schedule 5.24 Environmental and Health Safety Matters - Hi-Tech
Schedule 5.26 Bank Accounts - Hi-Tech
Schedule 10.7 Persons Signing Employment and Noncompetition Agreements
APPENDICES
Appendix A Articles of Incorporation for United Oilfield Services, Inc.
Appendix B Form of Employment and Noncompetition Agreements
Appendix C Release by each FK Stockholder and spouse and each Hi-Tech
Equityholder and spouse
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION, dated as of October 14, 1997
(together with the appendices and schedules attached hereto, the "Agreement") is
by and among United Wellhead Services, Inc., a Texas corporation (the
"Company"), the stockholders ("Company Stockholders") of the Company, the
stockholders ("FK Stockholders") of Flare King, Inc., a Texas corporation
("Flare King"), and the equityholders ("HT Equityholders") of Hi-Tech Compressor
Company, L.C., a Texas limited liability company ("Hi-Tech"), as identified on
the signature pages hereto.
W I T N E S S E T H:
WHEREAS, the Company, the Company Stockholders, the FK Stockholders and
the HT Equityholders intend that this Agreement constitute the "final agreement"
among the parties with respect to their discussions of effecting a rollup of the
three entities;
WHEREAS, the parties hereto have determined that to accomplish their
objectives in the most efficient and cost-effective manner will require (i) the
creation of a new corporation in the State of Texas, and (ii) the contribution
of equity interests of the Company Stockholders, the FK Stockholders and the HT
Equityholders, in their respective companies, to the new Texas corporation in
consideration for the receipt of shares of stock in such new Texas corporation
as set forth herein;
WHEREAS, it is the collective intent of the parties hereto that the
reorganization (as more fully described in Article I below) constitute a
tax-exempt transaction under Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual premises, covenants and
agreements set forth herein and in reliance upon the representations and
warranties contained herein, the parties hereto covenant and agree as follows:
ARTICLE 1
REORGANIZATION
1.1 INCORPORATION OF PARENT. On or before execution of this Agreement,
the Company Stockholders, the FK Stockholders, and the HT Equityholders shall
have caused a new corporation to be duly incorporated in the State of Texas
under the name "United Oilfield Services, Inc." (the "Parent") with the Articles
of Incorporation to be in substantially the form attached hereto as Appendix A
with such changes therein as Alvin H. Dueitt may reasonably determine are
appropriate and consistent with the transaction contemplated herein.
1.2 AGREEMENT TO CONTRIBUTE CAPITAL TO PARENT. On the terms and
subject to the conditions contained herein, (a) each of the Company Stockholders
(other than Hi-Tech) agrees to contribute, assign, transfer and convey (the
"Company Contribution") to the Parent, free and clear
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of all liens, encumbrances, mortgages, pledges, charges, options, rights,
security interests, agreements or claims of any nature whatsoever, recorded or
unrecorded (individually a "Lien" and collectively, the "Liens"), all of his
right, title and interest in and to all shares of capital stock of the Company
held beneficially or of record by such Company Stockholder, constituting
collectively, all (except for 1,500 shares held by Hi-Tech) of the issued and
outstanding capital stock of the Company, (b) each of the FK Stockholders agrees
to contribute, assign, transfer and convey (the "Flare King Contribution") to
the Parent, free and clear of all Liens, all of his right, title and interest in
and to all shares of capital stock of Flare King held beneficially or of record
by such FK Stockholder, constituting collectively all of the issued and
outstanding capital stock of Flare King, and (c) each of the HT Equityholders
(other than Flare King) agrees to contribute, assign, transfer and convey (the
"Hi-Tech Contribution") to the Parent, free and clear of all Liens, all of the
percentage membership interest of Hi-Tech held of record or beneficially by such
HT Equityholder, constituting collectively 50% of the total membership interests
of Hi-Tech. The Company Contribution, the Flare King Contribution and the
Hi-Tech Contribution, together with the consummation of the IPO (as hereinafter
defined), constitute integral parts of a single transaction, and accordingly, it
is the intention of the parties hereto that they qualify for tax-free treatment
under Section 351 of the Internal Revenue Code of 1986, as amended.
1.3 CONSIDERATION FOR COMPANY CONTRIBUTION. As set forth in detail on
Schedule 1, as consideration for the Company Contribution to the Parent, the
Company Stockholders, the FK Stockholders and the HT Equityholders
(collectively, the "Founders") shall cause the Parent to issue to each Company
Stockholder 4.922775 shares of common stock of the Parent, $.01 par value per
share (the "Parent Common Stock"), for each share of Company common stock held
by such Company Stockholder as of 12:01 a.m. on the Funding and Consummation
Date (as hereinafter defined). Such shares of Parent Common Stock shall be
issued without registration under the Securities Act. Certificates representing
the shares of Parent Common Stock issued to the Company Stockholders pursuant
hereto shall bear legends indicating that such shares of Parent Common Stock
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws and may not be transferred,
offered or sold unless they have been registered under the Securities Act and
applicable state securities laws or an exemption therefrom is available.
1.4 CONSIDERATION FOR FLARE KING CONTRIBUTION. As set forth in detail
on Schedule 1, as consideration for the Flare King Contribution to the Parent,
the Founders shall cause the Parent to issue to each FK Stockholder 3.173253
shares of Parent Common Stock for each share of common stock of Flare King held
by such FK Stockholder as of 12:01 a.m. on the Funding and Consummation Date.
Such shares of Parent Common Stock shall be issued without registration under
the Securities Act. Certificates representing the shares of Parent Common Stock
issued to the FK Stockholders pursuant hereto shall bear legends indicating that
such shares of Parent Common Stock have not been registered under the Securities
Act or any state securities laws and may not be transferred, offered or sold
unless they have been registered under the Securities Act and applicable state
securities laws and exemption therefrom is available.
1.5 CONSIDERATION FOR HI-TECH CONTRIBUTION. As set forth in detail on
Schedule 1, as consideration for the Hi-Tech Contribution to the Parent, the
Founders shall cause the Parent to issue to each HT Equityholder (other than
Flare King) 3648.50 shares of Parent Common Stock for each percent of membership
interest of Hi-Tech held by such HT Equityholder as of 12:01 a.m. on the
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Funding and Consummation Date. Such shares of Parent Common Stock shall be
issued without registration under the Securities Act. Certificates representing
the shares of Parent Common Stock issued to the HT Equityholders (other than
Flare King) pursuant hereto shall bear legends indicating that such shares of
Parent Common Stock have not been registered under the Securities Act or any
state securities laws and may not be transferred, offered or sold unless they
have been registered under the Securities Act and applicable state securities
laws or an exemption therefrom is available.
1.6 CLOSING. At or prior to the determination by the Parent and the
underwriters in the IPO (as hereinafter defined) of the public offering price of
the shares of Parent Common Stock, the parties shall take all actions necessary
to prepare to effect (i) the Company Contribution, (ii) the Flare King
Contribution and (iii) the Hi-Tech Contribution, with, in each instance, the
documents necessary to effect the same being placed in escrow under the control
of the Parent for delivery and effectiveness; provided, that such actions shall
not include the actual completion of such contributions or the delivery of the
Parent Common Stock as Consideration therefor, each of which actions shall only
be taken upon the Funding and Consummation Date as herein provided. The escrow
agreement relating to the above referenced documents shall provide that in the
event that there is no Funding and Consummation Date and this Agreement
automatically terminates as provided in this Section 1.6, such documents shall
not be delivered and shall be destroyed with evidence thereof provided to the
Company Stockholders, the FK Stockholders and HT Equityholders. The taking of
the actions described in clauses (i), (ii) and (iii) above (the "Closing") shall
take place on the closing date (the "Closing Date") at the offices of Winstead
Sechrest & Minick P.C., 910 Travis Building, Suite 2400, Houston, Texas 77002.
On the thirtieth day following the Closing Date or such other date as may be
agreed to among the parties (x) the documents referred to in this Section 1.6
that have been held in escrow shall be delivered, (y) all transactions
contemplated by this Agreement, including the delivery of the shares of Parent
Common Stock as consideration to the Company Stockholders, the FK Stockholders
and the HT Equityholders, as provided herein, shall be effected and (z) the
closing with respect to at least the minimum number of shares offered in the IPO
shall occur and be completed. Following the Closing, there will be no other
conditions to effect the actions in (x) and (y) other than simultaneously
effecting the action in (z). The date on which the actions described in the
preceding clauses (x), (y) and (z) occur shall be referred to as the "Funding
and Consummation Date." During the period from the Closing Date to the Funding
and Consummation Date, this Agreement may only be terminated by the parties if
the underwriting agreement in respect of the IPO is terminated pursuant to the
terms of such agreement. This Agreement shall also in any event automatically
terminate if the Funding and Consummation Date has not occurred within 45 days
of the Closing Date. Time is of the essence.
1.7 POST-FUNDING AND CONSUMMATION. Immediately following the
organization of the Parent, the Company Contribution, the Flare King
Contribution, the Hi-Tech Contribution and the closing of the IPO on the Funding
and Consummation Date (i) Flare King shall distribute its 50% membership
interest in Hi-Tech to the Parent, and (ii) Hi-Tech shall distribute the 1,500
Shares of the Company it owns to the Parent, with the result that each of the
Company, Flare King and Hi-Tech will then be wholly owned, direct subsidiaries
of the Parent.
1.8 PUBLIC ANNOUNCEMENTS. Before making any announcements with respect
to this Agreement or the transactions contemplated hereby, each of the Company
Stockholders, the
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FK Stockholders and the HT Equityholders shall consult with the Company, prior
to the Funding, and Consummation Date, and the Parent, subsequent to the Funding
and Consummation Date, and use good faith efforts to agree upon the text of a
joint announcement to be made by the Company or the Parent, as applicable, or
use good faith efforts to obtain the approval of the Company or the Parent, as
applicable, of any other party; PROVIDED that the Company shall have final
approval with respect to any public announcements prior to the Funding and
Consummation Date and the Parent shall have final approval with respect to any
public announcements thereafter. Except as provided in this Section 1.8 and
except as otherwise agreed in writing by each of the Company, the Company
Stockholders, the FK Stockholders and the HT Equityholders or as required by
law, each of the Company, the Company Stockholders, the FK Stockholders and the
HT Equityholders shall maintain as confidential the terms and conditions of this
Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the FK Stockholders and
the HT Equityholders that:
2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Texas. The
Company has all requisite corporate power and authority to own, hold, use and
lease its properties and assets and to conduct its business as it is now being
conducted. The Company is duly qualified as a foreign corporation and is in good
standing in all jurisdictions in which the character of the properties and
assets now owned or leased by it or the nature of the business now conducted by
it requires it to be so qualified. The Company has made available to the FK
Stockholders and the HT Equityholders or the respective representatives thereof,
true, complete and correct copies of its articles of incorporation and bylaws,
as amended to the date of this Agreement.
2.2 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of 1,000,000 shares of common stock, no par value per share, of
which 526,133 shares are issued and outstanding, and 202,960 shares of preferred
stock, $4.73 par value per share, none of which are issued and outstanding. All
of the issued shares are validly issued, fully paid and nonassessable. There are
no outstanding subscriptions, options, rights, warrants, convertible securities
or other agreements or commitments obligating the Company to issue or to
transfer from treasury any additional shares of capital stock of any class. All
shares of authorized capital stock of the Company issued and outstanding are
held of record and beneficially as set forth on Schedule 2.2.
2.3 SUBSIDIARIES AND OTHER OWNERSHIP INTERESTS. Except as set forth on
Schedule 2.3 and except for its wholly owned subsidiary, Wellhead Recycling,
Inc., a Texas corporation (the "Company Subsidiary"), the Company does not own
or control, directly or indirectly, shares of capital stock, debt instruments or
other securities of any corporation or hold, directly or indirectly, any
interest in any trust, partnership, limited partnership, joint venture, business
association, limited liability company, unincorporated business, proprietorship,
business enterprise or other business entity whatsoever. The Company Subsidiary
is a corporation duly organized, validly existing and in good
4
<PAGE>
standing under the laws of Texas. The Company Subsidiary is duly qualified as a
foreign corporation and is in good standing in all jurisdictions in which the
character of the properties and assets now owned or leased by it or the nature
of the business now conducted by it requires it to be so qualified.
2.4 AUTHORITY. The Company has all requisite corporate power and
authority to enter into, execute and deliver this Agreement and the documents
contemplated hereby to be executed by it and to perform the obligations to be
performed by it hereunder and thereunder. This Agreement has been duly executed
and delivered by the Company and constitutes, and such other documents when
executed and delivered by it will constitute, the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
respective terms.
2.5 NO CONFLICTS. The execution and delivery of this Agreement and the
documents contemplated hereby to be executed by the Company do not, and
compliance by it with the terms hereof and thereof and consummation by it of the
transactions contemplated hereby and thereby will not, (a) violate or conflict
with any existing term or provision of any law, statute, ordinance, rule,
regulation, order, writ, judgment, injunction or decree applicable to it; (b)
conflict with or result in a breach of or default under any of the terms,
conditions or provisions of the articles of incorporation or bylaws of it or any
agreement or instrument to which it or the Company Subsidiary is a party or
otherwise subject, or by which the Company Assets (as hereinafter defined) may
be bound; (c) result in the creation or imposition of any Lien upon any of the
Company Assets; (d) give to others any right of termination, cancellation,
acceleration or modification in or with respect to any agreement or instrument
to which it is a party or otherwise subject, or by which it or the Company
Assets may be bound; or (e) breach any fiduciary duty owed by it to any person
or entity.
2.6 CONSENTS AND APPROVALS. Except as set forth on Schedule 2.6, the
execution and delivery by the Company of this Agreement and the documents
contemplated hereby to be executed by it, compliance by it with the terms hereof
and thereof and consummation by it of the transactions contemplated hereby and
thereby do not require it to obtain any consent, approval or action of, make any
filings with or give any notice to any corporation, person, firm or other
entity, or any public, governmental or judicial authority.
2.7 TITLE TO COMPANY ASSETS; CONDITION. Except as set forth on
Schedule 2.7, either of the Company or the Company Subsidiary has good title to
all of the tangible and intangible properties and assets used in the conduct of
the business of the Company or the Company Subsidiary, respectively, wherever
located (collectively, the "Company Assets"), including without limitation those
properties and assets set forth on Schedule 2.7 attached hereto and all of the
following in any way pertaining to, related to, identified to or with or
otherwise used in the business of the Company: all machinery and equipment,
office furniture and equipment, furnishings, fittings, accessories, appliances,
contracts, licenses, permits, financial books and records, industry expertise,
vendor and customer relationships, goodwill, operating rights, rights to
telephone numbers, right to or associated with the Company's and the Company
Subsidiary's name, all rights to or associated with any trade names, trademarks
and logos related thereto and the value associated therewith, free and clear,
except as set forth on Schedule 2.7, of any Liens. The tangible Company Assets
have, as applicable, been installed, operated and maintained in accordance with
accepted industry practice, are free from latent defects or defects of
workmanship or materials, are suitable for the purposes for which they have been
5
<PAGE>
and are being employed in the operation of the business of the Company and are
in good operating condition and repair, ordinary wear and tear excepted. Nothing
has occurred to the Company Assets since December 31, 1996 that would have any
effect on the value of the Company Assets or the suitability of the Company
Assets for the purposes for which they have been and are being employed in the
operation of the business of the Company or the Company Subsidiary. Schedule 2.7
lists all material leases, operating agreements, maintenance agreements,
management agreements, mortgages and other documents or agreements applicable to
the Company Assets. There are no actual, pending or threatened claims against
the Company Assets that could give rise to a Lien (other than Liens that would
be covered by valid and collectible insurance, including applicable
deductibles), or acts or incidents which could give rise to any such claims,
relating to or arising out of the Company Assets or the operation of the
business of the Company or the Company Subsidiary. All assets necessary or
useful in or to the business of the Company or the Company Subsidiary as
presently operated by the Company or the Company Subsidiary are owned of record
and beneficially by the Company or the Company Subsidiary and not by any
affiliate of the Company or the Company Subsidiary or any other party. As to
each material contract that constitutes part of the Company Assets, such
contract is in full force and effect, no notice of cancellation or termination
or default has been received by the Company or the Company Subsidiary and no
event or condition has occurred or exists which, with notice or lapse of time or
both, would constitute a default thereunder. The transfer contemplated hereby
will not affect the validity or enforceability of such contracts. As to each
lease or license the leasehold or licensee's interest in which constitutes part
of the Company Assets, such lease or license is in full force and effect, no
notice of cancellation or termination under any option or right reserved to the
lessor or licensor under such lease or license or notice of default has been
received by the Company or the Company Subsidiary and no event or condition has
occurred or exists which, with notice or lapse of time or both would constitute
a default hereunder. Neither the Company nor the Company Subsidiary has assigned
its interest under any such lease or license or subleased the premises demised
thereby or sublicensed the right or license granted thereby. The transactions
contemplated hereby will not affect the validity or enforceability of the leases
or licenses. Each of the parcels of land, a leasehold or fee estate in which is
included in the Company Assets, has free and uninterrupted access to and from a
dedicated public right-of-way by reason of the fact that such parcel either
adjoins such dedicated public right-of-way or connects to such right-of-way
through a valid and subsisting easement, and such access is adequate for the use
being made of the parcel being accessed.
2.8 FINANCIAL STATEMENTS. Schedule 2.8 attached hereto contains true
and complete copies of the audited consolidated financial statements of the
Company and the Company Subsidiary as of and for the period ended December 31,
1996 and unaudited consolidated financial statements of the Company and the
Company Subsidiary as of and for the period ended June 30, 1997 (collectively,
the "Company Financial Statements"). The Company Financial Statements are true
and correct and fairly present on a consolidated basis, in accordance with
generally accepted accounting principles consistently applied, the financial
position of the Company and the Company Subsidiary as of the dates indicated and
the results of operations and cash flows of the Company and the Company
Subsidiary for the respective periods then ended. All detailed schedules
accompanying the Company Financial Statements or otherwise provided to the FK
Stockholders and the HT Equityholders with respect thereto, including without
limitation schedules with respect to accounts payable, accounts receivable,
accrued liabilities, inventory, fixed assets, prepaid expenses
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and other assets and liabilities, are true and correct in all material respects
and have been prepared on a basis consistent with the Company's past practice
and with generally accepted accounting practices. Except as set forth on
Schedule 2.8, there are no material liabilities, contingent or definite, and no
assets used in the business of the Company or the Company Subsidiary that are
not reflected in the Company Financial Statements and such detailed schedules.
2.9 CUSTOMARY BUSINESS PRACTICE. Neither the Company nor the Company
Subsidiary has conducted or maintained any business practices or relationships
in any manner other than is customary or standard in the industry, and neither
the Company, the Company Subsidiary nor any of their respective stockholders,
officers, directors, employees or agents have any special relationships with any
suppliers or customers that are inconsistent with customary and standard
practice in the industry or constitute a violation of any applicable law.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 2.10, there has not been, occurred or arisen any of the following as
they relate to the Company since December 31, 1996:
(a) any transaction by the Company or the Company Subsidiary except in the
ordinary course of business as conducted prior to December 31, 1996;
(b) any capital expenditure by the Company or the Company Subsidiary;
(c) any change in or any event, condition or state of facts of any character
peculiar to the Company Assets or the operation of the business of the Company
or the Company Subsidiary or any predecessors thereof that individually or in
the aggregate adversely affects the Company or the Company Subsidiary or the
Company Assets, that affects the ability of the Company or its subsidiaries to
conduct normal operations after the Closing or that affects the validity or
enforceability of this Agreement;
(d) any destruction, damage, or loss suffered by the Company or the Company
Subsidiary or with respect to any Company Asset (whether or not covered by
insurance);
(e) any revaluation, write-down or write-off by the Company or the Company
Subsidiary of any of the Company Assets;
(f) any declaration, setting aside, or payment of a dividend or other
distribution or commitment, obligation or other agreement made with any party
with respect to the payment of any dividend or the making of any distribution in
respect of any of the capital stock of the Company, or any direct or indirect
redemption, purchase, or other acquisition by the Company of any of its capital
stock;
(g) any increase in the salary or other compensation, including without
limitation all wages, salary, deferred payment arrangements, bonus payments and
accruals, profit sharing arrangements, payment in respect of stock option or
phantom stock option or similar arrangements, stock appreciation rights or
similar rights, incentive payments, pension or employment benefit contributions
or similar payments, payable or to become payable by the Company or the Company
Subsidiary to any of its
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officers, directors or employees, or the declaration, payment or commitment or
obligation of any kind for the payment by the Company or the Company Subsidiary
of a bonus or increased or additional salary or compensation to any such person;
(h) any sale, lease or other disposition of any Company Asset other than sales
of goods and services in the ordinary course of business and arm's-length sales
of capital assets in a manner consistent with past practice in immaterial
amounts;
(i) any mortgage, pledge, or other encumbrance of any Company Asset;
(j) any forgiveness of any debt owed to the Company or the Company Subsidiary;
(k) any amendment or termination of any material contract, agreement, or license
to which the Company or the Company Subsidiary is a party or to which any of the
Company Assets are subject, except in the ordinary course of business;
(l) any breach of the terms of any contract or agreement that is material to the
business of the Company or the Company Subsidiary;
(m) any loan by the Company or the Company Subsidiary to any person or entity,
or guaranty by the Company or the Company Subsidiary of any loan, or the
incurrence of any debt by the Company or the Company Subsidiary, other than
trade debt incurred in the ordinary course of business consistent with past
practice;
(n) any commencement, notice of commencement or threat of commencement of any
litigation or any governmental proceeding against or investigation of the
Company or the Company Subsidiary or the affairs of the Company or the Company
Subsidiary;
(o) any issuance or sale by the Company or the Company Subsidiary of any of the
Company's capital stock of any class, or of any other of its securities, or any
commitment, obligation or agreement to do so;
(p) any liabilities that have not been disclosed on the Company Financial
Statements, other than those incurred in the ordinary course of business since
December 31, 1996;
(q) any waiver or release of any right or claim of the Company or the Company
Subsidiary;
(r) any amendment to any national, federal, state, municipal, local, foreign or
other tax returns or reports that have been filed by the Company or the Company
Subsidiary in any jurisdiction;
(s) any labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(t) any transactions by the Company or the Company Subsidiary with an affiliate
or related party of the Company or the Company Subsidiary;
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(u) any change by the Company or the Company Subsidiary in accounting methods or
principles that would be required to be disclosed under generally accepted
accounting principles;
(v) any borrowing of funds, agreement to borrow funds or guaranty by the Company
or the Company Subsidiary affecting or relating to the Company or the Company
Subsidiary or the Company Assets or any termination or amendment of any evidence
of indebtedness, contract, agreement, deed, mortgage, lease, license or other
instrument to which the Company or the Company Subsidiary is a party or by which
any of the Company Assets is bound or to which any of the Company Assets is
subject other than in the ordinary course of business consistent with past
practices;
(w) any payment to a stockholder of the Company other than routine payments
consistent with past practice to such stockholder in his capacity as an
employee;
(x) any entry into any commitment of any kind, or the occurrence of any event
giving rise to any contingent liability not covered by the foregoing; or
(y) any contract, commitment or agreement to do any of the foregoing.
2.11 ABSENCE OF DEFAULTS. Except as set forth on Schedule 2.11,
neither the Company nor the Company Subsidiary is in default, and no event has
occurred which with notice or lapse of time or both would constitute a default,
in any way under any term or provision of any agreement or instrument to which
the Company or the Company Subsidiary is a party or by which the Company or the
Company Subsidiary is bound or by or to which any of the Company Assets is bound
or subject that relates to or would affect the Company or the Company Subsidiary
or the Company Assets or that could adversely affect the ability of the Company
to consummate the transactions contemplated hereby.
2.12 COMPLIANCE WITH LAWS. There has been no failure by the Company or
the Company Subsidiary to comply with any federal, state or local law, statute,
ordinance, rule or regulation in any respect that could have an adverse effect
on the ability of the Company or its subsidiaries to conduct normal operations
after the Closing or on the ability of the Company to consummate the
transactions contemplated hereby.
2.13 TAX RETURNS AND REPORTS. All federal, state, local and foreign
income, excise, property, sales, use, payroll, informational and other tax
returns and reports of the Company and the Company Subsidiary (collectively, the
"Tax Returns") have been timely filed (including pursuant to extensions) with
the appropriate governmental agencies in all jurisdictions in which such returns
and reports are required to be filed, and all such returns and reports properly
reflect the taxes of the Company and/or the Company Subsidiary, as applicable,
for the periods covered thereby. All federal income, excise and payroll taxes,
and all state, local and foreign income, excise, property, sales and use taxes,
assessments, interest, penalties, deficiencies, fees and other governmental
charges or impositions which are called for as due by the Tax Returns, or which
are claimed to be due with respect to the periods covered thereby, from the
Company and/or the Company Subsidiary, as applicable, (the "Taxes"), have been
properly accrued or paid. Neither the Company nor the
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Company Subsidiary has received any notice of assessment or proposed assessment
by the Internal Revenue Service or any other taxing authority in connection with
any Tax Return and there are no pending tax examinations of any Tax Return of or
tax claims in respect of the Tax Returns asserted against the Company or the
Company Subsidiary or either of their properties. There has been no intentional
disregard of any applicable statute, regulation, rule or revenue ruling in the
preparation of any Tax Return applicable to the Company or its Company
Subsidiary. There are no tax liens on any of the Company Assets except for Liens
for current taxes not yet due and payable. There is no basis for any additional
assessment of any Taxes, penalties or interest with respect to the Company or
the Company Subsidiary that is not subject to defenses well-founded in law or in
fact. Neither the Company nor the Company Subsidiary has waived any law or
regulation fixing, or consented to the extension of, any period of time for
assessment of any Taxes which waiver or consent is currently in effect. Neither
the Company nor the Company Subsidiary is and neither has since its
incorporation been treated as a member of a consolidated group for purposes of
the preparation of financial statements or of tax returns other than as a
member, for federal income tax purposes only, of a consolidated group of which
the Company is the parent corporation.
2.14 LITIGATION. Except as set forth on Schedule 2.14, (a) there are
no actions, claims, suits, governmental investigations, governmental inquiries
or proceedings pending against the Company or the Company Subsidiary or
threatened against the Company or the Company Subsidiary, at law or in equity,
in any court, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality that (i) affect the validity or enforceability of this Agreement
or the documents contemplated hereby to be executed by the Company; (ii)
restrict the continuing transaction of business with the customers of the
Company or the Company Subsidiary; (iii) delay consummation of the transactions
contemplated hereby or (iv) establish a Lien against any of the Company Assets;
and (b) neither the Company nor the Company Subsidiary is in violation of any
order, decree, judgment, award, determination, ruling or regulation of any
court, governmental department, commission, board, bureau, agency or other
instrumentality, the result of which violation individually or violations in the
aggregate has had or could be expected to have a material adverse effect on the
Company or the Company Subsidiary or the Company Assets or that (i) affect the
validity or enforceability of this Agreement; (ii) restrict the continuing
transaction of business with the customers of the Company or the Company
Subsidiary; (iii) delay consummation of the transactions contemplated hereby or
(iv) establish a Lien against any of the Company Assets.
2.15 CUSTOMERS AND SUPPLIERS. Schedule 2.15 lists the names and
addresses of the customers and suppliers of the Company since January 1, 1996.
The relationships of the Company with the customers and suppliers listed in
Schedule 2.15 are satisfactory, and the Company is not aware of any unresolved
disputes with any of such customers or suppliers. Since January 1, 1996, no
customer or supplier has, except as set forth on Schedule 2.15, cancelled,
modified or notified the Company in writing of its intent to cancel or modify
its relationship with the Company.
2.16 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The accounts receivable
of the Company reflected in the Company Financial Statements as of December 31,
1996 and all accounts receivable arising thereafter and on or before the date
hereof arose from BONA FIDE transactions in the ordinary course of business, and
the reserves against such accounts receivable reflected in the
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Company Financial Statements are commercially reasonable and have been
determined in accordance with past practice. No counterclaims or offsetting
claims with respect to such accounts receivable are pending or threatened. The
accounts payable reflected in the Company Financial Statements as of December
31, 1996, and all accounts payable arising thereafter and before the date hereof
arose from BONA FIDE transactions in the ordinary course of business, and all
such accounts payable (i) have either been paid, (ii) are not yet due and
payable under the standard procedures of the Company for payment of accounts
payable, or (iii) are being contested by the Company in good faith.
2.17 NO UNDISCLOSED LIABILITIES OR AGREEMENTS. Except as set forth on
Schedule 2.17, the Company did not have, as of June 30, 1997, any debts,
liabilities or obligations of any nature whether accrued, absolute, contingent
or otherwise, whether due or to become due, except to the extent reflected in
the Company Financial Statements.
2.18 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.18 lists all employee welfare and employee pension benefit plans
of the Company or the Company Subsidiary, as defined under Sections 3(l) and
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), respectively, which have been sponsored by, maintained by, or
contributed to by the Company, in effect as of the date hereof or during the
five-year period ending on the date hereof, including without limitation all
pension, profit sharing, savings and thrift, bonus, incentive or deferred
compensation, severance pay and medical and life insurance plans in which any
current or former employees of the Company or the Company Subsidiary ("Affected
Company Employees") participate ("Company Employee Plans") written copies of all
which Company Employee Plans have been provided to representatives of the FK
Stockholders and the HT Equityholders. Except as set forth on Schedule 2.18, no
Company Employee Plans are pension plans within the meaning of Section 3(2) of
ERISA that are intended to be "qualified plans" ("Qualified Plans") under
Section 401(a) of the Code.
(b) Except as set forth on Schedule 2.18, each of the Company and the Company
Subsidiary (i) has made all payments due from it to date under or with respect
to each Company Employee Plan; (ii) has performed all obligations required to be
performed by it under each Company Employee Plan and there is no claimed or
existing default or violation under any Company Employee Plan or event or
condition which, upon giving of notice or the lapse of time or both, would
constitute such a default or violation; and (iii) is in compliance with the
requirements prescribed by all statutes, orders or governmental rules or
regulations applicable to the Company Employee Plans, including without
limitation ERISA and the Code. There are no actions, suits or claims pending
(other than routine claims for benefits) or threatened against any Company
Employee Plan or against the assets of any Company Employee Plan.
(c) All Company Employee Plans are in compliance with and have been administered
in compliance with all applicable requirements of law, including without
limitation the Code and ERISA, and all contributions required to be made to each
such plan under the terms of such plan, ERISA or the Code for all periods of
time before the Closing Date have been or will be, as the case may be, made or
accrued.
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(d) With respect to any Qualified Plan, a favorable Tax Reform Act of 1986
determination letter as to the qualification under Section 401(a) of the Code
has been issued and the related trust has been determined to be exempt from
taxation under Section 501(a) of the Code and any amendment made to or action
taken with respect to any Qualified Plan subsequent to the date of such
determination letter has not adversely affected the qualified status of any such
plan. Each of the Company and the Company Subsidiary has performed all
obligations required to be performed by it under, and is not in default under or
in violation of, the terms of any of the Company Employee Plans in any respect.
Neither the Company, the Company Subsidiary nor any other "disqualified person"
(as defined in Section 4975 of the Code) or "party in interest" (as defined in
Section 3(14) of ERISA) has engaged in any "prohibited transaction" (as such
term is defined in Section 4975 of the Code or Section 406 of ERISA), which
could subject any Employee Plan (or its related trust, if any), the Company, the
Company Subsidiary or any officer, director or employee of the Company or the
Company Subsidiary to the excise tax or penalty imposed under Section 4975 of
the Code or Section 502(i) of ERISA. Neither the Company nor the Company
Subsidiary has incurred, and neither will incur, any liability to the Pension
Benefit Guaranty Corporation including plan termination liability under Sections
4062, 4063 or 4064 of ERISA or the creation of a Lien against the property of
the Company or the Company Subsidiary under Section 4068 of ERISA, whether
directly or on a controlled group basis by virtue of Section 4001(b)(1) of ERISA
or otherwise (except for required premium payments, which payments have been
made when due). Neither the Company nor the Company Subsidiary has a liability
attributable to an "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA and Section 412(a) of the Code, whether or not waived, with
respect to any Qualified Plan either directly or on a controlled group basis or
otherwise, and neither has incurred any liability attributable to an accumulated
funding deficiency under Section 4971 of the Code or Section 302 of ERISA
including the lien under Section 302(f) of ERISA whether directly or on a
controlled group basis or otherwise.
(e) Neither the Company nor the Company Subsidiary is required to contribute to,
and during the five-year period ending on the Closing Date, neither has been
required to contribute to, any "multiemployer plan," as such term is defined in
Section 3(37) of ERISA, and neither the Company nor the Company Subsidiary is
subject to any withdrawal or partial withdrawal liability within the
contemplation of Section 4201 of ERISA whether directly or on a controlled group
basis by virtue of Section 4001(b)(1) of ERISA or otherwise and will not become
subject thereto as a result of the transactions contemplated by this Agreement.
2.19 CONTRACTS AND COMMITMENTS. Schedule 2.19 contains a true,
complete and correct list (and the Company has previously delivered to
representatives of the FK Stockholders and the HT Equityholders true, complete
and correct copies) of all of the following documents or agreements, or
summaries of material oral agreements or understandings, relating to the
business of the Company, the Company Subsidiary or the Company Assets to which,
on the date of this Agreement, the Company or the Company Subsidiary is a party,
or which relate to or affect the Company, the Company Subsidiary or the Company
Assets or the transactions contemplated hereby and all documents or agreements
which may require any action or consent in connection with such transactions, as
they may have been amended to the date hereof:
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(a) any written employment or consulting agreement, contract or commitment with
any employee, officer or director or any contract or agreement with other
consultants;
(b) any agreement, contract or commitment with any party containing any covenant
limiting the ability of the Company or the Company Subsidiary or any employee of
the Company or the Company Subsidiary to engage in business or to compete in any
location or with any person;
(c) any partnership or joint venture agreement with any party or any
arrangements with any party with respect to the sharing of or in the profits or
revenues of the Company or the Company Subsidiary, including without limitation
any licensing or royalty agreements;
(d) any agreement or instrument relating to the borrowing of money, or the
direct or indirect guarantee of any obligation for, or an agreement to service
the repayment of, borrowed money or any other contingent obligations in respect
of indebtedness of any other party;
(e) any agreement, contract or commitment relating to the future disposition or
acquisition of any investment in any party or of any interest in any business
enterprise involving the business of the Company or the Company Subsidiary or
the Company Assets;
(f) any contract or commitment for capital expenditures or the acquisition or
construction of fixed assets;
(g) any contract or commitment for the sale or furnishing of materials,
supplies, merchandise, equipment or services;
(h) any written agreement, instrument or other arrangement, or any unwritten
agreement, contract, commitment or other arrangement, between or among the
Company or the Company Subsidiary and any affiliates of the Company or the
Company Subsidiary;
(i) any contract which grants to any person a preferential right to purchase any
of the Company Assets;
(j) any contract, agreement or commitment with respect to the discharge or
removal of a Contaminant (as defined in Section 2.23(b) below) other than in the
ordinary course of business; and
(k) any other material agreement or instrument not made in the ordinary course
of business.
There is no course of dealing, waiver, side agreement, arrangement or
understanding applicable to any such contract of the Company or the Company
Subsidiary not disclosed therein or in Schedule 2.19.
2.20 INSURANCE. Schedule 2.20 sets forth a true, complete and correct
list of all insurance policies of any kind or nature covering the Company and
the Company Subsidiary with respect to the business of the Company and the
Company Subsidiary and the Company Assets, including without limitation policies
of life, fire, theft, employee fidelity, worker's compensation, property and
other
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casualty and liability insurance, and indicates the type of coverage, name of
insured, the insurer, the premium, the expiration date of each policy and the
amount of coverage for statutory workers' compensation. Schedule 2.20 also sets
forth a list of any currently pending claims and any claims asserted under such
policies or similar policies. Except as set forth in Schedule 2.20, the premiums
for the insurance policies listed in Schedule 2.20 have been fully paid. The
insurance afforded under such policies or certificates is in full force and
effect and will continue to cover the Company and the Company Subsidiary with
respect to the business of the Company and the Company Subsidiary and the
Company Assets through the Closing. True, complete and correct copies of each
such policy, or binders with respect thereto, have been made available to
representatives of the FK Stockholders and the HT Equityholders. None of such
insurance policies are subject to retroactive premium adjustment in respect of
prior periods.
2.21 EMPLOYEES. Schedule 2.21 lists all employees of the Company or
the Company Subsidiary, the rates of pay for each employee of the Company or the
Company Subsidiary and all commission, bonus or other compensation or expense
reimbursement or allowance arrangements between the Company or the Company
Subsidiary and any of their respective employees. Schedule 2.21 lists each
management or employment contract or contract for personal services and a
description of any understanding or commitment between the Company and any
officer, consultant, director, employee, independent contractor or other person
or entity. A true and complete copy of such contracts and a description of any
understandings and commitments has been delivered to representatives of the FK
Stockholders and the HT Equityholders.
2.22 LABOR AGREEMENTS; DISPUTES. Neither the Company nor the Company
Subsidiary is a party to and neither has any obligation under any collective
bargaining agreement or other labor union contract, white paper or side
agreement with any labor union or organization, and neither has any obligation
to recognize or deal with any labor union or organization. There are no pending
or overtly threatened representation campaigns, elections or proceedings or
questions concerning union representation involving any employees of the Company
or the Company Subsidiary. Neither the Company nor the Company Subsidiary has
any knowledge of any overt activities or efforts of any labor union or
organization (or representatives thereof) to organize any employees engaged in
the business of the Company or the Company Subsidiary, nor of any demands for
recognition or collective bargaining, nor of any strikes, slowdowns, work
stoppages or lock-outs of any kind, or overt threats thereof, by or with respect
to any of its employees, or any actual or claimed representatives thereof, and
no such activities, efforts, demands, strikes, slowdowns, work stoppages or
lock-outs have occurred with respect to the Company or the Company Subsidiary.
2.23 ENVIRONMENTAL AND HEALTH SAFETY MATTERS.
(a) As used in this Section 2.23, all terms appearing in initial capitals shall
have the meaning given them in Section 2.23(b) hereof. Except as set forth on
Schedule 2.23, with respect to the business of the Company and the Company
Subsidiary and the Facilities, (i) the operations of the Company and the Company
Subsidiary comply in all respects with all applicable environmental, health and
safety statutes, treaties, conventions, rules, ordinances, and regulations in
all jurisdictions in which the Company or the Company Subsidiary conducts
business, including without limitation all Domestic Environmental Laws and
Foreign Environmental Laws applicable to the jurisdictions in which
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operations are conducted; (ii) none of the operations of the Company or the
Company Subsidiary are subject to any judicial or administrative proceeding
alleging the violation of any Domestic Environmental Law or Foreign
Environmental Law; (iii) none of the operations of the Company or the Company
Subsidiary are the subject of any investigation evaluating whether any Remedial
Action is needed to respond to a Release of any Contaminant or other substance
into the environment; (iv) neither the Company nor the Company Subsidiary has
filed any notice under any Domestic Environmental Law or Foreign Environmental
Law applicable to the jurisdiction in which operations of the Company or the
Company Subsidiary are conducted indicating past or present treatment, storage
or disposal of a hazardous waste or reporting a Release of a Contaminant or
other substance into the environment; (v) neither the Company nor the Company
Subsidiary has any contingent liability in connection with any Release of any
Contaminant or other substance into the environment, including without
limitation any contingent liability for failure to report a Release; (vi) none
of the operations of the Company or the Company Subsidiary involve the
generation, transportation, treatment or disposal of hazardous waste, as defined
under 40 C.F.R. Parts 260-270 (in effect as of the date of this Agreement) or
any state equivalent thereof, in violation of any Domestic Environmental Law or
Foreign Environmental Law applicable to the jurisdiction in which operations of
the Company or the Company Subsidiary are conducted, including without
limitation statutes, regulations and laws pertaining to permits and manifests;
(vii) neither the Company nor the Company Subsidiary has disposed of any
hazardous waste or substance or other material by placing it in or on the ground
or waters of any premises owned, leased or used by the Company or the Company
Subsidiary in violation of any Domestic Environmental Law or Foreign
Environmental Law applicable to the jurisdiction in which operations of the
Company or the Company Subsidiary are conducted, nor has any lessee or prior
owner; (viii) no underground storage tanks or surface impoundments are on any of
the locations upon which the operations of the Company or the Company Subsidiary
are conducted, in violation of any Domestic Environmental Law or Foreign
Environmental Law applicable to the jurisdiction in which operations of the
Company or the Company Subsidiary are conducted; and (ix) no Lien in favor of
any governmental authority for (A) any liability under Domestic Environmental
Laws or Foreign Environmental Laws applicable to the jurisdiction in which
operations of the Company or the Company Subsidiary with respect to the business
of the Company or the Company Subsidiary is conducted, or (B) damages arising
from or costs incurred by such governmental authority in response to a release
of a Contaminant or other substance into the environment has been filed or
attached to any of the assets of the Company or the Company Subsidiary or any of
the locations upon which the operations of the Company or the Company Subsidiary
with respect to the business of the Company or the Company Subsidiary is
conducted.
(b) Each of the following terms shall have the meaning indicated below:
"Contaminant" shall mean those substances or materials that
are defined as hazardous or toxic or that are regulated by or form
the basis of liability under any Environmental Law, including
without limitation asbestos, polychlorinated biphenyls ("PCBs"), and
radioactive substances, or any other material or substance that
constitutes a health, safety or environmental hazard to any person
or property.
"Domestic Environmental Laws" shall mean all federal,state or
local laws relating to health, safety or the environment, including
without limitation the
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Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") (42 U.S.C. ss. 9601 ET SEQ.), the Hazardous Material
Transportation Act (49 U.S.C. ss. 1801 ET SEQ.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 ET SEQ.), the
Clean Air Act (42 U.S.C. ss. 7401 ET SEQ.), the Clean Water Act (33
U.S.C. ss. 1251 ET SEQ.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss. 2601 ET SEQ.), the Marine Protection,
Research, and Sanctuaries Act (33 U.S.C. ss. 1401 ET SEQ.), the
National Environmental Policy Act (42 U.S.C. ss. 4321 ET SEQ.), the
Oil Pollution Act (33 U.S.C. ss. 2701 ET SEQ.), the Outer
Continental Shelf Lands Act (43 U.S.C. ss. 1331 ET SEQ.), the
Occupational Safety and Health Act (29 U.S.C. ss. 651 ET SEQ.) and
the Act to Prevent Pollution from Ships (33 U.S.C. ss.ss. 1901-1912,
including without limitation Annexes I, II and V of the
International Convention for the Prevention of Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto (MARPOL
73/78) done at London on February 17, 1978), as these laws have been
amended or supplemented.
"Environmental Claim" shall mean any accusation, allegation,
notice of violation, claim, demand, abatement or other order or
direction (conditional or otherwise) by any governmental authority
or any person for personal injury (including sickness, disease or
death), tangible or intangible property damage, damage to the
environment, nuisance, pollution, contamination or other adverse
effects on the environment, or for fines, penalties or restrictions,
resulting from or based upon (i) the existence, or the continuation
of the existence, of a Release (including without limitation sudden
or non-sudden, accidental or non-accidental Releases) of or exposure
to any Contaminant, odor or audible noise, into or onto the
environment (including without limitation the air, ground, water or
any surface) at, in, by, from or related to the Facilities, (ii) the
transportation, storage, treatment or disposal of materials in
correction with the operation of the Facilities or (iii) the
violation or alleged violation of any statutes, ordinances, orders,
rules, regulations, Permits or licenses of or from any governmental
authority, agency or court relating to environmental matters
connected with the Facilities.
"Facilities" shall mean real and personal property owned,
leased or used by and with respect to the business of (i) for
purposes of the representations and warranties by the Company, the
Company or the Company Subsidiary, (ii) for purposes of the
representations and warranties by the FK Stockholders, Flare King,
and the FK Subsidiaries, and (iii) for purposes of the
representations and warranties by the HT Stockholders, and Hi-Tech,
including, respectively, without limitation, the Company Assets, the
Flare King Assets and the Hi-Tech Assets.
"Foreign Environmental Laws" shall mean any applicable
international treaties or conventions and the environmental health
and safety statutes, rules and regulations of non-U.S. jurisdictions
in which business is conducted.
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"Permit" shall mean any permit, approval, authorization,
license variance, or permission required from a governmental
authority under any applicable Domestic Environmental Laws or
Foreign Environmental Laws.
"Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration into the indoor or outdoor environment, or
into or out of any property owned or leased, respectively, by (i)
for purposes of the representations and warranties by the Company,
the Company or the Company Subsidiary, (ii) for purposes of the
representations and warranties by the FK Stockholders, Flare King or
the FK Subsidiary, or (iii) for purposes of the representations and
warranties by the HT Equityholders, Hi-Tech, including the movement
of any Contaminant through or in the air, soil, surface water,
groundwater, or property and including without limitation the
meanings of such words as set forth in the laws, applicable
treaties, rules, ordinances or regulations or analogous governmental
provisions referred to under Domestic Environmental Laws or Foreign
Environmental Laws.
"Remedial Action" shall mean all actions required or
voluntarily undertaken to (1) clean up, remove, treat, or in any
other way address any Contaminant in the indoor or outdoor
environment; (2) prevent the Release or threat of Release, or
minimize the further Release of any Contaminant so it does not
migrate or endanger or threaten to endanger public health or welfare
of the indoor or outdoor environment; or (3) perform pre-remedial
studies and investigations and post-remedial monitoring and care.
2.24 POWER OF ATTORNEY. No person holds a power of attorney to act on
behalf of the Company or the Company Subsidiary with respect to the business of
the Company, the Company Subsidiary or any of the Company Assets.
2.25 BANK ACCOUNTS. Schedule 2.25 contains a complete and correct list
of the names and locations of all banks in which the Company or the Company
Subsidiary has accounts or safe deposit boxes and the names of all persons
authorized to draw thereon or to have access thereto. No funds on deposit in
banks or certificates of deposit or other liquid assets or investments of the
Company or the Company Subsidiary are restricted as to access or use.
2.26 REGULATORY FILINGS. The Company and the Company Subsidiary have
filed or caused to be filed all reports, statements, documents, registrations,
filings or submissions required, in connection with the operation of the
business of the Company, the Company Subsidiary or the Company Assets, to be
filed by the Company or the Company Subsidiary with any federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency or other instrumentality. All such filings complied with
applicable law when filed and no deficiencies have been asserted by any such
regulatory authority with respect to such filings or submissions.
2.27 BROKERS AND FINANCIAL ADVISERS. All negotiations with respect to
this Agreement and the transactions contemplated hereby have been carried out by
the Company directly with the
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FK Stockholders or the HT Equityholders, without the intervention of any person
on behalf of the Company in such manner as to give rise to any valid claim by
any person for a finder's fee, brokerage commission or similar payment.
2.28 TRANSACTIONS WITH AFFILIATES. There are no direct or indirect
contracts or arrangements, formal or informal or written or oral, related to the
business of the Company, the Company Subsidiary or the Company Assets between
the Company or the Company Subsidiary and any other persons controlling, under
common control with or controlled by the Company or the Company Subsidiary or
any of their affiliates or persons related thereto.
2.29 DISCLOSURE. Each response by the Company by or through its
officers, employees or other representatives to inquiries in connection with the
due diligence performed by representatives of the FK Stockholders or the HT
Equityholders, as revised or updated by subsequent disclosures before the date
hereof and this Agreement, was complete and accurate in all material respects.
Copies of all documents and other written information referred to herein or in
the Schedules that have been delivered or made available to the FK Stockholders
and the HT Equityholders are true, correct and complete copies thereof and
include all amendments, supplements or modifications thereto or waivers
thereunder. Such documents and other written information do not omit any
material facts necessary, in light of the circumstances under which such
information was furnished, to make the statements set forth therein not
misleading. Except as expressly set forth in this Agreement and the Schedules or
in the certificates or other documents delivered pursuant hereto, the Company
has no knowledge of any facts which will have any material adverse effect on the
value of the business of the Company and the Company Subsidiary taken as a whole
or the Company Assets.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY STOCKHOLDERS
The Company Stockholders hereby represent and warrant to the FK
Stockholders and the HT Equityholders as follows:
3.1 OWNERSHIP; VOTING RIGHTS. The Company Stockholders are the record
and beneficial holders as set forth on Schedule 2.2 of all of the shares of the
issued and outstanding capital stock of the Company, free and clear of all
Liens. The shares of capital stock of the Company are not subject to any voting
trust, voting agreement or other agreement regarding the right or obligation to
vote such shares.
3.2 AUTHORITY. Each Company Stockholder has all requisite power and
authority to enter into, execute and deliver this Agreement and the documents
contemplated hereby to be executed by it and to perform the obligations to be
performed by it hereunder and thereunder. This Agreement has been duly executed
and delivered by each Company Stockholder and constitutes, and such other
documents when executed and delivered by such Company Stockholder will
constitute, the legal, valid and binding obligations of such Company
Stockholder, enforceable against such Company Stockholder in accordance with
their respective terms.
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3.3 NO CONFLICTS. The execution and delivery of this Agreement and the
documents contemplated hereby to be executed by each of the Company Stockholders
does not, and compliance by each with the terms hereof and thereof and
consummation by each of the transactions contemplated hereby and thereby will
not, (a) violate or conflict with any existing term or provision of any law,
statute, ordinance, rule, regulation, order, writ, judgment, injunction or
decree applicable to such Company Stockholder; (b) conflict with or result in a
breach of or default under any of the terms, conditions or provisions of any
agreement or instrument to which such Company Stockholder is a party or
otherwise subject, or by which the Company Assets may be bound; (c) result in
the creation or imposition of any Lien upon any of the Company Assets; (d) give
to others any right of termination, cancellation, acceleration or modification
in or with respect to any agreement or instrument to which such Company
Stockholder is a party or otherwise subject, or by which such Company
Stockholder or the Company Assets may be bound; or (e) breach any fiduciary duty
owed by such Company Stockholder to any person or entity.
3.4 CONSENTS AND APPROVALS. The execution and delivery by each Company
Stockholder of this Agreement and the documents contemplated hereby to be
executed by such Company Stockholder, compliance by such Company Stockholder
with the terms hereof and thereof and consummation by such Company Stockholder
of the transactions contemplated hereby and thereby do not require such Company
Stockholder to obtain any consent, approval or action of, make any filings with
or give any notice to any corporation, person, firm or other entity, or any
public, governmental or judicial authority.
3.5 BROKERS AND FINANCIAL ADVISERS. All negotiations with respect to
this Agreement and the transactions contemplated hereby have been carried out by
the Company Stockholders directly with the FK Stockholders and the HT
Equityholders, without the intervention of any person on behalf of the Company
Stockholders in such manner as to give rise to any valid claim by any person for
a finder's fee, brokerage commission or similar payment.
3.6 INVESTMENT REPRESENTATION. The shares of Parent Common Stock to be
received in consideration for the Company Contribution by each Company
Stockholder (other than Hi-Tech) under the terms of this Agreement (collectively
the "Company Parent Shares") will be acquired for such Company Stockholder's own
account, for investment purposes only and not with a view to the distribution
thereof. Each Company Stockholder is not participating, directly or indirectly,
in any distribution or transfer of such shares, nor is he participating,
directly or indirectly, in underwriting any such distribution or transfer of the
Company Parent Shares within the meaning of the Securities Act. Each Company
Stockholder and its representatives have such knowledge and experience in
business matters that they are capable of evaluating the merits and risks of an
investment in the Parent and the acquisition of the Company Parent Shares and
each Company Stockholder is making an informed investment decision with respect
thereto. Each Company Stockholder has been informed by the Parent that the
Company Parent Shares issuable pursuant to this Agreement will not be registered
at the time of their issuance under the Securities Act or any state's securities
laws and may not be transferred, assigned or otherwise disposed of unless the
Company Parent Shares are subsequently registered under the Securities Act or
appropriate state securities laws or an appropriate exemption therefrom is
available and that, except pursuant to the terms of the Registration Rights
Agreement contemplated hereunder, the Parent is under no obligation to register
the Company Parent
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Shares under the Securities Act or any state's securities laws or to take any
steps to assist any Company Stockholder to comply with any applicable exemption
under the Securities Act or any state's securities laws with respect to the
Company Parent Shares.
3.7 DISCLOSURE. Each response by each Company Stockholder directly or
through its representatives to inquiries in connection with the due diligence
performed by representatives of the Company, the FT Stockholders or the HT
Equityholders, as revised or updated by subsequent disclosures before the date
hereof and this Agreement, were complete and accurate in all material respects.
Copies of all documents and other written information referred to herein or in
the Schedules that have been delivered or made available to the Company, the FT
Stockholders or the HT Equityholders; by the Company Stockholders are true,
correct and complete copies thereof and include all amendments, supplements or
modifications thereto or waivers thereunder. Such documents and other written
information do not omit any material facts necessary, in light of the
circumstances under which such information was furnished, to make the statements
set forth therein not misleading. Except as expressly set forth in this
Agreement and the Schedules or in the certificates or other documents delivered
pursuant hereto, each Company Stockholder has no knowledge of any facts which
will have any material adverse effect on the value of the business of the
Company or the Company Assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE FK STOCKHOLDERS
The FK Stockholders hereby represent and warrant to the Company, the
Company Stockholders and the HT Equityholders as follows:
4.1 ORGANIZATION AND GOOD STANDING. Flare King is a corporation duly
organized, validly existing and in good standing under the laws of Texas. Flare
King has all requisite corporate power and authority to own, hold, use and lease
its properties and assets and to conduct its business as it is now being
conducted. Flare King is duly qualified as a foreign corporation and is in good
standing in all jurisdictions in which the character of the properties and
assets now owned or leased by it or the nature of the business now conducted by
it requires it to be so qualified. The FK Stockholders have made available to
the Company, the Company Stockholders and the HT Equityholders or the respective
representatives thereof true, complete and correct copies of its articles of
incorporation and bylaws, as amended to the date of this Agreement.
4.2 CAPITALIZATION OF FLARE KING. The authorized capital stock of Flare
King consists of 1,000,000 shares of common stock, $1.00 par value per share, of
which 111,455 shares are issued and outstanding. All of the shares are validly
issued, fully paid and nonassessable. There are no outstanding subscriptions,
options, rights, warrants, convertible securities or other agreements or
commitments obligating Flare King to issue or to transfer from treasury any
additional shares of capital stock of any class. All shares of authorized
capital stock of Flare King issued and outstanding are held of record and
beneficially as set forth on Schedule 4.2.
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4.3 OWNERSHIP; VOTING RIGHTS. The FK Stockholders are the record and
beneficial holders of all of the shares of the issued and outstanding capital
stock of Flare King, free and clear of all Liens. The shares of capital stock of
Flare King are not subject to any voting trust, voting agreement or other
agreement regarding the right or obligation to vote such shares.
4.4 SUBSIDIARIES OR OTHER OWNERSHIP INTERESTS. Except for Flare King
Canada, Inc., an Alberta business corporation (the "FK Subsidiary"), Flare King
does not own or control, directly or indirectly, shares of capital stock, debt
instruments or other securities of any corporation or hold, directly or
indirectly, any interest in any trust, partnership, limited partnership, joint
venture, business association, limited liability company, unincorporated
business, proprietorship, business enterprise or other business entity
whatsoever. The FK Subsidiary is a corporation duly organized, validly existing
and in good standing under the Business Corporations Act of the Province of
Alberta. The FK Subsidiary is duly qualified as a foreign corporation and is in
good standing in all jurisdictions in which the character of the properties and
assets now owned or leased by it or the nature of the business now conducted by
it requires it to be so qualified.
4.5 AUTHORITY. Each FK Stockholder has all requisite power and
authority to enter into, execute and deliver this Agreement and the documents
contemplated hereby to be executed by him and to perform the obligations to be
performed by him hereunder and thereunder. This Agreement has been duly executed
and delivered by each FK Stockholder and constitutes, and such other documents
when executed and delivered by such FK Stockholder will constitute, the legal,
valid and binding obligations of such FK Stockholder, enforceable against such
FK Stockholder in accordance with their respective terms.
4.6 NO CONFLICTS. The execution and delivery of this Agreement and the
documents contemplated hereby to be executed by each of the FK Stockholders do
not, and compliance by him with the terms hereof and thereof and consummation by
him of the transactions contemplated hereby and thereby will not, (a) violate or
conflict with any existing term or provision of any law, statute, ordinance,
rule, regulation, order, writ, judgment, injunction or decree applicable to such
FK Stockholder; (b) conflict with or result in a breach of or default under any
of the terms, conditions or provisions of any agreement or instrument to which
such FK Stockholder, Flare King or the FK Subsidiary is a party or otherwise
subject, or by which the Flare King Assets (as hereinafter defined) may be
bound; (c) result in the creation or imposition of any Lien upon any of the
Flare King Assets; (d) give to others any right of termination, cancellation,
acceleration or modification in or with respect to any agreement or instrument
to which such FK Stockholder is a party or otherwise subject, or by which Flare
King, the FK Subsidiary or the Flare King Assets may be bound; or (e) breach any
fiduciary duty owed by such FK Stockholder to any person or entity.
4.7 CONSENTS AND APPROVALS. The execution and delivery by each FK
Stockholder of this Agreement and the documents contemplated hereby to be
executed by such FK Stockholder, compliance by such FK Stockholder with the
terms hereof and thereof and consummation by such FK Stockholder of the
transactions contemplated hereby and thereby do not require such FK Stockholder
to obtain any consent, approval or action of, make any filings with or give any
notice to any corporation, person, firm or other entity, or any public,
governmental or judicial authority.
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4.8 TITLE TO FLARE KING ASSETS; CONDITION. Except as set forth on
Schedule 4.8, either Flare King or the FK Subsidiary has good title to all of
the tangible and intangible properties and assets used in the conduct of the
business of Flare King or the FK Subsidiary, wherever located (the "Flare King
Assets"), including without limitation those properties and assets set forth on
Schedule 4.8 attached hereto, and all of the following in any way pertaining to,
related to, identified to or with or otherwise used in the business of Flare
King: all machinery and equipment, office furniture and equipment, furnishings,
fittings, accessories, appliances, contracts, licenses, permits, financial books
and records, industry expertise, vendor and customer relationships, goodwill,
operating rights, rights to telephone numbers, right to or associated with Flare
King's and the FK Subsidiary's name, all rights to or associated with any trade
names, trademarks and logos related thereto and the value associated therewith,
free and clear, except as set forth on Schedule 4.8, of any Liens. The tangible
Flare King Assets have, as applicable, been installed, operated and maintained
in accordance with accepted industry practice, are free from latent defects or
defects of workmanship or materials, are suitable for the purposes for which
they have been and are being employed in the operation of the business of Flare
King and are in good operating condition and repair, ordinary wear and tear
excepted. Nothing has occurred to Flare King Assets since December 31, 1996 that
would have any effect on the value of Flare King Assets or the suitability of
Flare King Assets for the purposes for which they have been and are being
employed in the operation of the business of Flare King or the FK Subsidiary.
Schedule 4.8 lists all material leases, operating agreements, maintenance
agreements, management agreements, mortgages and other documents or agreements
applicable to Flare King Assets. There are no actual, pending or threatened
claims against Flare King Assets that could give rise to a Lien (other than
Liens that would be covered by valid and collectible insurance, including
applicable deductibles), or acts or incidents which could give rise to any such
claims, relating to or arising out of Flare King Assets or the operation of the
business of Flare King or the FK Subsidiary. All assets necessary or useful in
or to the business of Flare King or the FK Subsidiary as presently operated by
Flare King or the FK Subsidiary are owned of record and beneficially by Flare
King or the FK Subsidiary and not by any affiliate of Flare King or the FK
Subsidiary or any other party. As to each material contract that constitutes
part of the Flare King Assets, such contract is in full force and effect, no
notice of cancellation or termination or default has been received by Flare King
or the FK Subsidiary and no event or condition has occurred or exists which,
with notice or lapse of time or both, would constitute a default thereunder. The
transfer contemplated hereby will not affect the validity or enforceability of
such contracts. As to each lease or license the leasehold or licensee's interest
in which constitutes part of the Flare King Assets, such lease or license is in
full force and effect, no notice of cancellation or termination under any option
or right reserved to the lessor or licensor under such lease or license or
notice of default has been received by Flare King or the FK Subsidiary and no
event or condition has occurred or exists which, with notice or lapse of time or
both would constitute a default hereunder. Neither Flare King nor the FK
Subsidiary has assigned its interest under any such lease or license or
subleased the premises demised thereby or sublicensed the right or license
granted thereby. The transactions contemplated hereby will not affect the
validity or enforceability of the leases and licenses. Each of the parcels of
land, a leasehold or fee estate in which is included in the Flare King Assets,
has free and uninterrupted access to and from a dedicated public right-of-way by
reason of the fact that such parcel either adjoins such dedicated public
right-of-way or connects to such right-of-way through a valid and subsisting
easement, and such access is adequate for the use being made of the parcel being
accessed.
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4.9 FINANCIAL STATEMENTS. Schedule 4.9 attached hereto contains true
and complete copies of the audited financial statements of Flare King and the FK
Subsidiary as of and for the period ended December 31, 1996 and unaudited
financial statements of Flare King and the FK Subsidiary as of and for the
period ended June 30, 1997 (the "Flare King Financial Statements"). The Flare
King Financial Statements are true and correct and fairly present, in accordance
with generally accepted accounting principles consistently applied, the
financial position of Flare King and the FK Subsidiary as of the dates indicated
and the results of operations and cash flows of Flare King and the FK Subsidiary
for the respective periods then ended. All detailed schedules accompanying the
Flare King Financial Statements or otherwise provided to the Company, the
Company Stockholders and the HT Equityholders with respect thereto, including
without limitation schedules with respect to accounts payable, accounts
receivable, accrued liabilities, inventory, fixed assets, prepaid expenses and
other assets and liabilities, are true and correct in all material respects and
have been prepared on a basis consistent with Flare King's past practice and
with generally accepted accounting practices. Except as set forth on Schedule
4.9, there are no material liabilities, contingent or definite, and no assets
used in the business of Flare King or the FK Subsidiary that are not reflected
in Flare King Financial Statements and such detailed schedules.
4.10 CUSTOMARY BUSINESS PRACTICE. Neither Flare King nor the FK
Subsidiary has conducted or maintained any business practices or relationships
in any manner other than is customary or standard in the industry, and neither
Flare King nor the FK Subsidiary nor any of its stockholders, officers,
directors, employees or agents have any special relationships with any suppliers
or customers that are inconsistent with customary and standard practice in the
industry or constitute a violation of any applicable law.
4.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 4.11, there has not been, occurred or arisen any of the following as
they relate to Flare King since December 31, 1996:
(a) any transaction by Flare King or the FK Subsidiary except in the ordinary
course of business as conducted prior to December 31, 1996;
(b) any capital expenditure by Flare King or the FK Subsidiary;
(c) any change in or any event, condition or state of facts of any character
peculiar to the Flare King Assets or the operation of the business of Flare King
or the FK Subsidiary or its predecessors that individually or in the aggregate
adversely affects Flare King or the Flare King Assets, that affects the ability
of Flare King or the FK Subsidiary to conduct normal operations after the
Closing or that affects the validity or enforceability of this Agreement;
(d) any destruction, damage, or loss suffered by Flare King or the FK Subsidiary
or with respect to any Flare King Asset (whether or not covered by insurance);
(e) any revaluation, write-down or write-off by Flare King or the FK Subsidiary
of any of the Flare King Assets;
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(f) any declaration, setting aside, or payment of a dividend or other
distribution or commitment, obligation or other agreement made with any party
with respect to the payment of any dividend or the making of any distribution in
respect of any of the capital stock of Flare King, or any direct or indirect
redemption, purchase, or other acquisition by Flare King of any of its capital
stock;
(g) any increase in the salary or other compensation, including without
limitation all wages, salary, deferred payment arrangements, bonus payments and
accruals, profit sharing arrangements, payment in respect of stock option or
phantom stock option or similar arrangements, stock appreciation rights or
similar rights, incentive payments, pension or employment benefit contributions
or similar payments, payable or to become payable by Flare King or the FK
Subsidiary to any of its officers, directors or employees, or the declaration,
payment or commitment or obligation of any kind for the payment by Flare King of
a bonus or increased or additional salary or compensation to any such person;
(h) any sale, lease or other disposition of any Flare King Asset other than
sales of goods and services in the ordinary course of business and arm's-length
sales of capital assets in a manner consistent with past practice in immaterial
amounts;
(i) any mortgage, pledge, or other encumbrance of any Flare King Asset;
(j) any forgiveness of any debt owed to Flare King or the FK Subsidiary;
(k) any amendment or termination of any material contract, agreement, or license
to which Flare King or the FK Subsidiary is a party or to which any of the Flare
King Assets are subject, except in the ordinary course of business;
(l) any breach of the terms of any contract or agreement that is material to the
business of Flare King or the FK Subsidiary;
(m) any loan by Flare King or the FK Subsidiary to any person or entity, or
guaranty by Flare King or the FK Subsidiary of any loan, or the incurrence of
any debt by Flare King or the FK Subsidiary, other than trade debt incurred in
the ordinary course of business consistent with past practice;
(n) any commencement, notice of commencement or threat of commencement of any
litigation or any governmental proceeding against or investigation of Flare King
or the FK Subsidiary or the affairs of Flare King or the FK Subsidiary;
(o) any issuance or sale by Flare King or the FK Subsidiary of any of Flare
King's capital stock of any class, or of any other of its securities, or any
commitment, obligation or agreement to do so;
(p) any liabilities that have not been disclosed on the Flare King Financial
Statements, other than those incurred in the ordinary course of business since
December 31, 1996;
(q) any waiver or release of any right or claim of Flare King or the FK
Subsidiary;
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(r) any amendment to any national, federal, state, municipal, local, foreign or
other tax returns or reports that have been filed by Flare King or the FK
Subsidiary in any jurisdiction;
(s) any labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(t) any transactions by Flare King or the FK Subsidiary with an affiliate or
related party of Flare King or the FK Subsidiary;
(u) any change by Flare King or the FK Subsidiary in accounting methods or
principles that would be required to be disclosed under generally accepted
accounting principles;
(v) any borrowing of funds, agreement to borrow funds or guaranty by Flare King
or the FK Subsidiary affecting or relating to Flare King or the FK Subsidiary or
the Flare King Assets or any termination or amendment of any evidence of
indebtedness, contract, agreement, deed, mortgage, lease, license or other
instrument to which Flare King or the FK Subsidiary is a party or by which any
of the Flare King Assets is bound or to which any of the Flare King Assets is
subject other than in the ordinary course of business consistent with past
practices;
(w) any payment to a stockholder of Flare King other than routine payments
consistent with past practice to such stockholder in his capacity as an
employee;
(x) any entry into any commitment of any kind, or the occurrence of any event
giving rise to any contingent liability not covered by the foregoing; or
(y) any contract, commitment or agreement to do any of the foregoing.
4.12 ABSENCE OF DEFAULTS. Except as set forth on Schedule 4.12, neither
Flare King nor the FK Subsidiary nor any FK Stockholder, is in default, and no
event has occurred which with notice or lapse of time or both would constitute a
default, in any way under any term or provision of any agreement or instrument
to which Flare King, the FK Subsidiary or any FK Stockholder is a party or by
which Flare King, the FK Subsidiary or any FK Stockholder is bound or by or to
which any of the Flare King Assets is bound or subject that relates to or would
affect Flare King, the FK Subsidiary or the Flare King Assets or that could
adversely affect the ability of the FK Stockholders to consummate the
transactions contemplated hereby.
4.13 COMPLIANCE WITH LAWS. There has been no failure by Flare King, the
FK Subsidiary or any FK Stockholder to comply with any federal, state or local
law, statute, ordinance, rule or regulation in any respect that could have an
adverse effect on the ability of Flare King to conduct normal operations after
the Closing or on the ability of the FK Stockholders to consummate the
transactions contemplated hereby.
4.14 TAX RETURNS AND REPORTS. All federal, state, local and foreign
income, excise, property, sales, use, payroll, informational and other tax
returns and reports of Flare King and the FK Subsidiary (collectively, the "Tax
Returns") have been timely filed (including pursuant to extensions) with the
appropriate governmental agencies in all jurisdictions in which such returns and
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reports are required to be filed, and all such returns and reports properly
reflect the taxes of Flare King and/or the FK Subsidiary for the periods covered
thereby. All federal income, excise and payroll taxes, and all state, local and
foreign income, excise, property, sales and use taxes, assessments, interest,
penalties, deficiencies, fees and other governmental charges or impositions
which are called for as due by the Tax Returns, or which are claimed to be due
with respect to the periods covered thereby, from Flare King and/or the FK
Subsidiary (the "Taxes"), have been properly accrued or paid. Neither Flare King
nor the FK Subsidiary has received any notice of assessment or proposed
assessment by the Internal Revenue Service or any other taxing authority in
connection with any Tax Returns and there are no pending tax examinations of any
Tax Returns of or tax claims in respect of the Tax Returns asserted against
Flare King or the FK Subsidiary or either of their properties. There has been no
intentional disregard of any applicable statute, regulation, rule or revenue
ruling in the preparation of any Tax Return applicable to Flare King or the FK
Subsidiary. There are no tax liens on any of the Flare King Assets except for
Liens for current taxes not yet due and payable. There is no basis for any
additional assessment of any Taxes, penalties or interest with respect to Flare
King or the FK Subsidiary that is not subject to defenses well-founded in law or
in fact. Neither Flare King nor the FK Subsidiary has waived any law or
regulation fixing, or consented to the extension of, any period of time for
assessment of any Taxes which waiver or consent is currently in effect. Neither
Flare King nor the FK Subsidiary has since its incorporation been treated as a
member of a consolidated group for purposes of the preparation of financial
statements or of tax returns other than as a member, for federal income tax
purposes only, of a consolidated group of which Flare King is the parent
corporation.
4.15 LITIGATION. Except as set forth on Schedule 4.15, (a) there are no
actions, claims, suits, governmental investigations, governmental inquiries or
proceedings pending or threatened against Flare King, the FK Subsidiary or any
FK Stockholder, at law or in equity, in any court, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or other instrumentality that (i) affect the validity or enforceability
of this Agreement or the documents contemplated hereby to be executed by the FK
Stockholders; (ii) restrict the continuing transaction of business with the
customers of Flare King or the FK Subsidiary; (iii) delay consummation of the
transactions contemplated hereby or (iv) establish a Lien against any of the
Flare King Assets; and (b) none of Flare King, the FK Subsidiary or any FK
Stockholder is in violation of any order, decree, judgment, award,
determination, ruling or regulation of any court, governmental department,
commission, board, bureau, agency or other instrumentality, the result of which
violation individually or violations in the aggregate has had or could be
expected to have a material adverse effect on Flare King, the FK Subsidiary or
the Flare King Assets or that (i) affect the validity or enforceability of this
Agreement; (ii) restrict the continuing transaction of business with the
customers of Flare King or the FK Subsidiary; (iii) delay consummation of the
transactions contemplated hereby; or (iv) establish a Lien against any of the
Flare King Assets.
4.16 CUSTOMERS AND SUPPLIERS. Schedule 4.16 lists the names and
addresses of the customers and suppliers of Flare King since January 1, 1996.
The relationships of Flare King with the customers and suppliers listed in
Schedule 4.16 are satisfactory, and Flare King is not aware of any unresolved
disputes with any of such customers or suppliers. Since January 1, 1996, no
customer or supplier has, except as set forth on Schedule 4.16, cancelled,
modified or notified Flare King in writing of its intent to cancel or modify its
relationship with Flare King.
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4.17 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The accounts receivable
of Flare King reflected in Flare King Financial Statements as of December 31,
1996 and all accounts receivable arising thereafter and on or before the date
hereof arose from BONA FIDE transactions in the ordinary course of business, and
the reserves against such accounts receivable reflected in the Flare King
Financial Statements are commercially reasonable and have been determined in
accordance with past practice. No counterclaims or offsetting claims with
respect to such accounts receivable are pending or threatened. The accounts
payable reflected in the Flare King Financial Statements, and all accounts
payable arising thereafter and before the date hereof arose from BONA FIDE
transactions in the ordinary course of business, and all such accounts payable
(i) have either been paid, (ii) are not yet due and payable under the standard
procedures of Flare King for payment of accounts payable, or (iii) are being
contested by Flare King in good faith.
4.18 NO UNDISCLOSED LIABILITIES OR AGREEMENTS. Except as set forth on
Schedule 4.18, Flare King did not have, as of June 30, 1997, any debts,
liabilities or obligations of any nature whether accrued, absolute, contingent
or otherwise, whether due or to become due, except to the extent reflected in
the Flare King Financial Statements.
4.19 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.19 lists all employee welfare and employee pension benefit plans
of Flare King or the FK Subsidiary, as defined under Sections 3(l) and 3(2) of
ERISA, respectively, which have been sponsored by, maintained by, or contributed
to by Flare King or the FK Subsidiary, in effect as of the date hereof or during
the five-year period ending on the date hereof, including without limitation all
pension, profit sharing, savings and thrift, bonus, incentive or deferred
compensation, severance pay and medical and life insurance plans in which any
current or former employees of Flare King or the FK Subsidiary ("Affected Flare
King Employees") participate ("Flare King Employee Plans") written copies of all
which Flare King Employee Plans have been provided to representatives of the
Company, the Company Stockholders and the HT Equityholders. Except as set forth
on Schedule 4.19, no Flare King Employee Plans are pension plans within the
meaning of Section 3(2) of ERISA that are intended to be "qualified plans"
("Qualified Plans") under Section 401(a) of the Code.
(b) Except as set forth on Schedule 4.19, each of Flare King and the FK
Subsidiary (i) has made all payments due from it to date under or with respect
to each Flare King Employee Plan; (ii) has performed all obligations required to
be performed by it under each Flare King Employee Plan and there is no claimed
or existing default or violation under any Flare King Employee Plan or event or
condition which, upon giving of notice or the lapse of time or both, would
constitute such a default or violation; and (iii) is in compliance with the
requirements prescribed by all statutes, orders or governmental rules or
regulations applicable to the Flare King Employee Plans, including without
limitation ERISA and the Code. There are no actions, suits or claims pending
(other than routine claims for benefits) or threatened against any Flare King
Employee Plan or against the assets of any Flare King Employee Plan.
(c) All Flare King Employee Plans are in compliance with and have been
administered in compliance with all applicable requirements of law, including
without limitation the Code and ERISA,
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and all contributions required to be made to each such plan under the terms of
such plan, ERISA or the Code for all periods of time before the Closing Date
have been or will be, as the case may be, made or accrued.
(d) With respect to any Qualified Plan, a favorable Tax Reform Act of 1986
determination letter as to the qualification under Section 401(a) of the Code
has been issued and the related trust has been determined to be exempt from
taxation under Section 501(a) of the Code and any amendment made to or action
taken with respect to any Qualified Plan subsequent to the date of such
determination letter has not adversely affected the qualified status of any such
plan. Each of Flare King and the FK Subsidiary has performed all obligations
required to be performed by it under, and is not in default under or in
violation of, the terms of any of the Flare King Employee Plans in any respect.
Neither Flare King, the FK Subsidiary nor any other "disqualified person" (as
defined in Section 4975 of the Code) or "party in interest" (as defined in
Section 3(14) of ERISA) has engaged in any "prohibited transaction" (as such
term is defined in Section 4975 of the Code or Section 406 of ERISA), which
could subject any Flare King Employee Plan (or its related trust, if any), Flare
King, the FK Subsidiary or any officer, director or employee of Flare King or
the FK Subsidiary to the excise tax or penalty imposed under Section 4975 of the
Code or Section 502(i) of ERISA. Neither Flare King nor the FK Subsidiary has
incurred, and neither will incur, any liability to the Pension Benefit Guaranty
Corporation including plan termination liability under Sections 4062, 4063 or
4064 of ERISA or the creation of a Lien against the property of Flare King or
the FK Subsidiary under Section 4068 of ERISA, whether directly or on a
controlled group basis by virtue of Section 4001(b)(1) of ERISA or otherwise
(except for required premium payments, which payments have been made when due).
Neither Flare King nor the FK Subsidiary has a liability attributable to an
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA and Section 412(a) of the Code, whether or not waived, with respect to any
Qualified Plan either directly or on a controlled group basis or otherwise, and
neither has incurred any liability attributable to an accumulated funding
deficiency under Section 4971 of the Code or Section 302 of ERISA including the
lien under Section 302(f) of ERISA whether directly or on a controlled group
basis or otherwise.
(e) Neither Flare King nor the FK Subsidiary is required to contribute to, nor
during the five-year period ending on the Closing Date has been required to
contribute to, any "multiemployer plan," as such term is defined in Section
3(37) of ERISA, and neither Flare King nor the FK Subsidiary is subject to any
withdrawal or partial withdrawal liability within the contemplation of Section
4201 of ERISA whether directly or on a controlled group basis by virtue of
Section 4001(b)(1) of ERISA or otherwise and neither will become subject thereto
as a result of the transactions contemplated by this Agreement.
4.20 CONTRACTS AND COMMITMENTS. Schedule 4.20 contains a true, complete
and correct list (and the FK Stockholders have previously delivered to
representatives of the Company, the Company Stockholders and the HT
Equityholders true, complete and correct copies) of all of the following
documents or agreements, or summaries of material oral agreements or
understandings, relating to the business of Flare King, the FK Subsidiary or the
Flare King Assets to which, on the date of this Agreement, Flare King, or the FK
Subsidiary is a party, or which relate to or affect Flare King, the FK
Subsidiary or the Flare King Assets or the transactions contemplated hereby and
all
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documents or agreements which may require any action or consent in connection
with such transactions, as they may have been amended to the date hereof:
(a) any written employment or consulting agreement, contract or commitment with
any employee, officer or director or any contract or agreement with other
consultants;
(b) any agreement, contract or commitment with any party containing any covenant
limiting the ability of Flare King, the FK Subsidiary or any employee of Flare
King or the FK Subsidiary to engage in business or to compete in any location or
with any person;
(c) any partnership or joint venture agreement with any party or any
arrangements with any party with respect to the sharing of or in the profits or
revenues of Flare King or the FK Subsidiary, including without limitation any
licensing or royalty agreements;
(d) any agreement or instrument relating to the borrowing of money, or the
direct or indirect guarantee of any obligation for, or an agreement to service
the repayment of, borrowed money or any other contingent obligations in respect
of indebtedness of any other party;
(e) any agreement, contract or commitment relating to the future disposition or
acquisition of any investment in any party or of any interest in any business
enterprise involving the business of Flare King or the FK Subsidiary or the
Flare King Assets;
(f) any contract or commitment for capital expenditures or the acquisition or
construction of fixed assets;
(g) any contract or commitment for the sale or furnishing of materials,
supplies, merchandise, equipment or services;
(h) any written agreement, instrument or other arrangement, or any unwritten
agreement, contract, commitment or other arrangement, between or among Flare
King or the FK Subsidiary and any affiliates of Flare King or the FK Subsidiary;
(i) any contract which grants to any person a preferential right to purchase any
of the Flare King Assets;
(j) any contract, agreement or commitment with respect to the discharge or
removal of a Contaminant (as defined in Section 2.23(b) above) other than in the
ordinary course of business; and
(k) any other material agreement or instrument not made in the ordinary course
of business.
There is no course of dealing, waiver, side agreement, arrangement or
understanding applicable to any such contract of Flare King or the FK Subsidiary
not disclosed therein or in Schedule 4.20.
4.21 INSURANCE. Schedule 4.21 sets forth a true, complete and correct
list of all insurance policies of any kind or nature covering Flare King and the
FK Subsidiary with respect to the business
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of Flare King and the FK Subsidiary and the Flare King Assets, including without
limitation policies of life, fire, theft, employee fidelity, worker's
compensation, property and other casualty and liability insurance, and indicates
the type of coverage, name of insured, the insurer, the premium, the expiration
date of each policy and the amount of coverage for statutory workers'
compensation. Schedule 4.21 also sets forth a list of any currently pending
claims and any claims asserted under such policies or similar policies. Except
as set forth in Schedule 4.21, the premiums for the insurance policies listed in
Schedule 4.21 have been fully paid. The insurance afforded under such policies
or certificates is in full force and effect and will continue to cover Flare
King and the FK Subsidiary, with respect to the business of Flare King and the
FK Subsidiary and the Flare King Assets through the Closing. True, complete and
correct copies of each such policy, or binders with respect thereto, have been
made available to representatives of the Company, the Company Stockholders and
the HT Equityholders. None of such insurance policies are subject to retroactive
premium adjustment in respect of prior periods.
4.22 EMPLOYEES. Schedule 4.22 lists all employees of Flare King or the
FK Subsidiary, the rates of pay for each employee of Flare King or the FK
Subsidiary and all commission, bonus or other compensation or expense
reimbursement or allowance arrangements between Flare King or the FK Subsidiary
and any of its employees. Schedule 4.22 lists each management or employment
contract or contract for personal services and a description of any
understanding or commitment between Flare King and any officer, consultant,
director, employee, independent contractor or other person or entity. A true and
complete copy of such contracts and a description of any understandings and
commitments has been delivered to representatives of the Company, the Company
Stockholders and the HT Equityholders.
4.23 LABOR AGREEMENTS; DISPUTES. Neither Flare King nor the FK
Subsidiary is a party to and neither has any obligation under any collective
bargaining agreement or other labor union contract, white paper or side
agreement with any labor union or organization and has no obligation to
recognize or deal with any labor union or organization. There are no pending or
overtly threatened representation campaigns, elections or proceedings or
questions concerning union representation involving any employees of Flare King
or the FK Subsidiary. The FK Stockholders have any knowledge of any overt
activities or efforts of any labor union or organization (or representatives
thereof) to organize any employees engaged in the business of Flare King or the
FK Subsidiary, nor of any demands for recognition or collective bargaining, nor
of any strikes, slowdowns, work stoppages or lock-outs of any kind, or overt
threats thereof, by or with respect to any of its employees, or any actual or
claimed representatives thereof, and no such activities, efforts, demands,
strikes, slowdowns, work stoppages or lock-outs have occurred with respect to
Flare King or the FK Subsidiary.
4.24 ENVIRONMENTAL AND HEALTH SAFETY MATTERS.
(a) As used in this Section 4.24, all terms appearing in initial capitals shall
have the meaning given them in Section 2.24(b) hereof. Except as set forth on
Schedule 4.24, with respect to the business of Flare King and the FK Subsidiary
and the Facilities, (i) the operations of Flare King and the FK Subsidiary
comply in all respects with all applicable environmental, health and safety
statutes, treaties, conventions, rules, ordinances, and regulations in all
jurisdictions in which Flare King or the FK
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Subsidiary conducts business, including without limitation all Domestic
Environmental Laws and Foreign Environmental Laws applicable to the
jurisdictions in which operations are conducted; (ii) none of the operations of
Flare King or the FK Subsidiary are subject to any judicial or administrative
proceeding alleging the violation of any Domestic Environmental Law or Foreign
Environmental Law; (iii) none of the operations of Flare King or the FK
Subsidiary are the subject of any investigation evaluating whether any Remedial
Action is needed to respond to a Release of any Contaminant or other substance
into the environment; (iv) neither Flare King nor the FK Subsidiary has filed
any notice under any Domestic Environmental Law or Foreign Environmental Law
applicable to the jurisdiction in which operations of Flare King or the FK
Subsidiary are conducted indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a Release of a Contaminant or other
substance into the environment; (v) neither Flare King nor the FK Subsidiary has
contingent liability in connection with any Release of any Contaminant or other
substance into the environment, including without limitation any contingent
liability for failure to report a Release; (vi) none of the operations of Flare
King or the FK Subsidiary involve the generation, transportation, treatment or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 (in effect
as of the date of this Agreement) or any state equivalent thereof, in violation
of any Domestic Environmental Law or Foreign Environmental Law applicable to the
jurisdiction in which operations of Flare King or the FK Subsidiary are
conducted, including without limitation statutes, regulations and laws
pertaining to permits and manifests; (vii) neither Flare King nor the FK
Subsidiary has disposed of any hazardous waste or substance or other material by
placing it in or on the ground or waters of any premises owned, leased or used
by Flare King or the FK Subsidiary in violation of any Domestic Environmental
Law or Foreign Environmental Law applicable to the jurisdiction in which
operations of Flare King or the FK Subsidiary are conducted nor has any lessee
or prior owner; (viii) no underground storage tanks or surface impoundments are,
on any of the locations upon which the operations of Flare King or the FK
Subsidiary are conducted, in violation of any Domestic Environmental Law or
Foreign Environmental Law applicable to the jurisdiction in which operations of
Flare King or the FK Subsidiary are conducted; and (ix) no Lien in favor of any
governmental authority for (A) any liability under Domestic Environmental Laws
or Foreign Environmental Laws applicable to the jurisdiction in which operations
of Flare King or the FK Subsidiary with respect to the business of Flare King or
the FK Subsidiary is conducted, or (B) damages arising from or costs incurred by
such governmental authority in response to a release of a Contaminant or other
substance into the environment has been filed or attached to any of the assets
of Flare King or the FK Subsidiary or any of the locations upon which the
operations of Flare King or the FK Subsidiary with respect to the business of
Flare King is conducted.
4.25 POWER OF ATTORNEY. No person holds a power of attorney to act on
behalf of Flare King or the FK Subsidiary with respect to the business of Flare
King, the FK Subsidiary or the Flare King Assets.
4.26 BANK ACCOUNTS. Schedule 4.26 contains a complete and correct list
of the names and locations of all banks in which Flare King or the FK Subsidiary
has accounts or safe deposit boxes and the names of all persons authorized to
draw thereon or to have access thereto. No funds on deposit in banks or
certificates of deposit or other liquid assets or investments of Flare King or
the FK Subsidiary are restricted as to access or use.
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4.27 REGULATORY FILINGS. Flare King and the FK Subsidiary have filed or
caused to be filed all reports, statements, documents, registrations, filings or
submissions required, in connection with the operation of the business of Flare
King, the FK Subsidiary or the Flare King Assets, to be filed by Flare King or
the FK Subsidiary with any federal, state, provincial, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality. All such filings complied with applicable law when filed and no
deficiencies have been asserted by any such regulatory authority with respect to
such filings or submissions.
4.28 BROKERS AND FINANCIAL ADVISERS. All negotiations with respect to
this Agreement and the transactions contemplated hereby have been carried out by
the FK Stockholders directly with the Company, the Company Stockholders and the
HT Equityholders, without the intervention of any person on behalf of the FK
Stockholders in such manner as to give rise to any valid claim by any person for
a finder's fee, brokerage commission or similar payment.
4.29 TRANSACTIONS WITH AFFILIATES. There are no direct or indirect
contracts or arrangements, formal or informal or written or oral, related to the
business of Flare King, the FK Subsidiary or the Flare King Assets between the
FK Stockholders, Flare King or the FK Subsidiary and any other persons
controlling, under common control with or controlled by Flare King or the FK
Subsidiary or any of their affiliates or persons related thereto.
4.30 INVESTMENT REPRESENTATION. The shares of Parent Common Stock to be
received in consideration for the Flare King Contribution by each FK Stockholder
under the terms of this Agreement (collectively the "FK Parent Shares") will be
acquired for such FK Stockholder's own account, for investment purposes only and
not with a view to the distribution thereof. The FK Stockholders are not
participating, directly or indirectly, in any distribution or transfer of such
shares, nor are they participating, directly or indirectly, in underwriting any
such distribution or transfer of the FK Parent Shares within the meaning of the
Securities Act. The FK Stockholders and their representatives have such
knowledge and experience in business matters that they are capable of evaluating
the merits and risks of an investment in the Parent and the acquisition of the
FK Parent Shares and the FK Stockholders are making an informed investment
decision with respect thereto. The FK Stockholders have been informed by the
Parent that the FK Parent Shares issuable pursuant to this Agreement will not be
registered at the time of their issuance under the Securities Act or any state's
securities laws and may not be transferred, assigned or otherwise disposed of
unless the FK Parent Shares are subsequently registered under the Securities Act
or appropriate state securities laws or an appropriate exemption therefrom is
available and that, except pursuant to the terms of the Registration Rights
Agreement contemplated hereunder, the Parent is under no obligation to register
the FK Parent Shares under the Securities Act or any state's securities laws or
to take any steps to assist the FK Stockholders to comply with any applicable
exemption under the Securities Act or any state's securities laws with respect
to the FK Parent Shares.
4.31 DISCLOSURE. Each response by the FK Stockholders directly or
through their representatives to inquiries in connection with the due diligence
performed by representatives of the Company, the Company Stockholders and the HT
Equityholders, as revised or updated by subsequent disclosures before the date
hereof and this Agreement, were complete and accurate in all material respects.
Copies of all documents and other written information referred to herein or in
the
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Schedules that have been delivered or made available to the Company, the Company
Stockholders and/or the HT Equityholders are true, correct and complete copies
thereof and include all amendments, supplements or modifications thereto or
waivers thereunder. Such documents and other written information do not omit any
material facts necessary, in light of the circumstances under which such
information was furnished, to make the statements set forth therein not
misleading. Except as expressly set forth in this Agreement and the Schedules or
in the certificates or other documents delivered pursuant hereto, the FK
Stockholders have no knowledge of any facts which will have any material adverse
effect on the value of the business of Flare King and the FK Subsidiary taken as
a whole or the Flare King Assets.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE HT EQUITYHOLDERS
The HT Equityholders hereby represent and warrant to the Company, the
Company Stockholders and the FK Stockholders as follows:
5.1 ORGANIZATION AND GOOD STANDING. Hi-Tech is a limited liability
company [DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING] under the laws
of Texas. Hi-Tech has all requisite power and authority to own, hold, use and
lease its properties and assets and to conduct its business as it is now being
conducted. Hi-Tech is duly qualified as a foreign entity and is in good standing
in all jurisdictions in which the character of the properties and assets now
owned or leased by it or the nature of the business now conducted by it requires
it to be so qualified. The Hi-Tech Equityholders have made available to the FK
Stockholders, the Company, and the Company Stockholders or the respective
representatives thereof true, complete and correct copies of its articles of
organization and regulations, as amended to the date of this Agreement.
5.2 CAPITALIZATION OF HI-TECH. The members capital of Hi-Tech consists
of membership interests, without par value, with the issuance thereof expressed
as percentages. There are no outstanding subscriptions, options, rights,
warrants, convertible securities or other agreements or commitments obligating
Hi-Tech to issue or to transfer from treasury any additional membership
interests of any class. All membership interests of Hi-Tech are held of record
and beneficially as set forth on Schedule 5.2.
5.3 OWNERSHIP; VOTING RIGHTS. The HT Equityholders are the record and
beneficial holders of all of the membership interests of Hi-Tech, free and clear
of all Liens. The membership interests of Hi-Tech are not subject to any voting
trust, voting agreement or other agreement regarding the right or obligation to
vote such membership interests.
5.4 NO SUBSIDIARIES OR OTHER OWNERSHIP INTERESTS. Hi-Tech does not own
or control, directly or indirectly, shares of capital stock, debt instruments or
other securities of any corporation or hold, directly or indirectly, any
interest in any trust, partnership, limited partnership, joint venture, business
association, limited liability company, unincorporated business, proprietorship,
business enterprise or other business entity whatsoever.
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5.5 AUTHORITY. Each HT Equityholder has all requisite power and
authority to enter into, execute and deliver this Agreement and the documents
contemplated hereby to be executed by it and to perform the obligations to be
performed by it hereunder and thereunder. This Agreement has been duly executed
and delivered by each HT Equityholder and constitutes, and such other documents
when executed and delivered by such HT Equityholder will constitute, the legal,
valid and binding obligations of such HT Equityholder, enforceable against such
HT Equityholder in accordance with their respective terms.
5.6 NO CONFLICTS. The execution and delivery of this Agreement and the
documents contemplated hereby to be executed by each of the HT Equityholders do
not, and compliance by each with the terms hereof and thereof and consummation
by each of the transactions contemplated hereby and thereby will not, (a)
violate or conflict with any existing term or provision of any law, statute,
ordinance, rule, regulation, order, writ, judgment, injunction or decree
applicable to such HT Equityholder; (b) conflict with or result in a breach of
or default under any of the terms, conditions or provisions of the articles of
incorporation or bylaws, if applicable, of such HT Equityholder or any agreement
or instrument to which such HT Equityholder is a party or otherwise subject, or
by which the Hi-Tech Assets (as hereinafter defined) may be bound; (c) result in
the creation or imposition of any Lien upon any of the Hi-Tech Assets; (d) give
to others any right of termination, cancellation, acceleration or modification
in or with respect to any agreement or instrument to which such HT Equityholder
is a party or otherwise subject, or by which such HT Equityholder or the Hi-Tech
Assets may be bound; or (e) breach any fiduciary duty owed by such HT
Equityholder to any person or entity.
5.7 CONSENTS AND APPROVALS. The execution and delivery by each HT
Equityholder of this Agreement and the documents contemplated hereby to be
executed by such HT Equityholder, compliance by such HT Equityholder with the
terms hereof and thereof and consummation by such HT Equityholder of the
transactions contemplated hereby and thereby do not require such HT Equityholder
to obtain any consent, approval or action of, make any filings with or give any
notice to any corporation, person, firm or other entity, or any public,
governmental or judicial authority.
5.8 TITLE TO HI-TECH ASSETS; CONDITION. Except as set forth on Schedule
5.8, Hi-Tech has good title to all of the tangible and intangible properties and
assets used in the conduct of the business of Hi-Tech, wherever located (the
"Hi-Tech Assets"), including without limitation those properties and assets set
forth on Schedule 5.8 attached hereto, and all of the following in any way
pertaining to, related to, identified with or otherwise used in the business of
Hi-Tech: all machinery and equipment, office furniture and equipment,
furnishings, fittings, accessories, appliances, contracts, licenses, permits,
financial books and records, industry expertise, vendor and customer
relationships, goodwill, operating rights, rights to telephone numbers, right to
or associated with Hi-Tech's name, all rights to or associated with any trade
names, trademarks and logos related thereto and the value associated therewith,
free and clear, except as set forth on Schedule 5.8, of any Liens. The tangible
Hi-Tech Assets have, as applicable, been installed, operated and maintained in
accordance with accepted industry practice, are free from latent defects or
defects of workmanship or materials, are suitable for the purposes for which
they have been and are being employed in the operation of the business of
Hi-Tech and are in good operating condition and repair, ordinary wear and tear
excepted. Nothing has occurred to the Hi-Tech Assets since December 31, 1996
that would have any effect on
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the value of the Hi-Tech Assets or the suitability of the Hi-Tech Assets for the
purposes for which they have been and are being employed in the operation of the
business of Hi-Tech. Schedule 5.8 lists all material leases, operating
agreements, maintenance agreements, management agreements, mortgages and other
documents or agreements applicable to the Hi-Tech Assets. There are no actual,
pending or threatened claims against the Hi-Tech Assets that could give rise to
a Lien (other than Liens that would be covered by valid and collectible
insurance, including applicable deductibles), or acts or incidents which could
give rise to any such claims, relating to or arising out of the Hi-Tech Assets
or the operation of the business of Hi-Tech. All assets necessary or useful in
or to the business of Hi-Tech as presently operated by Hi-Tech are owned of
record and beneficially by Hi-Tech and not by any affiliate of Hi-Tech or any
other party. As to each material contract that constitutes part of the Hi-Tech
Assets, such contract is in full force and effect, no notice of cancellation or
termination or default has been received by Hi-Tech and no event or condition
has occurred or exists which, with notice or lapse of time or both, would
constitute a default thereunder. The transactions contemplated hereby will not
affect the validity or enforceability of such contracts. As to each lease or
license the leasehold or licensee's interest in which constitutes part of the
Hi-Tech Assets, such lease or license is in full force and effect, no notice of
cancellation or termination under any option or right reserved to the lessor or
licensor under such lease or license or notice of default has been received by
Hi-Tech and no event or condition has occurred or exists which, with notice or
lapse of time or both would constitute a default hereunder. Hi-Tech has not
assigned its interest under any such lease or license or subleased the premises
demised thereby or sublicensed the right or license granted thereby. The
transactions contemplated hereby will not affect the validity or enforceability
of the leases and licenses. Each of the parcels of land, a leasehold or fee
estate in which is included in the Hi-Tech Assets, has free and uninterrupted
access to and from a dedicated public right-of-way by reason of the fact that
such parcel either adjoins such dedicated public right-of-way or connects to
such right-of-way through a valid and subsisting easement, and such access is
adequate for the use being made of the parcel being accessed.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 attached hereto contains true
and complete copies of the audited financial statements of Hi-Tech as of and for
the period ended December 31, 1996 and unaudited financial statements of Hi-Tech
as of and for the period ended June 30, 1997 (the "Hi-Tech Financial
Statements"). The Hi-Tech Financial Statements are true and correct and fairly
present, in accordance with generally accepted accounting principles
consistently applied, the financial position of Hi-Tech as of the dates
indicated and the results of operations and cash flows of Hi-Tech for the
respective periods then ended. All detailed schedules accompanying the Hi-Tech
Financial Statements or otherwise provided to the FK Stockholders, the Company,
and the Company Stockholders with respect thereto, including without limitation
schedules with respect to accounts payable, accounts receivable, accrued
liabilities, inventory, fixed assets, prepaid expenses and other assets and
liabilities, are true and correct in all material respects and have been
prepared on a basis consistent with Hi-Tech's past practice and with generally
accepted accounting practices. Except as set forth on Schedule 5.9, there are no
material liabilities, contingent or definite, and no assets used in the business
of Hi-Tech that are not reflected in the Hi-Tech Financial Statements and such
detailed schedules.
5.10 CUSTOMARY BUSINESS PRACTICE. Hi-Tech has not conducted or
maintained any business practices or relationships in any manner other than is
customary or standard in the industry, and
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neither Hi-Tech nor any of its equityholders, officers, directors, employees or
agents have any special relationships with any suppliers or customers that are
inconsistent with customary and standard practice in the industry or constitute
a violation of any applicable law.
5.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 5.11, there has not been, occurred or arisen any of the following as
they relate to Hi-Tech since December 31, 1996:
(a) any transaction by Hi-Tech, except in the ordinary course of business as
conducted prior to December 31, 1996;
(b) any capital expenditure by Hi-Tech;
(c) any change in or any event, condition or state of facts of any character
peculiar to the Hi-Tech Assets or the operation of the business of Hi-Tech or
its predecessors that individually or in the aggregate adversely affects Hi-Tech
or the Hi-Tech Assets, that affects the ability of Hi-Tech to conduct normal
operations after the Closing or that affects the validity or enforceability of
this Agreement;
(d) any destruction, damage, or loss suffered by Hi-Tech or with respect to any
Hi-Tech Asset (whether or not covered by insurance);
(e) any revaluation, write-down or write-off by Hi-Tech of any of the Hi-Tech
Assets;
(f) any declaration, setting aside, or payment of a dividend or other
distribution or commitment, obligation or other agreement made with any party
with respect to the payment of any dividend or the making of any distribution in
respect of any of the membership interests of Hi-Tech, or any direct or indirect
redemption, purchase, or other acquisition by Hi-Tech of any of its membership
interests;
(g) any increase in the salary or other compensation, including without
limitation all wages, salary, deferred payment arrangements, bonus payments and
accruals, profit sharing arrangements, payment in respect of stock option or
phantom stock option or similar arrangements, stock appreciation rights or
similar rights, incentive payments, pension or employment benefit contributions
or similar payments, payable or to become payable by Hi-Tech to any of its
officers, directors or employees, or the declaration, payment or commitment or
obligation of any kind for the payment by Hi-Tech of a bonus or increased or
additional salary or compensation to any such person;
(h) any sale, lease or other disposition of any Hi-Tech Asset other than sales
of goods and services in the ordinary course of business and arm's-length sales
of capital assets in a manner consistent with past practice in immaterial
amounts;
(i) any mortgage, pledge, or other encumbrance of any Hi-Tech Asset;
(j) any forgiveness of any debt owed to Hi-Tech;
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(k) any amendment or termination of any material contract, agreement, or license
to which Hi-Tech is a party or to which any of the Hi-Tech Assets are subject,
except in the ordinary course of business;
(l) any breach of the terms of any contract or agreement that is material to the
business of Hi-Tech;
(m) any loan by Hi-Tech to any person or entity, or guaranty by Hi-Tech of any
loan, or the incurrence of any debt by Hi-Tech, other than trade debt incurred
in the ordinary course of business consistent with past practice;
(n) any commencement, notice of commencement or threat of commencement of any
litigation or any governmental proceeding against or investigation of Hi-Tech or
the affairs of Hi-Tech;
(o) any issuance or sale by Hi-Tech of any of Hi-Tech's membership interests of
any class, or of any other of its securities, or any commitment, obligation or
agreement to do so;
(p) any liabilities that have not been disclosed on the Hi-Tech Financial
Statements, other than those incurred in the ordinary course of business since
December 31, 1996;
(q) any waiver or release of any right or claim of Hi-Tech;
(r) any amendment to any national, federal, state, municipal, local, foreign or
other tax returns or reports that have been filed by Hi-Tech in any
jurisdiction;
(s) any labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(t) any transactions by Hi-Tech with an affiliate or related party of Hi-Tech;
(u) any change by Hi-Tech in accounting methods or principles that would be
required to be disclosed under generally accepted accounting principles;
(v) any borrowing of funds, agreement to borrow funds or guaranty by Hi-Tech
affecting or relating to the Hi-Tech Assets or any termination or amendment of
any evidence of indebtedness, contract, agreement, deed, mortgage, lease,
license or other instrument to which Hi-Tech is a party or by which any of the
Hi-Tech Assets is bound or to which any of the Hi-Tech Assets is subject other
than in the ordinary course of business consistent with past practices;
(w) any payment to a stockholder of Hi-Tech other than routine payments
consistent with past practice to such stockholder in his capacity as an
employee;
(x) any entry into any commitment of any kind, or the occurrence of any event
giving rise to any contingent liability not covered by the foregoing; or
(y) any contract, commitment or agreement to do any of the foregoing.
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5.12 ABSENCE OF DEFAULTS. Except as set forth on Schedule 5.12, neither
Hi-Tech nor any HT Equityholder is in default, and no event has occurred which
with notice or lapse of time or both would constitute a default, in any way
under any term or provision of any agreement or instrument to which Hi-Tech or
any HT Equityholder is a party or by which Hi-Tech or any HT Equityholder is
bound or by or to which any of the Hi-Tech Assets is bound or subject that
relates to or would affect Hi-Tech or the Hi-Tech Assets or that could adversely
affect the ability of the HT Equityholders to consummate the transactions
contemplated hereby.
5.13 COMPLIANCE WITH LAWS. There has been no failure by Hi-Tech or any
of the HT Equityholders to comply with any federal, state or local law, statute,
ordinance, rule or regulation in any respect that could have an adverse effect
on the ability of Hi-Tech to conduct normal operations after the Closing or on
the ability of the HT Equityholders to consummate the transactions contemplated
hereby.
5.14 TAX RETURNS AND REPORTS. All federal, state, local and foreign
income, excise, property, sales, use, payroll, informational and other tax
returns and reports of Hi-Tech (collectively, the "Tax Returns") have been
timely filed (including pursuant to extensions) with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed, and all such returns and reports properly reflect the
taxes of Hi-Tech for the periods covered thereby. All federal income, excise and
payroll taxes, and all state, local and foreign income, excise, property, sales
and use taxes, assessments, interest, penalties, deficiencies, fees and other
governmental charges or impositions which are called for as due by the Tax
Returns, or which are claimed to be due with respect to the periods covered
thereby, from Hi-Tech (the "Taxes"), have been properly accrued or paid. Hi-Tech
has not received any notice of assessment or proposed assessment by the Internal
Revenue Service or any other taxing authority in connection with any Tax Returns
and there are no pending tax examinations of any Tax Returns of or tax claims in
respect of the Tax Returns asserted against Hi-Tech or its properties. There has
been no intentional disregard of any applicable statute, regulation, rule or
revenue ruling in the preparation of any Tax Return applicable to Hi-Tech. There
are no tax liens on any of the Hi-Tech Assets except for Liens for current taxes
not yet due and payable. There is no basis for any additional assessment of any
Taxes, penalties or interest with respect to Hi-Tech that is not subject to
defenses well-founded in law or in fact. Hi-Tech has not waived any law or
regulation fixing, or consented to the extension of, any period of time for
assessment of any Taxes which waiver or consent is currently in effect. Hi-Tech
is not and has not since its incorporation been treated as a member of a
consolidated group for purposes of the preparation of financial statements or of
tax returns.
5.15 LITIGATION. Except as set forth on Schedule 5.15, (a) there are no
actions, claims, suits, governmental investigations, governmental inquiries or
proceedings pending against Hi-Tech or any HT Equityholder or threatened against
Hi-Tech or any HT Equityholder, at law or in equity, in any court, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or other instrumentality that (i) affect the validity or
enforceability of this Agreement or the documents contemplated hereby to be
executed by the HT Equityholders; (ii) restrict the continuing transaction of
business with the customers of Hi-Tech; (iii) delay consummation of the
transactions contemplated hereby or (iv) establish a Lien against any of the
Hi-Tech Assets; and (b) neither Hi-Tech nor any HT Equityholder is in violation
of any order,
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decree, judgment, award, determination, ruling or regulation of any court,
governmental department, commission, board, bureau, agency or other
instrumentality, the result of which violation individually or violations in the
aggregate has had or could be expected to have an adverse effect on Hi-Tech or
the Hi-Tech Assets or that (i) affect the validity or enforceability of this
Agreement; (ii) restrict the continuing transaction of business with the
customers of Hi-Tech; (iii) delay consummation of the transactions contemplated
hereby; or (iv) establish a Lien against any of the Hi-Tech Assets.
5.16 CUSTOMERS AND SUPPLIERS. Schedule 5.16 lists the names and
addresses of the customers and suppliers of Hi-Tech since January 1, 1996. The
relationships of Hi-Tech with the customers and suppliers listed in Schedule
5.16 are satisfactory, and Hi-Tech is not aware of any unresolved disputes with
any of such customers or suppliers. Since January 1, 1996, no customer or
supplier has, except as set forth on Schedule 5.16, cancelled, modified or
notified Hi-Tech in writing of its intent to cancel or modify its relationship
with Hi-Tech.
5.17 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The accounts receivable
of Hi-Tech reflected in the Hi-Tech Financial Statements as of December 31, 1996
and all accounts receivable arising thereafter and on or before the date hereof
arose from BONA FIDE transactions in the ordinary course of business, and the
reserves against such accounts receivable reflected in the Hi-Tech Financial
Statements are commercially reasonable and have been determined in accordance
with past practice. No counterclaims or offsetting claims with respect to such
accounts receivable are pending or threatened. The accounts payable reflected in
the Hi-Tech Financial Statements, and all accounts payable arising thereafter
and before the date hereof arose from BONA FIDE transactions in the ordinary
course of business, and all such accounts payable (i) have either been paid,
(ii) are not yet due and payable under the standard procedures of Hi-Tech for
payment of accounts payable, or (iii) are being contested by Hi-Tech in good
faith.
5.18 NO UNDISCLOSED LIABILITIES OR AGREEMENTS. Except as set forth on
Schedule 5.18, Hi-Tech did not have, as of June 30, 1997, any debts, liabilities
or obligations of any nature whether accrued, absolute, contingent or otherwise,
whether due or to become due, except to the extent reflected in the Hi-Tech
Financial Statements.
5.19 EMPLOYEE BENEFIT PLANS.
(a) Schedule 5.19 lists all employee welfare and employee pension benefit plans
of Hi-Tech, as defined under Sections 3(l) and 3(2) of ERISA, respectively,
which have been sponsored by, maintained by, or contributed to by Hi-Tech, in
effect as of the date hereof or during the five-year period ending on the date
hereof, including without limitation all pension, profit sharing, savings and
thrift, bonus, incentive or deferred compensation, severance pay and medical and
life insurance plans in which any current or former employees of Hi-Tech
("Affected Hi-Tech Employees") participate ("Hi-Tech Employee Plans"), written
copies of all which Hi-Tech Employee Plans have been provided to representatives
of the FK Stockholders, the Company, and the Company Stockholders. Except as set
forth on Schedule 5.19, no Hi-Tech Employee Plans are pension plans within the
meaning of Section 3(2) of ERISA that are intended to be "qualified plans"
("Qualified Plans") under Section 401(a) of the Code.
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(b) Except as set forth on Schedule 5.19, Hi-Tech (i) has made all payments due
from it to date under or with respect to each Hi-Tech Employee Plan; (ii) has
performed all obligations required to be performed by it under each Hi-Tech
Employee Plan and there is no claimed or existing default or violation under any
Hi-Tech Employee Plan or event or condition which, upon giving of notice or the
lapse of time or both, would constitute such a default or violation; and (iii)
is in compliance with the requirements prescribed by all statutes, orders or
governmental rules or regulations applicable to the Hi-Tech Employee Plans,
including without limitation ERISA and the Code. There are no actions, suits or
claims pending (other than routine claims for benefits) or threatened against
any Hi-Tech Employee Plan or against the assets of any Hi-Tech Employee Plan.
(c) All Hi-Tech Employee Plans are in compliance with and have been administered
in compliance with all applicable requirements of law, including without
limitation the Code and ERISA, and all contributions required to be made to each
such plan under the terms of such plan, ERISA or the Code for all periods of
time before the Closing Date have been or will be, as the case may be, made or
accrued.
(d) With respect to any Qualified Plan, a favorable Tax Reform Act of 1986
determination letter as to the qualification under Section 401(a) of the Code
has been issued and the related trust has been determined to be exempt from
taxation under Section 501(a) of the Code and any amendment made to or action
taken with respect to any Qualified Plan subsequent to the date of such
determination letter has not adversely affected the qualified status of any such
plan. Hi-Tech has performed all obligations required to be performed by it
under, and is not in default under or in violation of, the terms of any of the
Hi-Tech Employee Plans in any respect. Neither Hi-Tech nor any other
"disqualified person" (as defined in Section 4975 of the Code) or "party in
interest" (as defined in Section 3(14) of ERISA) has engaged in any "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Section 406
of ERISA), which could subject any Hi-Tech Employee Plan (or its related trust,
if any), Hi-Tech or any officer, director or employee of Hi-Tech to the excise
tax or penalty imposed under Section 4975 of the Code or Section 502(i) of
ERISA. Hi-Tech has not incurred, and will not incur, any liability to the
Pension Benefit Guaranty Corporation including plan termination liability under
Sections 4062, 4063 or 4064 of ERISA or the creation of a Lien against the
property of Hi-Tech under Section 4068 of ERISA, whether directly or on a
controlled group basis by virtue of Section 4001(b)(1) of ERISA or otherwise
(except for required premium payments, which payments have been made when due).
Hi-Tech does not have a liability attributable to an "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and Section 412(a)
of the Code, whether or not waived, with respect to any Qualified Plan either
directly or on a controlled group basis or otherwise, and has not incurred any
liability attributable to an accumulated funding deficiency under Section 4971
of the Code or Section 302 of ERISA including the lien under Section 302(f) of
ERISA whether directly or on a controlled group basis or otherwise.
(e) Hi-Tech is not required to contribute to, nor, during the five-year period
ending on the Closing Date, has been required to contribute to, any
"multiemployer plan," as such term is defined in Section 3(37) of ERISA, and
Hi-Tech is not subject to any withdrawal or partial withdrawal liability within
the contemplation of Section 4201 of ERISA whether directly or on a controlled
group basis by virtue of Section 4001(b)(1) of ERISA or otherwise and will not
become subject thereto as a result of the transactions contemplated by this
Agreement.
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5.20 CONTRACTS AND COMMITMENTS. Schedule 5.20 contains a true, complete
and correct list (and the HT Equityholders have previously delivered to
representatives of the FK Stockholders, the Company and the Company Stockholders
true, complete and correct copies) of all of the following documents or
agreements, or summaries of material oral agreements or understandings, relating
to the business of Hi-Tech or the Hi-Tech Assets to which, on the date of this
Agreement, Hi-Tech is a party, or which relate to or affect Hi-Tech or the
Hi-Tech Assets or the transactions contemplated hereby and all documents or
agreements which may require any action or consent in connection with such
transactions, as they may have been amended to the date hereof:
(a) any written employment or consulting agreement, contract or commitment with
any employee, officer or director or any contract or agreement with other
consultants;
(b) any agreement, contract or commitment with any party containing any covenant
limiting the ability of Hi-Tech or any employee of Hi-Tech to engage in business
or to compete in any location or with any person;
(c) any partnership or joint venture agreement with any party or any
arrangements with any party with respect to the sharing of or in the profits or
revenues of Hi-Tech, including without limitation any licensing or royalty
agreements;
(d) any agreement or instrument relating to the borrowing of money, or the
direct or indirect guarantee of any obligation for, or an agreement to service
the repayment of, borrowed money or any other contingent obligations in respect
of indebtedness of any other party;
(e) any agreement, contract or commitment relating to the future disposition or
acquisition of any investment in any party or of any interest in any business
enterprise involving the business of Hi-Tech or the Hi-Tech Assets;
(f) any contract or commitment for capital expenditures or the acquisition or
construction of fixed assets;
(g) any contract or commitment for the sale or furnishing of materials,
supplies, merchandise, equipment or services;
(h) any written agreement, instrument or other arrangement, or any unwritten
agreement, contract, commitment or other arrangement, between or among Hi-Tech
and any affiliates of Hi-Tech;
(i) any contract which grants to any person a preferential right to purchase any
of the Hi-Tech Assets;
(j) any contract, agreement or commitment with respect to the discharge or
removal of a Contaminant (as defined in Section 2.24(b) above) other than in the
ordinary course of business; and
(k) any other material agreement or instrument not made in the ordinary course
of business.
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There is no course of dealing, waiver, side agreement, arrangement or
understanding applicable to any such contract of Hi-Tech not disclosed therein
or in Schedule 5.20.
5.21 INSURANCE. Schedule 5.21 sets forth a true, complete and correct
list of all insurance policies of any kind or nature covering Hi-Tech with
respect to the business of Hi-Tech and the Hi-Tech Assets, including without
limitation policies of life, fire, theft, employee fidelity, worker's
compensation, property and other casualty and liability insurance, and indicates
the type of coverage, name of insured, the insurer, the premium, the expiration
date of each policy and the amount of coverage for statutory workers'
compensation. Schedule 5.21 also sets forth a list of any currently pending
claims and any claims asserted under such policies or similar policies. Except
as set forth in Schedule 5.21, the premiums for the insurance policies listed in
Schedule 5.21 have been fully paid. The insurance afforded under such policies
or certificates is in full force and effect and will continue to cover Hi-Tech,
with respect to the business of Hi-Tech and the Hi-Tech Assets through the
Closing. True, complete and correct copies of each such policy, or binders with
respect thereto, have been made available to representatives of the FK
Stockholders, the Company and the Company Stockholders. None of such insurance
policies are subject to retroactive premium adjustment in respect of prior
periods.
5.22 EMPLOYEES. Schedule 5.22 lists all employees of Hi-Tech, the rates
of pay for each employee of Hi-Tech and all commission, bonus or other
compensation or expense reimbursement or allowance arrangements between Hi-Tech
and any of its employees. Schedule 5.22 lists each management or employment
contract or contract for personal services and a description of any
understanding or commitment between Hi-Tech and any officer, consultant,
director, employee, independent contractor or other person or entity. A true and
complete copy of such contracts and a description of any understandings and
commitments has been delivered to representatives of the FK Stockholders, the
Company and the Company Stockholders.
5.23 LABOR AGREEMENTS; DISPUTES. Hi-Tech is not a party to and has no
obligation under any collective bargaining agreement or other labor union
contract, white paper or side agreement with any labor union or organization and
has no obligation to recognize or deal with any labor union or organization.
There are no pending or overtly threatened representation campaigns, elections
or proceedings or questions concerning union representation involving any
employees of Hi-Tech. Hi-Tech has no knowledge of any overt activities or
efforts of any labor union or organization (or representatives thereof) to
organize any employees engaged in the business of Hi-Tech, nor of any demands
for recognition or collective bargaining, nor of any strikes, slowdowns, work
stoppages or lock-outs of any kind, or overt threats thereof, by or with respect
to any of its employees, or any actual or claimed representatives thereof, and
no such activities, efforts, demands, strikes, slowdowns, work stoppages or
lock-outs have occurred with respect to Hi-Tech.
5.24 ENVIRONMENTAL AND HEALTH SAFETY MATTERS.
(a) As used in this Section 5.24, all terms appearing in initial capitals shall
have the meaning given them in Section 2.23(b) hereof. Except as set forth on
Schedule 5.24, with respect to the business of Hi-Tech and the Facilities, (i)
the operations of Hi-Tech comply in all respects with all applicable
environmental, health and safety statutes, treaties, conventions, rules,
ordinances, and regulations in
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all jurisdictions in which Hi-Tech conducts business, including without
limitation all Domestic Environmental Laws and Foreign Environmental Laws
applicable to the jurisdictions in which operations are conducted; (ii) none of
the operations of Hi-Tech are subject to any judicial or administrative
proceeding alleging the violation of any Domestic Environmental Law or Foreign
Environmental Law; (iii) none of the operations of Hi-Tech are the subject of
any investigation evaluating whether any Remedial Action is needed to respond to
a Release of any Contaminant or other substance into the environment; (iv)
Hi-Tech has not filed any notice under any Domestic Environmental Law or Foreign
Environmental Law applicable to the jurisdiction in which operations of Hi-Tech
are conducted indicating past or present treatment, storage or disposal of a
hazardous waste or reporting a Release of a Contaminant or other substance into
the environment; (v) Hi-Tech has no contingent liability in connection with any
Release of any Contaminant or other substance into the environment, including
without limitation any contingent liability for failure to report a Release;
(vi) none of the operations of Hi-Tech involve the generation, transportation,
treatment or disposal of hazardous waste, as defined under 40 C.F.R. Parts
260-270 (in effect as of the date of this Agreement) or any state equivalent
thereof, in violation of any Domestic Environmental Law or Foreign Environmental
Law applicable to the jurisdiction in which operations of Hi-Tech are conducted,
including without limitation statutes, regulations and laws pertaining to
permits and manifests; (vii) Hi-Tech has not disposed of any hazardous waste or
substance or other material by placing it in or on the ground or waters of any
premises owned, leased or used by Hi-Tech in violation of any Domestic
Environmental Law or Foreign Environmental Law applicable to the jurisdiction in
which operations of Hi-Tech are conducted nor has any lessee or prior owner;
(viii) no underground storage tanks or surface impoundments are, on any of the
locations upon which the operations of Hi-Tech are conducted, in violation of
any Domestic Environmental Law or Foreign Environmental Law applicable to the
jurisdiction in which operations of Hi-Tech are conducted; and (ix) no Lien in
favor of any governmental authority for (A) any liability under Domestic
Environmental Laws or Foreign Environmental Laws applicable to the jurisdiction
in which operations of Hi-Tech with respect to the business of Hi-Tech is
conducted, or (B) damages arising from or costs incurred by such governmental
authority in response to a release of a Contaminant or other substance into the
environment has been filed or attached to any of the assets of Hi-Tech or any of
the locations upon which the operations of Hi-Tech with respect to the business
of Hi-Tech is conducted.
5.25 POWER OF ATTORNEY. No person holds a power of attorney to act on
behalf of Hi-Tech with respect to the business of Hi-Tech or the Hi-Tech Assets.
5.26 BANK ACCOUNTS. Schedule 5.26 contains a complete and correct list
of the names and locations of all banks in which Hi-Tech has accounts or safe
deposit boxes and the names of all persons authorized to draw thereon or to have
access thereto. No funds on deposit in banks or certificates of deposit or other
liquid assets or investments of Hi-Tech are restricted as to access or use.
5.27 REGULATORY FILINGS. Hi-Tech has filed or caused to be filed all
reports, statements, documents, registrations, filings or submissions required,
in connection with the operation of the business of Hi-Tech or the Hi-Tech
Assets, to be filed by Hi-Tech with any federal, state, provincial, municipal or
other governmental department, commission, board, bureau, agency or other
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instrumentality. All such filings complied with applicable law when filed and no
deficiencies have been asserted by any such regulatory authority with respect to
such filings or submissions.
5.28 BROKERS AND FINANCIAL ADVISERS. All negotiations with respect to
this Agreement and the transactions contemplated hereby have been carried out by
the HT Equityholders directly with the FK Stockholders, the Company and the
Company Stockholders, without the intervention of any person on behalf of the HT
Equityholders in such manner as to give rise to any valid claim by any person
for a finder's fee, brokerage commission or similar payment.
5.29 TRANSACTIONS WITH AFFILIATES. There are no direct or indirect
contracts or arrangements, formal or informal or written or oral, related to the
business of Hi-Tech or the Hi-Tech Assets between Hi-Tech and any other persons
controlling, under common control with or controlled by Hi-Tech or any of their
affiliates or persons related thereto.
5.30 INVESTMENT REPRESENTATION. The shares of Parent Common Stock to be
received in consideration for the Hi-Tech Contribution by each HT Equityholder
(other than Flare King) under the terms of this Agreement (the "HT Parent
Shares") will be acquired for such HT Equityholder's own account, for investment
purposes only and not with a view to the distribution thereof. The HT
Equityholders are not participating, directly or indirectly, in any distribution
or transfer of such shares, nor are they participating, directly or indirectly,
in underwriting any such distribution or transfer of the HT Parent Shares within
the meaning of the Securities Act. Each HT Equityholder and its representatives
have such knowledge and experience in business matters that they are capable of
evaluating the merits and risks of an investment in the Parent and the
acquisition of the HT Parent Shares and each HT Equityholder is making an
informed investment decision with respect thereto. The HT Equityholders have
been informed by the Parent that the HT Parent Shares issuable pursuant to this
Agreement will not be registered at the time of their issuance under the
Securities Act or any state's securities laws and may not be transferred,
assigned or otherwise disposed of unless the HT Parent Shares are subsequently
registered under the Securities Act or appropriate state securities laws or an
appropriate exemption therefrom is available and that, except pursuant to the
terms of the Registration Rights Agreement contemplated hereunder, the Parent is
under no obligation to register the HT Parent Shares under the Securities Act or
any state's securities laws or to take any steps to assist any HT Equityholder
to comply with any applicable exemption under the Securities Act or any state's
securities laws with respect to the HT Parent Shares.
5.31 DISCLOSURE. Each response by Hi-Tech by or through its officers,
employees or other representatives to inquiries in connection with the due
diligence performed by representatives of the FK Stockholders, the Company or
the Company Stockholders, as revised or updated by subsequent disclosures before
the date hereof and this Agreement, was complete and accurate in all material
respects. Copies of all documents and other written information referred to
herein or in the Schedules that have been delivered or made available to the FK
Stockholders, the Company and/or the Company Stockholders are true, correct and
complete copies thereof and include all amendments, supplements or modifications
thereto or waivers thereunder. Such documents and other written information do
not omit any material facts necessary, in light of the circumstances under which
such information was furnished, to make the statements set forth therein not
misleading. Except as expressly set forth in this Agreement and the Schedules or
in the certificates or other documents
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delivered pursuant hereto, the HT Equityholders have no knowledge of any facts
which will have any material adverse effect on the value of the business of
Hi-Tech or the Hi-Tech Assets.
ARTICLE 6
ACTIONS BY FLARE KING AND HI-TECH PENDING CLOSING
The FK Stockholders and the HT Equityholders will cause Flare King and
Hi-Tech, respectively, between the date hereof and the Closing Date, to comply
with the provisions of this Article 6, except to the extent that the Company and
a majority-in-interest of the Company Stockholders may otherwise consent in
writing or to the extent otherwise required or permitted by this Agreement. For
purposes of this Agreement, "majority-in-interest" shall mean by a vote of a
majority of the outstanding shares of stock or membership equity interest, as
applicable, in the relevant entity.
6.1 CONDUCT OF BUSINESS. Each of Flare King and Hi-Tech shall operate
its business only in the usual, regular and ordinary manner and, to the extent
consistent with such operation, use its good faith efforts to maintain, preserve
and protect the Flare King Assets and Hi-Tech Assets, respectively, and the
business organization of Flare King and Hi-Tech, respectively, all in
coordination and cooperation with the Company, and shall keep available the
services of its present officers and employees and shall preserve the present
relationships with persons having dealings with Flare King and Hi-Tech,
respectively, as the same relate to the business of Flare King and Hi-Tech,
respectively. Neither Flare King nor Hi-Tech shall take, any of the actions
enumerated in Sections 4.11 and 5.11, respectively, or enter into any contract
of the nature enumerated in Sections 4.20 and 5.20, respectively.
6.2 RECORDS. Flare King and Hi-Tech shall each maintain its books,
accounts and records in the usual, regular and ordinary manner.
6.3 MAINTENANCE OF INSURANCE. Flare King and Hi-Tech shall each
maintain in full force and effect all of its presently existing insurance
coverage described in Schedules 4.21 or 5.21, respectively, or insurance
comparable to such existing coverage. Flare King and Hi-Tech shall each cause
the Company and the Parent to be named as an additional insureds and loss payees
under such policies effective from the signing of this Agreement.
6.4 TAX FILINGS AND PAYMENTS. The FK Stockholders and the HT
Equityholders shall cause each of Flare King and Hi-Tech, respectively, to file
all tax returns on a timely basis and pay all taxes as the same shall become due
between the date of execution of this Agreement and the Funding and Consummation
Date, and the FK Stockholders and the HT Equityholders shall cause each of Flare
King and Hi-Tech, respectively, to permit the Company, the Company Stockholders
and their representatives to review the same prior to their filing.
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ARTICLE 7
COVENANTS OF THE FK STOCKHOLDERS AND THE HT EQUITYHOLDERS
Each of the FK Stockholders and the HT Equityholders covenants and
agrees with the Company and the Company Stockholders that:
7.1 APPROVALS.
(a) Each of the FK Stockholders and the HT Equityholders shall take all
reasonable steps and use reasonable commercial efforts to obtain and shall
cooperate with the Company and the Company Stockholders in obtaining, as
promptly as possible, all approvals, authorizations and clearances of
governmental and regulatory bodies and officials required to consummate the
transactions contemplated hereby;
(b) Each of the FK Stockholders and the HT Equityholders shall provide such
other information and communications to governmental and regulatory authorities
as such governmental and regulatory authorities or the Company may reasonably
request; and
(c) Each of the FK Stockholders and the HT Equityholders shall use reasonable
commercial efforts to obtain any requisite consents of any third parties
required to consummate the transactions contemplated hereby, but only if no
payment or other concessions are required to obtain such consents.
Notwithstanding any other language herein, neither the Company nor any Company
Stockholders, shall be required to make any payment or other concession or to
assume any obligation in connection with obtaining such consents.
7.2 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the FK Stockholders and
the HT Equityholders shall use reasonable commercial efforts to comply promptly
with all requirements which federal or state law may impose on the FK
Stockholders, the HT Equityholders, Flare King and Hi-Tech, respectively, with
respect to the transactions contemplated by this Agreement and will promptly
cooperate with and furnish information to the Company and the Company
Stockholders in connection with any such requirements imposed upon the FK
Stockholders, the HT Equityholders, Flare King and Hi-Tech, respectively, in
connection therewith.
7.3 BOOKS AND RECORDS. Except as prohibited by law, the FK Stockholders
and the HT Equityholders shall cause each of Flare King and Hi-Tech,
respectively, to make its books and records related to the operation of the
business of Flare King and Hi-Tech, respectively, or the Flare King Assets or
Hi-Tech Assets available or deliver copies of such books and records thereof to
the Company during normal business hours for any reasonable business purpose.
7.4 INVESTIGATION BY THE COMPANY. From and after the date hereof and
until the Closing Date, the FK Stockholders and the HT Equityholders shall cause
each of Flare King and Hi-Tech, respectively, to permit the Company and its
counsel, accountants and other representatives reasonable access during normal
business hours to all of its properties, books, contracts, commitments and other
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records, including without limitation tax returns, declarations of estimated tax
and tax reports, and during such period, the FK Stockholders and the HT
Equityholders shall cause Flare King and Hi-Tech, respectively, to furnish
promptly to the Company all other information concerning its business,
properties and personnel as the Company may.reasonably request; PROVIDED,
HOWEVER, THAT NO INVESTIGATION PURSUANT TO THIS SECTION 7.4 SHALL AFFECT ANY
REPRESENTATIONS OR WARRANTIES OF THE FK STOCKHOLDERS OR THE HT EQUITYHOLDERS
CONTAINED IN THIS AGREEMENT.
7.5 CERTAIN ACTS OR OMISSIONS. Neither the FK Stockholders nor the HT
Equityholders shall (a) omit to take any action called for by any of the
covenants contained in this Agreement, or (b). take any action which it is
required to refrain from taking by any of such covenants. Each of the FK
Stockholders and the HT Equityholders shall use all reasonable efforts to cure,
before the Closing, any violation or breach of any of its representations,
warranties or covenants contained in this Agreement which becomes known, occurs
or arises subsequent to the date of this Agreement and to obtain the
satisfaction of all conditions to Closing set forth in this Agreement.
7.6 REPORTS. The FK Stockholders and the HT Equityholders shall deliver
to the Company copies of all material financial statements, reports or analyses
with respect to the business of Flare King and Hi-Tech, respectively, which are
prepared or received between the date hereof and the Closing Date promptly after
such preparation or receipt (to the extent normally provided to management of
Flare King and Hi-Tech, respectively, or reasonably requested by the Company,
including without limitation all internal daily, monthly or quarterly financial
statements, reports and analyses relating to the business of Flare King and
Hi-Tech, respectively, regularly prepared) and regardless of whether such
financial statements, reports or analyses are prepared internally or by third
parties. The FK Stockholders and the HT Equityholders shall cause Flare King and
Hi-Tech, respectively, not to change the nature and timing of financial
statements, reports and analyses which have historically been regularly
prepared.
7.7 CONFIDENTIALITY. Neither the FK Stockholders nor the HT
Equityholders shall, before the Closing Date, disclose or allow any of their
respective affiliates to disclose to third parties any information that it has
obtained from the Company in connection with this Agreement with respect to the
Company or any of the affiliates thereof, and from and after the Closing Date
neither the FK Stockholders nor the HT Equityholders shall disclose or allow any
of their respective affiliates to disclose to third parties, and will not use
for their own account or allow their affiliates to use for their own accounts,
any trade secrets, business secrets or other information relating to the
business of Flare King and Hi-Tech, respectively, or the Flare King Assets or
Hi-Tech Assets or any information that the FK Stockholders and the HT
Equityholders have obtained from the Company in connection with this Agreement
with respect to the Company or any of the affiliates thereof, except to the
extent deemed necessary in connection with any securities offering by the
Parent.
7.8 ADDITIONAL DISCLOSURE. From the date of this Agreement to and
including the Closing Date, each of the FK Stockholders and the HT Equityholders
shall, promptly after the occurrence thereof is known to it, advise the Company
and the Company Stockholders of each event subsequent to the date hereof which
causes any covenant thereof to be breached or causes any representation or
warranty thereof contained herein to no longer be true, correct or complete.
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7.9 BEST EFFORTS. Each of the FK Stockholders and the HT Equityholders
shall use its best efforts to satisfy the conditions precedent to the
performance by the Company of its obligations under this Agreement.
7.10 INFORMATION FOR REGISTRATION STATEMENT AND OTHER FILINGS - THE FK
STOCKHOLDERS. The Stockholders will at their expense furnish the Company and the
Parent with such information concerning Flare King and each FK Stockholder as is
reasonably deemed necessary or appropriate by the Company and the Parent
(including, without limitation, (i) audited financial statements and other
financial information for Flare King presented in accordance with generally
accepted accounting principles; and (ii) other financial and operational
statistics for inclusion in the Registration Statement (as hereinafter defined)
to be filed with the Securities and Exchange Commission ("SEC") under the
Securities Act and the prospectus (the "Prospectus") to be delivered by the
Parent in connection with the IPO or any application or other statement to be
made by the Parent to, or filed by the Parent with, any governmental authority
or securities agency in connection with the transactions contemplated by this
Agreement; and each FK Stockholder represents and warrants that all information,
including any amended information, so furnished for such Prospectus, statements
and applications shall, at the time it is furnished, at the time any SEC filing
relating thereto becomes effective, on the Closing Date and on the Funding and
Consummation Date be true, correct and complete in all material respects and
shall not omit any material fact required to be stated therein or necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading. Without limiting the general application of the foregoing
provisions, the FK Stockholders shall cause Flare King to furnish the Company
and the Parent at the FK Stockholders' expense audited and unaudited financial
statements of Flare King as may be required by applicable federal and state
securities laws to be included in, or furnished to, any governmental authority
or person in connection with the filing of the Registration Statement and the
Parent's compliance with such laws applicable to the IPO and sale of shares of
the Parent's Common Stock and shall cooperate and use their reasonable
commercial efforts to assist in obtaining a comfort letter and consent from any
accounting firm required in connection with the Parent's obligations under
federal securities laws.
7.11 INFORMATION FOR REGISTRATION STATEMENT AND OTHER FILINGS - THE HT
EQUITYHOLDERS. The HT Equityholders will at their own expense furnish the
Company and the Parent with such information concerning Hi-Tech and the HT
Equityholders as is reasonably deemed necessary or appropriate by the Company
and the Parent (including, without limitation, (i) audited financial statements
and other financial information for Hi-Tech presented in accordance with
generally accepted accounting principles; and (ii) other financial and
operational statistics for inclusion in the Registration Statement to be filed
with the SEC under the Securities Act and the Prospectus to be delivered by the
Parent in connection with the IPO or any application or other statement to be
made by the Parent to, or filed by the Parent with, any governmental authority
or securities agency in connection with the transactions contemplated by this
Agreement; and each HT Equityholder represents and warrants that all
information, including any amended information, so furnished for such
Prospectus, statements and applications shall, at the time it is furnished, at
the time any SEC filing relating thereto becomes effective, on the Closing Date
and on the Funding and Consummation Date be true, correct and complete in all
material respects and shall not omit any material fact required to be stated
therein or necessary to make the statements made, in light of the circumstances
under which they were made, not misleading. Without limiting the general
application of the foregoing provisions,
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the HT Equityholders shall cause Hi-Tech to furnish the Company and the Parent
at the HT Equityholders' expense audited and unaudited financial statements of
Hi-Tech as may be required by applicable federal and state securities laws to be
included in, or furnished to, any governmental authority or person in connection
with the filing of the Registration Statement and the Parent's compliance with
such laws applicable to the IPO and sale of shares of the Parent's Common Stock
and shall cooperate and use its reasonable commercial efforts to assist in
obtaining a comfort letter and consent from any accounting firm required in
connection with the Parent's obligations under federal securities laws.
7.12 NO TRANSFER. Between the date of this Agreement and the Funding
and Consummation Date, no FK Stockholders or HT Equityholders shall transfer,
assign, pledge, or otherwise convey its Flare King stock or Hi-Tech membership
interest, respectively.
ARTICLE 8
ACTIONS BY THE COMPANY AND COMPANY
STOCKHOLDERS PENDING CLOSING
The Company will and, for purposes of Section 8.7 only, the Company
Stockholders will, between the date hereof and the Closing Date, comply with the
provisions of this Article 8, except to the extent that both the FK Stockholders
and a majority of the HT Equityholders may otherwise consent in writing or to
the extent otherwise required or permitted by this Agreement.
8.1 CONDUCT OF BUSINESS. The Company shall operate its business only in
the usual, regular and ordinary manner and, to the extent consistent with such
operation, use its good faith efforts to maintain, preserve and protect the
Company Assets and the business organization of the Company, all in coordination
and cooperation with the FK Stockholders and the HT Equityholders, and shall
keep available the services of its present officers and employees and shall
preserve the present relationships with persons having dealings with the Company
as the same relate to the business of the Company. The Company shall not take
any of the actions enumerated in Section 2.11 hereof or enter into any contract
of the nature enumerated in Section 2.20.
8.2 RECORDS. The Company shall maintain its books, accounts and records
in the usual, regular and ordinary manner.
8.3 MAINTENANCE OF INSURANCE. The Company shall maintain in full force
and effect all of its presently existing insurance coverage described in
Schedule 2.21 hereto, or insurance comparable to such existing coverage.
8.4 TAX FILINGS AND PAYMENTS. The Company shall file all tax returns on
a timely basis and pay all taxes as the same shall become due between the date
of execution of this Agreement and the Closing Date.
8.5 REGISTRATION OF PARENT COMMON STOCK - CONSUMMATION OF IPO. The
Company, at its sole cost and expense (subject to the obligations under Sections
7.10 and 7.11 for the FK
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Stockholders and the HT Equityholders to provide information at their expense),
agrees to carry out its obligations under this Section 8.5. Immediately after
execution of this Agreement, the Company shall cause the Parent to prepare and,
within forty-five (45) days after such execution, shall file with the SEC a
registration statement (the "Registration Statement") in compliance with an
appropriate form for registration under the Securities Act of the issuance of
certain shares of Parent Common Stock in a best-efforts, underwritten, initial
public offering ("IPO") of at least four million dollars ($4,000,000.00), and
shall use its reasonable commercial efforts to cause such Registration Statement
(amended as necessary) to become effective. The Company shall also take the
appropriate steps and use its reasonable commercial efforts to register or
qualify such shares of Parent Common Stock under such other securities or blue
sky laws of such jurisdictions as the Company deems reasonably necessary and do
any and all other acts and things which may be reasonably necessary or advisable
to enable the Parent to issue in such jurisdictions such Parent Common Stock.
Further, the Company shall use reasonable commercial efforts to cause the IPO to
be consummated as contemplated herein.
8.6 INFORMATION FOR REGISTRATION STATEMENT AND OTHER FILINGS - THE
COMPANY STOCKHOLDERS. The Company Stockholders will at their expense furnish the
Company and the Parent with such information concerning the Company and each
Company Stockholder as is reasonably deemed necessary or appropriate by the
Company and the Parent (including, without limitation, (i) audited financial
statements and other financial information for the Company and the Company
Subsidiary presented in accordance with generally accepted accounting
principles; and (ii) other financial and operational statistics for inclusion in
the Registration Statement to be filed with the SEC under the Securities Act and
the Prospectus to be delivered by the Parent in connection with the IPO or any
application or other statement to be made by the Parent to, or filed by the
Parent with, any governmental authority or securities agency in connection with
the transactions contemplated by this Agreement; and the Company Stockholders
represent and warrant that all information, including any amended information,
so furnished for such Prospectus, statements and applications shall, at the time
it is furnished, at the time any SEC filing relating thereto becomes effective,
on the Closing Date and on the Funding and Consummation Date, be true, correct
and complete in all material respects and shall not omit any material fact
required to be stated therein or necessary to make the statements made, in light
of the circumstances under which they were made, not misleading.
ARTICLE 9
COVENANTS OF THE COMPANY
The Company and the Company Stockholders covenant and agree with the FK
Stockholders and the HT Equityholders that:
9.1 APPROVALS.
(a) The Company shall take all reasonable steps, shall use reasonable commercial
efforts to obtain and shall cooperate with the FK Stockholders and the HT
Equityholders in obtaining, as promptly as possible, all approvals,
authorizations and clearances of governmental and regulatory bodies and
officials required to consummate the transactions contemplated hereby;
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(b) The Company shall provide such other information and communications to
governmental and regulatory authorities as such governmental and regulatory
authorities, the FK Stockholders or a majority of the HT Equityholders may
reasonably request; and
(c) The Company shall use reasonable commercial efforts to obtain any requisite
consents of third parties to the extent required to consummate the transactions
contemplated hereby, but only if no payment or other concessions are required to
obtain such consents.
9.2 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company shall use
reasonable commercial efforts to comply promptly with all requirements which
federal or state law may impose on it or any of its affiliates with respect to
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to the FK Stockholders and the HT Equityholders in
connection with any such requirements imposed upon it in connection therewith.
9.3 BOOKS AND RECORDS. Except as prohibited by law, the Company shall
make all books and records related to the Company Assets available or deliver
copies thereof to the FK Stockholders and the HT Equityholders during normal
business hours for any reasonable business purpose.
9.4 INVESTIGATIONS BY THE FK STOCKHOLDERS AND THE HT EQUITYHOLDERS.
From and after the date hereof and until the Closing Date, the Company shall
permit the FK Stockholders or the HT Equityholders and their counsel,
accountants and other representatives reasonable access during normal business
hours to the Company Assets and the books and other records relating thereto,
and during such period the Company shall furnish promptly to the FK Stockholders
or the HT Equityholders all other information concerning the Company Assets as
the FK Stockholders and a majority of the HT Equityholders may reasonably
request; PROVIDED, HOWEVER, THAT NO INVESTIGATION PURSUANT TO THIS SECTION 9.4
SHALL AFFECT ANY REPRESENTATIONS OR WARRANTIES OF THE COMPANY CONTAINED IN THIS
AGREEMENT.
9.5 CERTAIN ACTS OR OMISSIONS. The Company shall not (a) omit to take
any action called for by any of its covenants in this Agreement or (b) take any
action which it is required to refrain from taking by any of such covenants. The
Company shall use all reasonable efforts to cure, before the Closing, any
violation or breach of any of its representations, warranties or covenants
contained in this Agreement which becomes known, occurs or arises subsequent to
the date of this Agreement and to obtain the satisfaction of all conditions to
Closing set forth in this Agreement.
9.6 REPORTS. The Company shall deliver to the FK Stockholders and the
HT Equityholders copies of all material financial statements, reports or
analyses with respect to the business of the Company which are prepared or
received between the date hereof and the Closing Date promptly after such
preparation or receipt (to the extent normally provided to the management of the
Company or reasonably requested by the Company, including without limitation all
internal daily, monthly or quarterly financial statements, reports and analyses
relating to the business of the Company regularly prepared) and regardless of
whether such financial statements, reports, or analyses are prepared internally
or by third parties. The Company shall not change the nature and timing of
financial statements, reports and analyses which have historically been
regularly prepared.
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9.7 CONFIDENTIALITY. Except in connection with the preparation for and
effecting of the IPO, the Company shall not, before the Closing Date, disclose
or allow any of its affiliates to disclose to third parties any information that
the Company has obtained from the FK Stockholders or the HT Equityholders in
connection with this Agreement with respect to Flare King, Hi-Tech or any of
their respective affiliates.
9.8 ADDITIONAL DISCLOSURE. From the date of this Agreement to and
including the Closing Date, the Company shall, promptly after the occurrence
thereof is known to the Company, advise the FK Stockholders and the HT
Equityholders of each event subsequent to the date hereof which causes any
covenant of the Company to be breached or causes any representation or warranty
of the Company contained herein to no longer be true, correct or complete.
9.9 BEST EFFORTS. The Company shall use its best efforts to satisfy the
conditions precedent to the performance by the FK Stockholders and the HT
Equityholders of their respective obligations under this Agreement.
9.10 NO TRANSFER. Between the date of Agreement and the Funding and
Consummation Date, no Company Stockholder shall transfer, assign, pledge or
otherwise convey its Company stock.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE COMPANY STOCKHOLDERS
Except as may be waived in writing by the Company and a
majority-in-interest of the Company Stockholders, the obligations of the Company
and the Company Stockholders to consummate this Agreement and the transactions
to be consummated by the Company and the Company Stockholders hereunder by
placing appropriate documentation into escrow on the Closing Date and effecting
the transaction contemplated hereby on the Funding Date and Consummation Date
shall be subject to the following conditions (provided that once conditions are
met or waived at the Closing Date, the only remaining condition to effecting the
transaction contemplated herein) shall be the consummation of the IPO (as
contemplated in Section 1.6 hereof):
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the FK Stockholders and the HT Equityholders contained in this Agreement or
in any certificate or document executed and delivered to the Company and/or the
Company Stockholder by the FK Stockholders or the HT Equityholders pursuant to
this Agreement shall have been true and correct on and as of the Closing Date as
though such representations and warranties were made at and as of such date.
10.2 COMPLIANCE WITH AGREEMENT. On and as of the Closing Date, the FK
Stockholders and the HT Equityholders shall have performed and complied in all
material respects with the covenants and agreements required by this Agreement
to be performed and complied with by the FK Stockholders or the HT Equityholders
on or before the Closing Date, including, but not limited to, the deposit into
escrow of documentation necessary to effect the Flare King Contribution and the
Hi-Tech Contribution.
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10.3 OFFICER'S CERTIFICATE. Each of the FK Stockholders and the HT
Equityholders shall deliver to the Company a certificate dated as of the Closing
Date and certifying the fulfillment of the conditions specified in Sections 10.1
and 10.2 hereof.
10.4 NO ACTION OR PROCEEDING. On the Closing Date, no action or
proceeding by any public authority or any other person shall be pending before
any court or administrative body or overtly threatened to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby, and no action or proceeding by any public authority or
private person shall be pending before any court or administrative body or
overtly threatened to recover any damages or obtain other relief as a result of
this Agreement or the transactions contemplated herein or as a result of any
agreement entered into in connection with or as a condition precedent to the
consummation thereof, which action or proceeding could result in a decision,
ruling or finding which would adversely affect the business of Flare King or
Hi-Tech or the Flare King Assets or Hi-Tech Assets or the ability of the
Company, the Parent and its subsidiaries, Flare King and Hi-Tech to conduct
normal operations after the Closing.
10.5 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals and waivers of every governmental entity or third
party required for the consummation of the transactions contemplated hereby, and
all filings, registrations and notifications to or with all governmental
entities required with respect to the consummation of such transactions, shall
have been obtained or given; PROVIDED that any third-party consent not obtained
by the Company or the Company stockholder, but waived by the FK Stockholders and
the HT Equityholders shall not be an unfulfilled condition hereunder.
10.6 OPINION OF COUNSEL. The Company shall have received an opinion,
addressed to the Company, and dated the Closing Date of counsel for the FK
Stockholders and the HT Equityholders in form and substance reasonably
satisfactory to the Company and counsel for the Company.
10.7 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Each of the persons set
forth on Schedule 10.7 shall have delivered to the Parent or its designated
subsidiary an executed counterpart of the Employment and Noncompetition
Agreement with the Parent or its designated subsidiary in substantially the form
attached as Appendix B hereto as an inducement for the Company to enter into
this Agreement and consummate the transactions contemplated hereby.
10.8 NO ADVERSE CHANGE. No incident or event shall have occurred
resulting in the destruction, damage to, or loss of any of the Flare King Assets
or the Hi-Tech Assets (whether or not covered by insurance) or diminution in the
value of the business of Flare King or Hi-Tech.
10.9 DUE DILIGENCE. The Company shall have completed to its
satisfaction its due diligence review of Flare King and Hi-Tech.
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10.10 DELIVERY OF OTHER DOCUMENTS AND INSTRUMENTS. The following
additional documents shall have been executed and delivered on the Closing Date
by the FK Stockholders and the HT Equityholders:
(a) CONSENTS. Copies of all required consents and approvals.
(b) RELEASE. A release in substantially the form attached hereto as Appendix C
by each FK Stockholder and spouse, if applicable, and each HT Equityholder and
spouse, if applicable, of any and all claims each such entity or person may have
against the Company, the Company Subsidiary, Flare King or Hi-Tech, except as
may arise hereunder or under any documents executed in connection herewith.
(c) OTHER REQUESTED DOCUMENTS. Further instruments and documents, in form and
content reasonably satisfactory to counsel for the Company, as may be necessary
or reasonably appropriate more fully to consummate the transactions contemplated
hereby.
10.11 PUBLIC OFFERING. In order to effect final consummation of the
transactions contemplated hereby, the documents referred to in Section 1.6 that
are to be held in escrow shall have been delivered to the Parent and the Parent
shall have successfully consummated the IPO on the Funding and Consummation Date
within 90 days of the Closing Date and those proceeds for the IPO intended to be
used to discharge in full the indebtedness of the Company to Ms. Gay Roane shall
have been so used.
ARTICLE 11
CONDITIONS TO OBLIGATIONS OF THE FK STOCKHOLDERS
Except as may be waived in writing by the FK Stockholders, the
obligations of the FK Stockholders to consummate this Agreement and the
transactions to be consummated by the FK Stockholders hereunder on the Closing
Date shall be subject to the following conditions:
11.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company, the Company Stockholders and the HT Equityholders contained in
this Agreement or in any certificate or document executed and delivered by the
Company, any Company Stockholder or any HT Equityholder to the FK Stockholders
pursuant to this Agreement shall have been true and correct and shall be true
and correct on and as of the Closing Date as though such representations and
warranties were made at and as of such date.
11.2 COMPLIANCE WITH AGREEMENT. On and as of the Closing Date, the
Company, the Company Stockholders and the HT Equityholders shall have performed
and complied in all material respects with the covenants and agreements required
by this Agreement to be performed and complied with by the Company, the Company
Stockholders and the HT Equityholders on or before the Closing Date, including,
but not limited to, the deposit into escrow of documentation necessary to effect
the Company Contribution and the Hi-Tech Contribution.
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11.3 CERTIFICATE. The Company shall have delivered to the FK
Stockholders a certificate of an officer (signed on its behalf by its duty
authorized president or vice president) and the Company Stockholders and the HT
Equityholders shall have delivered to the FK Stockholders a certificate signed
by each Company Stockholder and each HT Equityholder, respectively, each dated
the Closing Date, certifying the fulfillment of the conditions specified in
Sections 11.1 and 11.2 hereof.
11.4 NO ACTION OR PROCEEDING. On the Closing Date, no action or
proceeding by any public authority or any other person shall be pending before
any court or administrative body or overtly threatened to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby, and no action or proceeding by any public authority or
private person shall be pending before any court or administrative body or
overtly threatened to recover any damages or obtain other relief as a result of
this Agreement or the transactions contemplated herein or as a result of any
agreement entered into in connection with or as a condition precedent to the
consummation thereof, which action or proceeding could reasonably be expected to
result in a decision, ruling or finding which would adversely affect the Company
Assets or the Hi-Tech Assets or the ability of the Company, the Parent, its
subsidiaries, Hi-Tech or Flare King to conduct normal operations after the
Closing.
11.5 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals and waivers of every governmental entity or third
party required for the consummation of the transactions contemplated hereby, and
all filings, registrations and notifications to or with all governmental
entities required with respect to the consummation of such transactions, shall
have been obtained or given; PROVIDED that any third-party consent not obtained
by the FK Stockholders, but waived by the Company a majority-in-interest of the
Company Stockholders and the HT Equityholders: (other than Flare King), shall
not be an unfulfilled condition hereunder.
11.6 CORPORATE ACTION BY THE COMPANY. All action necessary to authorize
the execution, delivery and performance by the Company of this Agreement shall
have been duly and validly taken by it and the Company shall have delivered to
the FK Stockholders copies, certified as at the Closing Date by the secretary or
assistant secretary thereof, of its charter documentation, bylaws and all
resolutions of its board of directors and stockholders, as applicable,
authorizing this Agreement and the transactions contemplated by this Agreement.
11.7 OPINIONS OF COUNSEL. The FK Stockholders shall have received an
opinion, addressed to the FK Stockholders and dated the Closing Date of counsel
for each of the Company and the HT Equityholders, in form and substance
reasonably satisfactory to the FK Stockholders and its counsel.
11.8 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Each of the persons set
forth on Schedule 10.7 shall have delivered to the Parent or its designated
subsidiary an executed counterpart of the Employment and Noncompetition
Agreement with the Parent or its designated subsidiary in substantially the form
attached as Appendix B hereto as an inducement for the FK Stockholders to enter
into this Agreement and consummate the transactions contemplated hereby.
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11.9 OTHER REQUESTED DOCUMENTS. There shall have been executed and
delivered, if applicable, further instruments and documents, in form and content
reasonably satisfactory to the FK Stockholders, as may be necessary or
reasonably appropriate more fully to consummate the transactions contemplated
hereby.
11.10 DUE DILIGENCE. The FK Stockholders shall have completed to their
satisfaction their due diligence review of the Company and Hi-Tech.
11.11 PUBLIC OFFERING. In order to effect final consummation of the
transaction contemplated herein, the documents referred to in Section 1.6 that
are to be held in escrow shall have been delivered to the Parent and the Parent
shall have successfully consummated the IPO on the Funding and Consummation Date
within 90 days of the Closing Date and those proceeds for the IPO intended to be
used to discharge in full the indebtedness of the Company to Ms. Gay Roane shall
have been so used.
ARTICLE 12
CONDITIONS TO OBLIGATIONS OF THE HT EQUITYHOLDERS
Except as may be waived in writing by a majority of the HT
Equityholders, the obligations of the HT Equityholders to consummate this
Agreement and the transactions to be consummated by the HT Equityholders
hereunder on the Closing Date shall be subject to the following conditions:
12.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company, the Company Stockholders and the FK Stockholders contained in
this Agreement or in any certificate or document executed and delivered by the
Company, or any Company Stockholder or any FK Stockholder to the HT
Equityholders pursuant to this Agreement shall have been true and correct and
shall be true and correct on and as of the Closing Date as though such
representations and warranties were made at and as of such date.
12.2 COMPLIANCE WITH AGREEMENT. On and as of the Closing Date, the
Company, the Company Stockholders and the FK Stockholders shall have performed
and complied in all material respects with the covenants and agreements required
by this Agreement to be performed and complied with by the Company, the Company
Stockholders and the FK Stockholders on or before the Closing Date, including,
but not limited to, the deposit into escrow of documentation necessary to effect
the Flare King Contribution and the Company Contribution.
12.3 CERTIFICATE. The Company shall have delivered to the HT
Equityholders a certificate of an officer (signed on its behalf by its duly
authorized president or vice president) and the FK Stockholders and the Company
Stockholders shall have delivered to the HT Equityholders a certificate signed
by the FK Stockholders and the Company Stockholders, respectively, each dated
the Closing Date, certifying the fulfillment of the conditions specified in
Sections 12.1 and 12.2 hereof.
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12.4 NO ACTION OR PROCEEDING. On the Closing Date, no action or
proceeding by any public authority or any other person shall be pending before
any court or administrative body or overtly threatened to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby, and no action or proceeding by any public authority or
private person shall be pending before any court or administrative body or
overtly threatened to recover any damages or obtain other relief as a result of
this Agreement or the transactions contemplated herein or as a result of any
agreement entered into in connection with or as a condition precedent to the
consummation thereof, which action or proceeding could reasonably be expected to
result in a decision, ruling or finding which would adversely affect the Company
Assets or the Flare King Assets or the ability of the Company, Parent, its
subsidiaries, Hi-Tech or Flare King to conduct normal operations after the
Closing.
12.5 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals and waivers of every governmental entity or third
party required for the consummation of the transactions contemplated hereby, and
all filings, registrations and notifications to or with all governmental
entities required with respect to the consummation of such transactions, shall
have been obtained or given; PROVIDED that any third-party consent not obtained
by any HT Equityholder, but waived by the Company, a majority-in-interest of the
Company Stockholders and the FK Stockholders, shall not be an unfulfilled
condition hereunder.
12.6 CORPORATE ACTION BY THE COMPANY. All action necessary to authorize
the execution, delivery and performance by the Company of this Agreement shall
have been duly and validly taken by it and the Company shall have delivered to
the HT Equityholders copies, certified as at the Closing Date by the secretary
or assistant secretary thereof, of its charter documentation, bylaws and all
resolutions of its board of directors and stockholders, as applicable,
authorizing this Agreement and the transactions contemplated by this Agreement.
12.7 OPINIONS OF COUNSEL. The HT Equityholders shall have received an
opinion, addressed to the HT Equityholders and dated the Closing Date of counsel
for each of the Company and the FK Stockholders, in form and substance
reasonably satisfactory to the HT Equityholders and their counsel.
12.8 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Each of the persons set
forth on Schedule 10.7 shall have delivered to the Parent or its designated
subsidiary an executed counterpart of the Employment and Noncompetition
Agreement with the Parent or its designated subsidiary in substantially the form
attached as Appendix B hereto as an inducement for the HT Equityholders to enter
into this Agreement and consummate the transactions contemplated hereby.
12.9 DUE DILIGENCE. HT Equityholders shall have completed to their
satisfaction their due diligence review of the Company and Flare King.
12.10 OTHER REQUESTED DOCUMENTS. There shall have been executed and
delivered, if applicable, further instruments and documents, in form and content
reasonably satisfactory to a majority of the HT Equityholders, as may be
necessary or reasonably appropriate more fully to consummate the transactions
contemplated hereby.
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12.11 PUBLIC OFFERING. In order to effect final consummation of the
transaction contemplated herein, the documents referred to in Section 1.6 that
are to be held in escrow shall have been delivered to the Parent and the Parent
shall have successfully consummated the IPO on the Funding and Consummation Date
within 90 days of the Closing Date and those proceeds for the IPO intended to be
used to discharge in full the indebtedness of the Company to Ms. Gay Roane shall
have been so used.
ARTICLE 13
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The respective representations and warranties made by the parties in
this Agreement or in any certificate or document executed and delivered by
either party to the other party pursuant to this Agreement, shall survive the
Closing Date and the consummation of the transactions contemplated hereby for a
period of two (2) years or, if longer, the applicable statute of limitations
with respect to tax or environmental matters, regardless of any investigation
made by the parties hereto.
ARTICLE 14
INDEMNIFICATION
14.1 INDEMNIFICATION OF THE COMPANY INDEMNITEES. Each FK Stockholder
(with respect only to issues arising from himself or itself or Flare King),
jointly and severally, agrees and each HT Equityholder (with respect only to
issues arising from himself and from Hi-Tech), jointly and severally, agrees to
indemnify and hold the Company Indemnitees (as defined below) harmless from and
against:
(a) any and all liabilities, obligations, damages, deficiencies and expenses
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of under the terms of this Agreement or
any document executed and delivered by the same in connection with the
transactions contemplated hereby;
(b) any action or suit or loss suffered or incurred by the Company resulting
from (i) any Environmental Claim, including without limitation any claim arising
out of the operation of the business of Flare King or Hi-Tech before the Closing
Date, and (ii) any expenses (voluntarily or involuntarily incurred) relating to
investigation, removal, cleanup and/or remediation of any contaminant present at
or arising out of the operation of the business of Flare King or Hi-Tech before
the Closing Date;
(c) any and all liabilities, obligations, damages, deficiencies and expenses
resulting from an untrue statement of material fact or omission to state a
material fact in the Registration Statement or Properties or any report filed by
the Parent under the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), but only insofar as any such misstatement or
omission results from untrue or incomplete information furnished by Flare King
or the FK Stockholders, Hi-Tech, or the HT Equityholders, for use therein;
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(d) all actions, suits, proceedings, demands, assessments, judgments, costs and
expenses, including reasonable attorneys' fees, incident to the foregoing.
14.2 INDEMNIFICATION OF FK INDEMNITEES. The Company (with respect only
to issues arising from itself) agrees, each Company Stockholder (with respect
only to issues arising from himself, itself, or the Company), severally, agrees
and each HT Equityholder (with respect only to issues arising from himself or
itself or Hi-Tech), jointly and severally agrees to indemnify and hold the Flare
King Indemnitees (as defined below) harmless from and against:
(a) any and all liabilities, obligations, damages, deficiencies and expenses
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of, respectively, the Company, any Company
Stockholder or any HT Equityholder under the terms of this Agreement or any
document executed and delivered by the same in connection with the transactions
contemplated hereby;
(b) any and all liabilities, obligations, damages, deficiencies and expenses
resulting from an untrue statement of material fact or omission to state a
material fact in the Registration Statement or Prospectus or any report filed by
the Parent under the Securities Act or the Exchange Act, but only insofar as any
such misstatement or omission results from untrue or incomplete information
furnished by Hi-Tech or the HT Equityholders or the Company or the Company
Stockholders, for use therein;
(c) all actions, suits, proceedings, demands, assessments, judgments, costs and
expenses, including reasonable attorneys' fees, incident to the foregoing.
For purposes of this Agreement, "severally" shall mean that each stockholder or
equity holder, as applicable, of a particular entity shall pay that percentage
of the claim or loss equal to their percentage ownership of such entity.
14.3 INDEMNIFICATION OF HT INDEMNITEES. The Company (with respect only
to issues arising from itself) agrees, each Company Stockholder (with respect
only to issues arising from himself, itself, or the Company), severally agrees
and each FK Stockholder (with respect only to issues arising from himself or
Flare King), jointly and severally, agrees to indemnify and hold the HT
Indemnitees (as defined below) harmless from and against:
(a) any and all liabilities, obligations, damages, deficiencies and expenses
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of, respectively, the Company, any Company
Stockholder or any FK Stockholder under the terms of this Agreement or any
document executed and delivered by the same in connection with the transactions
contemplated hereby;
(b) any and all liabilities, obligations, damages, deficiencies and expenses
resulting from an untrue statement of material fact or omission to state a
material fact in the Registration Statement, the Prospectus or any report filed
by the Parent under the Securities Act or the Exchange Act, but only insofar as
any such misstatement or omission results from untrue or incomplete information
furnished by Flare King or the FK Stockholders or the Company or the Company
Stockholders, for use therein;
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(c) all actions, suits, proceedings, demands, assessments, judgments, costs and
expenses, including reasonable attorneys' fees, incident to the foregoing.
14.4 METHOD OF ASSERTING CLAIM, ETC. The items listed in Sections 14.1,
14.2 and 14.3 are sometimes collectively referred to herein as "Damages";
PROVIDED that such reference shall be understood to mean the respective damages
from and against which the Company, the Company Subsidiary, the Company
Stockholders and their respective agents and attorneys (the "Company
Indemnitees"), the FK Stockholders, the FK Subsidiaries and their respective
agents and attorneys (the "FK Indemnitees"), the HT Equityholders and their
respective agents and attorneys (the "HT Indemnitees"), as the case may be, are
indemnified as the context requires. The person claiming indemnification
hereunder, whether a Company Indemnitee, an FK Indemnitee or an HT Indemnitee,
is sometimes referred to as the "Indemnified Party" and the party against whom
such claims are asserted hereunder is sometimes referred to as the "Indemnifying
Party." All claims for indemnification by an Indemnified Party under Sections
14.1, 14.2, and 14.3 hereof, as the case may be, shall be asserted and resolved
as follows:
(a) If any claim or demand for which an Indemnifying Party would be liable for
Damages to an Indemnified Party hereunder is overtly asserted against or sought
to be collected from such Indemnified Party by a third party (a "Third Party
Claim"), such Indemnified Party shall with reasonable promptness (but in no
event later than thirty (30) days after the Third Party Claim is so asserted or
sought against the Indemnified Party) notify in writing the Indemnifying Party
of such Third Party Claim enclosing a copy of all papers served, if any, and
specifying the nature of and specific basis for such Third Party Claim and the
amount or the estimated amount thereof to the extent then feasible, which
estimate shall not be conclusive of the final amount of such Third Party Claim
(the "Claim Notice"). For this purpose the commencement of any audit or other
investigation respecting Taxes shall constitute a Third Party Claim.
Notwithstanding the foregoing, failure to so provide a Claim Notice as provided
above shall not relieve the Indemnifying Party from its obligation to indemnify
the Indemnified Party with respect to any such Third Party Claim except to the
extent that a failure to so notify the Indemnifying Party in reasonably
sufficient time prejudices the Indemnifying Party's ability to defend against
the Third Party Claim. The Indemnifying Party shall have thirty (30) days from
delivery of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (i) whether or not the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such Third
Party Claim and (ii) whether or not the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend the Indemnified Party
against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Notice Period that the Indemnifying Party does not
dispute its liability to the Indemnified Party and that the
Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this Article 13, then
the Indemnifying Party shall have the right to defend, at its sole
cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be diligently prosecuted by the
Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party (but only if the Indemnifying
Party is liable hereunder to the Indemnified Party for the full
amount of, and all obligations under,
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such settlement; otherwise, no such settlement shall be agreed to
without the prior written consent of the Indemnified Party). If the
Indemnifying Party is liable hereunder to the Indemnified Party for
the full amount of such Third Party Claim, the Indemnifying Party
shall have full control of such defense and proceedings, including
any compromise or settlement thereof, PROVIDED, HOWEVER, that the
Indemnified Party is hereby authorized, at the sole cost and expense
of the Indemnifying Party (but only if the Indemnified Party is
actually entitled to indemnification hereunder or if the
Indemnifying Party assumes the defense with respect to the Third
Party Claim), to file during the Notice Period any motion, answer or
other pleadings which the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such
action which is prejudicial and conclusively causes a final
adjudication which is adverse to the Indemnifying Party, the
Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim); and PROVIDED FURTHER, that
if requested by the Indemnifying Party, the Indemnified Party
agrees, at the sole cost and expense of the Indemnifying Party, to
cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim which the Indemnifying Party elects to
contest, or, if appropriate and related to the Third Party Claim in
question, in making any counterclaim against the person asserting
the Third Party Claim, or any cross-complaint against any person.
The Indemnified Party may participate in, but not control (except if
the Indemnifying Party is not liable hereunder to the Indemnified
Party for the full amount of such Third Party Claim, in which case
whichever of the Indemnifying Party or the Indemnified Party is
liable for the largest amount of Damages with respect to the Third
Party Claim shall control), any defense or settlement of any Third
Party Claim with respect to which the Indemnifying Party is
participating pursuant to this Section 14.4(a)(i), and except as
provided in the preceding sentence, the Indemnified Party shall bear
its own costs and expenses with respect to such participation.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Notice Period that the Indemnifying Party does not
dispute its liability to the Indemnified Party and that the
Indemnifying Party desires to defend the Indemnified Party pursuant
to this Article 13, then the Indemnified Party shall have the right
to defend, at the sole cost and expense of the Indemnifying Party,
the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the
Indemnified Party to a final conclusion or settled. The Indemnified
Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof, PROVIDED, HOWEVER,
that if requested by the Indemnified Party, the Indemnifying Party
agrees, at the sole cost and expense of the Indemnifying Party, to
cooperate with the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting, or,
if appropriate and related to the Third Party Claim in question, in
making any counterclaim against the person asserting the Third Party
Claim, or any cross-complaint against any person. Notwithstanding
the foregoing provisions of this
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Section 14.4(a)(ii), if the Indemnifying Party has timely notified
the Indemnified Party that the Indemnifying Party disputes its
liability to the Indemnified Party and if such dispute is resolved
in favor of the Indemnifying Party by final, nonappealable order of
a court of competent jurisdiction, the Indemnifying Party shall not
be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this Section 14.4(a)(ii) or of the
Indemnifying Party's participation therein at the Indemnified
Party's request and the Indemnified Party shall reimburse the
Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified
Party pursuant to this Section 14.4(a)(ii) (other than a dispute as
to the Indemnifying Party's liability to the Indemnified Party) and
the Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
(iii) If any Indemnified Party should have a claim against any
Indemnifying Party hereunder which does not involve a Third Party
Claim, the Indemnified Party shall notify the Indemnifying Party of
such claim by the Indemnified Party, specifying the nature of and
specific basis for such claim and the amount of the estimated amount
of such claim (the "Indemnity Notice"). If the Indemnifying Party
does not notify the Indemnified Party within thirty (30) days from
delivery of the Indemnity Notice that the Indemnifying Party
disputes such claim, the amount or estimated amount of such claim
specified by the Indemnified Party shall be conclusively deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying
Party has timely disputed such claim, as provided above, such
dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction or as the parties otherwise at such time
agree.
14.5 PAYMENT OF INDEMNITY. Any indemnity claim shall be paid by the
Indemnifying Party to the appropriate Indemnified Party in cash or in shares of
Parent Company Common Stock at the IPO offering price.
14.6 FLARE KING AS HT EQUITYHOLDER, HI-TECH AND COMPANY STOCKHOLDER.
Notwithstanding any language herein that may be construed to the contrary, any
indemnification that may be the obligation of (i) Flare King as a Hi-Tech
Equityholder, shall be borne by and be the responsibility of the FK Stockholders
and not Flare King and (ii) Hi-Tech as a Company Stockholder, shall be borne by
and be the responsibility of the HT Equityholders and not Hi-Tech.
14.7 PARENT PRIORITY. Because the benefits of the transaction are
contemplated to flow to the Parent, the parties hereto expressly grant to the
Parent as an intended beneficiary, the first right to bring a cause of action
for indemnification hereunder to recover against the appropriate Indemnifying
Parties under such of those matters referred to in Section 14.1(a) through (d),
Section 14.2(a) through (e) or Section 14.3(a) through (c) as may be applicable
and to such extent the Parent shall be an Indemnified Party as contemplated in
Section 14.4. The rights of the Parent under this Section 14.7 shall not,
however, be deemed in any way to prejudice or limit the rights of such other
Indemnified Parties, except to the extent that the such other Indemnified
Parties may only
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recover to the extent the Parent has not recovered with respect to the same loss
and may not pursue such recovery unless the Parent has failed for sixty (60)
days to pursue its own claim.
ARTICLE 15
TERMINATION
This Agreement may be terminated at any time before the Closing Date:
(a) by unanimous consent of the Company, a majority-in-interest of the Company
Stockholder, the FK Stockholders and a majority of the HT Equityholders;
(b) by the Company or a majority-in-interest of the Company Stockholders, upon
notice of termination of their respective obligations to consummate the
transaction delivered to the FK Stockholders and the HT Equityholders if the
Company or a majority-in-interest of the Company Stockholders, has determined
that there has been any breach of any covenant of either the FK Stockholders or
the HT Equityholders or that either the FK Stockholders or the HT Equityholders
has breached any of its representations or warranties, stating in particularity
the default or defaults on which the notice is based; PROVIDED that the FK
Stockholders and the HT Equityholders, as applicable, shall, after receipt of
such notice, have thirty (30) days in which to cure such breach and, if so
cured, the Company and the Company Stockholders shall, for that reason, have no
right to terminate this Agreement;
(c) by the FK Stockholders, upon notice of termination of its obligation to
consummate the transaction delivered to the Company, the Company Stockholders
and the HT Equityholders, if the FK Stockholders have determined that there has
been any breach of any covenant of either the Company, the Company Stockholders
or any of the HT Equityholders or that either the Company, the Company
Stockholders or the HT Equityholders have breached any of their representations
or warranties, stating in particularity the default or defaults on which the
notice is based; PROVIDED that the Company, the Company Stockholders and the HT
Equityholders shall, after receipt of such notice, have thirty (30) days in
which to cure such breach and, if so cured, the FK Stockholders shall, for that
reason, have no right to terminate this Agreement;
(d) by the HT Equityholders, upon notice of termination of their obligation to
consummate the transaction delivered to the Company, the Company Stockholders
and the FK Stockholders, if the HT Equityholders have determined that there has
been any breach of any covenant of either the Company, the Company Stockholders
or the FK Stockholders or that either the Company, the Company Stockholders or
the FK Stockholders have breached any of their representations or warranties,
stating in particularity the default or defaults on which the notice is based;
PROVIDED that the Company, the Company Stockholders and the FK Stockholders
shall, after receipt of such notice, have thirty (30) days in which to cure such
breach and, if so cured, the HT Equityholders shall, for that reason, have no
right to terminate this Agreement; and
(e) by any of the Company, a majority-in-interest of the Company Stockholders,
the FK Stockholders or the HT Equityholders if the Closing has not occurred on
or before March 31, 1998.
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If this Agreement is terminated pursuant to (a) or (e) above, such
termination shall be without liability of any party, or any director, officer,
employee, agent, consultant or representative of such party, to any other party
to this Agreement, except as specifically provided in this Agreement. If this
Agreement is terminated pursuant to (b), (c) or (d) above, the rights and
remedies granted hereby are cumulative and nonexclusive of any other right or
remedy available to the terminating party at law or in equity.
ARTICLE 16
NOTICES
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly received, if so given) by personal delivery, telegram, telecopy, or
telex, or by registered or certified mail, postage prepaid, return receipt
requested, to the parties at the following addresses:
If to the Company, to:
c/o United Wellhead Services, Inc.
615 Upper N. Broadway, MT-198, Suite 950
Corpus Christi, TX 78477
Attention: President
With a copy to:
R. Clyde Parker, Jr., Esq.
Winstead Sechrest & Minick P.C.
910 Travis, Suite 2400
Houston, Texas 77002
If to the Company Stockholders, to:
c/o United Wellhead Services, Inc.
615 Upper N. Broadway, MT-198, Suite 950
Corpus Christi, TX 78477
If to the FK Stockholders, to:
c/o Flare King, Inc.
615 Upper N. Broadway, MT-198, Suite 950
Corpus Christi, TX 78477
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With a copy to:
John A. Sixta, Jr.
John A. Sixta, Jr., P.C.
1605 Mercantile Bank Tower
615 Upper N. Broadway, MT-264
Corpus Christi, TX 78477
If to the HT Equityholders, to:
c/o Hi-Tech Compressor Company, L.C.
615 Upper N. Broadway, MT-198, Suite 950
Corpus Christi, TX 78477
Attention: President
With a copy to:
John A. Sixta, Jr.
John A. Sixta, Jr., P.C.
1605 Mercantile Bank Tower
615 Upper N. Broadway, MT-264
Corpus Christi, TX 78477
Any party from time to time may change its address for the purpose of
notices to that party by giving a similar notice specifying a new address, but
no such notice shall be deemed to have been given until it is actually received
by the party sought to be charged with the contents.
ARTICLE 17
MISCELLANEOUS
17.1 INCORPORATION OF SCHEDULES AND APPENDICES; ENTIRE AGREEMENT. The
Appendices and Schedules attached hereto are an integral part of this Agreement
and are incorporated herein by this reference and the specific references
thereto contained herein. This Agreement supersedes all prior discussions and
agreements among the signatories hereto with respect to the subject matter of
this Agreement; and this Agreement, including the executed counterparts of the
Appendices and the Schedules hereto to be delivered in connection herewith,
contains the sole and entire agreement among the signatories hereto with respect
to the subject matter hereof.
17.2 WAIVER. Any term or condition of this Agreement may be waived at
any time by the party which is entitled to the benefit thereof, such waiver
shall be in writing and shall be executed by such party or by the chairman,
president or a vice president of each party as applicable. A waiver on one
occasion shall not be deemed to be a waiver of the same or any other matter on a
future occasion.
17.3 AMENDMENT. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all the parties hereto.
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17.4 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
17.5 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17.6 GOVERNING LAW. Except as otherwise provided herein, this
Agreement and all rights and obligations hereunder, including matters of
construction, validity and performance, shall be governed by the laws of the
State of Texas, without giving effect to the principles of conflicts of laws
thereof.
17.7 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns;
PROVIDED, HOWEVER, that this Agreement or any right or part hereunder shall not
be voluntarily assigned by any party hereto without the prior written consent of
the other parties hereto.
17.8 EXPENSES. The expenses of each of the parties hereto incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
17.9 SPECIFIC PERFORMANCE. The parties agree that the business of the
Company, Flare King and Hi-Tech are each unique in character and if any party
defaults, damages suffered by the other parties may not be readily
ascertainable. Accordingly, the parties agree that they shall each be entitled
to the equitable remedy of specific performance.
17.10 FURTHER ASSURANCES. The Company, the Company Stockholders, the
FK Stockholders and the HT Equityholders, as applicable, at any time after the
Closing Date, will promptly execute, acknowledge and deliver any further
assignments, conveyances and other assurances, documents and instruments of
transfer, reasonably requested by the Parent, the Company, the Company
Stockholders, the FK Stockholders or the HT Equityholders and necessary for the
Company, the Company Stockholders, the FK Stockholders and the HT Equityholders
to comply with the representations, warranties and covenants contained herein
and will take any action consistent with the terms of this Agreement that may
reasonably be requested by the Parent, the Company, the Company Stockholders,
the FK Stockholders or the HT Equityholders, to give effect to the transaction
contemplated hereby.
17.11 ACKNOWLEDGMENT. The parties to this Agreement agree and
acknowledge that, notwithstanding anything contained herein to the contrary,
Wallace C. Sparkman will transfer his ownership interest in the Company and
Flare King and his rights hereunder to a family limited partnership subject to
the assumption by such partnership of Mr. Sparkman's obligations hereunder and
that he has elected to retire from all formal and informal positions with the
Company, Flare King and Hi-Tech on or before the Closing Date and will not be
serving in any formal or informal positions with the Parent.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of October 14, 1997.
COMPANY:
UNITED WELLHEAD SERVICES, INC.:
By: /s/ ALVIN H. DUEITT
Alvin H. Dueitt, President
THE COMPANY STOCKHOLDERS:
/s/ ALVIN H. DUEITT
Alvin H. Dueitt
/s/ MARTIN L. TOMLIN
Martin L. Tomlin
/s/ WALLACE C. SPARKMAN
Wallace C. Sparkman
/s/ WALLACE O. SELLERS
Wallace O. Sellers
/s/ WILLIAM M. DUNCAN
William M. Duncan
/s/ J. RICHARD ESPINOSA
J. Richard Espinosa
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/s/ EUGENE GRUMMER
Eugene Grummer
/s/ GARY W. BOENING
Gary W. Boening
/s/ SCOTT SPARKMAN
Scott Sparkman
/s/ JOHN H. BRISCOE
John H. Briscoe
/s/ TERRY L. BOENING
Terry L. Boening
/s/ THOMAS R. PIPES
Thomas R. Pipes
/s/ EARL R. WAIT
Earl R. Wait
HI-TECH COMPRESSOR COMPANY, L.C.:
By: /s/ WAYNE L. VINSON
Wayne L. Vinson, President
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THE FK STOCKHOLDERS:
/s/ WALLACE C. SPARKMAN
Wallace C. Sparkman
/s/ NAUDAIN IVES SELLERS
Naudain Ives Sellers
THE HT EQUITYHOLDERS:
FLARE KING, INC.:
By: /s/ BURNACE J. BOLES, JR.
Burnace J. Boles, Jr., President
/s/ RICHARD L. YADON
Richard L. Yadon
CAV-RDV, LTD.:
By: /s/
General Partner
Executed by United Oilfield Services, Inc. subsequent to its
organization for purposes of acknowledging its rights hereunder and of agreeing
to carry out each action required of it as contemplated hereunder.
UNITED OILFIELD SERVICES, INC.
By: /s/ ALVIN H. DUEITT
Alvin H. Dueitt
President
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Alvin H. Dueitt, who acknowledged
himself to be the President of United Wellhead Services, Inc., a corporation,
and that he, as such officer being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as President.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Alvin H. Dueitt, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Martin L. Tomlin, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Wallace C. Sparkman, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Wallace O. Sellers, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared William M. Duncan, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared J. Richard Espinosa, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Eugene Grummer, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Gary W. Boening, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Scott Sparkman, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared John H. Briscoe, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Terry L. Boening, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Thomas R. Pipes, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Earl R. Wait, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Wayne L. Vinson, who acknowledged
himself to be the President of Hi-Tech Compressor Company, L.C., a limited
liability company, and that he, as such officer being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the company by himself as President.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Naudain Ives Sellers, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that she executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
77
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STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Burnace J. Boles, Jr., who acknowledged
himself to be the President of Flare King, Inc., a corporation, and that he, as
such officer being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as President.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Richard L. Yadon, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
78
<PAGE>
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared ______________________________, who
acknowledged himself to be the _____________________ of CAV-RDV, Ltd., a limited
partnership, and that he, as such _____________________ being authorized so to
do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the limited partnership by himself as
- --------------.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
STATE OF ______________________ ss.
ss.
COUNTY OF _____________________ ss.
On this the _____ day of _______________, 1997, before me, the
undersigned officer, personally appeared Alvin H. Dueitt, who acknowledged
himself to be the President of United Oilfield Services, Inc., a corporation,
and that he, as such officer being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as President.
IN WITNESS WHEREOF I hereby set my hand and official seal.
/s/
Notary Public
79
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
UNITED OILFIELD SERVICES, INC.
(THE "CORPORATION")
ARTICLE ONE
The name of the Corporation is United Oilfield Services, Inc.
ARTICLE TWO
The period of duration of the Corporation is perpetual.
ARTICLE THREE
The street address of its initial registered office is 615 Upper North
Broadway, Suite 950, MT-198, Corpus Christi, Texas 78477, and the name of its
initial registered agent at such address is Alvin H. Dueitt.
ARTICLE FOUR
The purpose for which the Corporation is organized is the transaction of
any or all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE FIVE
Section 1. GENERAL.
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is 30,000,000 shares, of which
25,000,000 will be shares of common stock, par value $.01 per share ("Common
Stock"), and 5,000,000 will be shares of preferred stock, par value $.01 per
share ("Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions, of Common Stock and Preferred Stock
are as follows:
Section 2. COMMON STOCK.
2.1 DIVIDEND RIGHTS. Subject to provisions of law and the preferences of
Preferred Stock and of any other stock ranking prior to Common Stock as to
dividends, the holders of Common Stock will be entitled to received dividends
when, as and if declared by the Board of Directors.
2.2 VOTING RIGHTS. Except as provided by law and pursuant to this Article
Five, the holders of Common Stock will have one vote for each share on each
matter submitted to a vote of the shareholders of the Corporation. Except as
otherwise provided by law, by the Articles
<PAGE>
of Incorporation or by resolution or resolutions of the Board of Directors
providing for the issue of any series of Preferred Stock, the holders of Common
Stock will have sole voting power.
2.3 LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
or provisions for payment of the debts and other liabilities of the Corporation
and the preferential amounts of which the holders of any stock ranking prior to
Common Stock in the distribution of assets are entitled upon liquidation, the
holders of Common Stock and the holders of any other stock ranking on a parity
with Common Stock in the distribution of assets upon liquidation will be
entitled to share in the remaining assets of the Corporation according to their
respective interests.
Section 3. PREFERRED STOCK.
3.1 AUTHORITY OF THE BOARD OF DIRECTORS TO ISSUE IN SERIES. Preferred
Stock may be issued from time to time in one or more series. All shares of any
one series of Preferred Stock will be identical except as to the dates of issue
and the dates from which dividends on shares of the series issued on different
dates will cumulate, if cumulative. Authority is hereby expressly granted to the
Board of Directors to authorize the issue of one or more series of Preferred
Stock, and to fix by resolution or resolutions providing for the issue of each
such series the preferences, limitations and relative rights of such series, to
the full extent now or hereafter permitted by law, including, but not limited
to, the following:
(a) The number of shares of such series, which may subsequently be
increased, except as otherwise provided by the resolution or resolutions
of the Board of Directors providing for the issuance of such series, or
decreased, to a number not less than the number of shares then
outstanding, by resolution or resolutions of the Board of Directors, and
the distinctive designation thereof;
(b) The dividend rights of such series, the preferences, if any,
over any other class or series of stock, or of any other class or series
of stock over such series, as to dividends, the extent, if any to which
shares of such series will be entitled to participate in dividends with
shares of any other series or class of stock, whether dividends on shares
of such series will be fully, partially or conditionally cumulative, or a
combination thereof, and any limitations, restrictions or conditions on
the payment of such dividends.
(c) The rights of such series, and the preferences, if any, over any
other class or series of stock, or of any other class or series of stock
over such series, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and the extent,
if any, to which shares of any such series will be entitled to participate
in such event with any other series or class of stock;
(d) The time or times during which, the price or prices at which,
and the terms and conditions on which, the shares of such series may be
redeemed;
(e) The terms of any purchase, retirement or sinking fund which may
be provided for the shares of such series;
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(f) The terms and conditions, if any, upon which the shares of such
series will be convertible into or exchangeable for shares of any other
series, class or classes, or any other securities, to the full extent now
or hereafter permitted by law;
(g) The voting powers, if any, of such series in addition to the
voting powers provided by law.
3.2 LIMITATION ON DIVIDEND. No holders of any series of Preferred Stock
will be entitled to receive any dividends thereon other than those specifically
provided for by the Articles of Incorporation or the resolution or resolutions
of the Board of Directors providing for the issue of such series of Preferred
Stock, nor will any accumulative dividends on Preferred Stock bear any interest.
3.3 LIMITATION ON LIQUIDATION DISTRIBUTIONS. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Preferred Stock of each series will be entitled to
receive only such amount or amounts as will have been fixed by the Articles of
Incorporation or by the resolution or resolutions of the Board of Directors
providing for the issuance of such series. A consolidation or merger of the
Corporation with or into one or more other corporations or a sale, lease or
exchange of all or substantially all of the assets of the Corporation will not
be deemed to be a voluntary or involuntary liquidation, dissolution or winding
up, within the meaning of this article.
ARTICLE SIX
The number of directors constituting the initial Board of Directors is
five (5) and the names and addresses of the persons who are to serve as
directors until the first annual meeting of the shareholders or until their
successors are elected and qualified are:
Name Address
---- -------
Wallace O. Sellers c/o 615 Upper North Broadway
Suite 950, MT-198
Corpus Christi, TX 78477
Alvin H. Dueitt c/o 615 Upper North Broadway
Suite 950, MT-198
Corpus Christi, TX 784877
L. Melvin Cooper c/o 615 Upper North Broadway
Suite 950, MT-198
Corpus Christi, TX 78477
Charles Miller c/o 615 Upper North Broadway
Suite 950, MT-198
Corpus Christi, TX 78477
3
<PAGE>
Francis M. Ricci c/o 615 Upper North Broadway
Suite 950, MT-198
Corpus Christi, TX 78477
The number of directors constituting the Board of Directors shall be fixed
as provided in the Bylaws or amendments thereto.
The Board of Directors shall be divided into three (3) classes, each class
to be as nearly equal in number as possible. The terms of office of directors of
the first class are to expire at the first annual meeting of shareholders after
their election, that of the second class is to expire at the second annual
meeting after their election, and that of the third class is to expire at the
third annual meeting after their election. Thereafter, each director shall serve
for a term ending on the date of the third annual meeting of shareholders
following the annual meeting at which such director was elected.
This classified board provision shall not be altered or repealed without
the affirmative vote of the holders of at least 80% of the shares entitled to
vote in the election of directors. The Directors may not amend or repeal the
classified board provision.
ARTICLE SEVEN
No shareholder of the Corporation or any other person shall have any
preemptive right whatsoever to acquire additional, unissued, or treasury shares
of the Corporation, or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares or other securities of the
Corporation. The Board of Directors may issue shares of any class of stock of
the Corporation, or any notes, debentures, bonds or other securities convertible
into or carrying rights, options or warrants to subscribe for or acquire shares
of any class of stock, without offering any such shares of any class, either in
whole or in part, to the existing shareholders of any class.
ARTICLE EIGHT
Directors shall be elected by majority vote. No shareholder of the
Corporation shall have the right to cumulate his votes in the election of
directors.
ARTICLE NINE
The initial Bylaws of the Corporation shall be adopted by its Board of
Directors. The Bylaws may be altered, amended or repealed, or new bylaws may be
adopted by the Board of Directors, subject to the right of the shareholders to
alter and/or repeal the Bylaws or adopt new bylaws and provided that the
following Sections of the Bylaws shall only be altered, amended, repealed or
replaced by new bylaws by the affirmative vote of the holders of 80% of the
Company's capital stock entitled to vote thereon: Section 3.1 ANNUAL MEETING;
Section 3.2 SPECIAL MEETINGS; Section 3.12 NO ACTION WITHOUT MEETING; Section
4.1 NUMBER, QUALIFICATION
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<PAGE>
AND TERM; Section 4.2 REMOVAL (or in each case any successor or replacement
language addressing substantially the same topic).
ARTICLE TEN
The affirmative vote of the holders of not less than 66-2/3% of the
outstanding capital stock of the Corporation shall be required for approval or
authorization of any (i) merger or consolidation of the Corporation with or into
any other corporation, or (ii) sale, lease, exchange or other disposition of all
or substantially of the assets of the Corporation to any other corporation,
person, or entity; or (iii) the dissolution of the Corporation.
ARTICLE ELEVEN
In no event shall any director of the Corporation be liable to the
Corporation or its shareholders for monetary damages for any act or omission of
any such director in his/her capacity as a director, except for liability for:
(1) a breach of a director's duty of loyalty to the Corporation or its
shareholders;
(2) an act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law;
(3) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of the director's office; or,
(4) an act or omission for which the liability of a director is
expressly provided for by statute.
All directors of the Corporation shall be entitled to indemnification by
the Corporation to the maximum extent permitted by the Texas Business
Corporation Act (or such comparable statutory provision governing
indemnification by a Texas corporation of its directors as may from time to time
be applicable) as set forth in the Bylaws. If the Texas Business Corporation Act
hereafter is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the Corporation, in
addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended statute. Any amendment,
repeal or modification of this Article Ten shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
amendment, repeal or modification.
ARTICLE TWELVE
Meetings of shareholders may be held within or without the State of Texas,
as the Bylaws may provide. The books of the Corporation may be kept (subject to
any provisions of the Texas
5
<PAGE>
Business Corporation Act) outside the State of Texas at such place or places as
may be designated from time to time by the Board of Directors or in the Bylaws
of the Corporation.
ARTICLE THIRTEEN
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon shareholders
herein are granted subject to this reservation.
ARTICLE FOURTEEN
The Corporation will not commence business until it has received for the
issuance of shares consideration of the value of One Thousand Dollars ($1,000)
consisting of money, labor done or property actually received.
ARTICLE FIFTEEN
These Articles of Incorporation of the Corporation can only be amended or
repealed by the affirmative vote of the holders of at least 66-2/3% of the
shares entitled to vote thereon; provided that any provision hereof requiring
the vote of a greater percentage may only be amended by a vote at least equal to
such percentage.
ARTICLE SIXTEEN
The name and address of the incorporator, a natural person of the age of
eighteen (18) years or more, is Alvin H. Dueitt, 615 Upper North Broadway, Suite
950, MT-198, Corpus Christi, Texas 78477.
EXECUTED this 20th day of October, 1997.
/s/ ALVIN H. DUEITT
Alvin H. Dueitt, Incorporator
6
UNITED OILFIELD SERVICES, INC. EXHIBIT 3.2
(THE "CORPORATION")
BYLAWS
ARTICLE I
OFFICES
SECTION 1.1. OFFICES. The registered office of the Corporation shall
be at 615 Upper North Broadway, Suite 950, MT-198, Corpus Christi, Texas 78477.
The Corporation may have such other offices within or without the State of Texas
as the board of directors may from time to time establish.
ARTICLE II
CAPITAL STOCK
SECTION 2.1. CERTIFICATE REPRESENTING SHARES. Shares of the classes
of capital stock of the Corporation shall be represented by certificates in such
form or forms as the board of directors may approve; provided that, such form or
forms shall comply with all applicable requirements of law or of the Articles of
Incorporation. Such certificates shall be signed by the President or a Vice
President, and by the Secretary or an Assistant Secretary, of the Corporation
and may be sealed with the seal of the Corporation or imprinted or otherwise
marked with a facsimile of such seal. In the case of any certificate
countersigned by any transfer agent or registrar, provided such countersigner is
not the Corporation itself or an employee thereof, the signature of any or all
of the foregoing officers of the Corporation may be represented by a printed
facsimile thereof. If any officer whose signature, or a facsimile thereof, shall
have been set upon any certificate shall cease, prior to the issuance of such
certificate, to occupy the position in right of which his signature, or
facsimile thereof, was so set upon such certificate, the Corporation may
nevertheless adopt and issue such certificate with the same effect as if such
officer occupied such position as of such date of issuance; and, issuance and
delivery of such certificate by the Corporation shall constitute adoption
thereof by the Corporation. The certificates shall be consecutively numbered,
and as they are issued, a record of such issuance shall be entered in the books
of the Corporation.
SECTION 2.2. STOCK CERTIFICATE BOOK AND SHAREHOLDERS OF RECORD. The
Secretary of the Corporation shall maintain, among other records, a stock
certificate book, the stubs in which shall set forth the names and addresses of
the holders of all issued shares of the Corporation, the number of shares held
by each, the number of certificates representing such shares, the date of issue
of such certificates, and whether or not such shares originate from original
issue or from transfer. The names and addresses of shareholders as they appear
on the stock certificate book shall be the official list of shareholders of
record of the Corporation for all purposes. The Corporation shall be entitled to
treat the holder of record of any shares as the owner thereof for all purposes,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such shares or any rights deriving from such shares on the part of any other
person, including, but without limitation, a purchaser, assignee, or transferee,
unless and until
1
<PAGE>
such other person becomes the holder of record of such shares, whether or not
the Corporation shall have either actual or constructive notice of the interest
of such other person.
SECTION 2.3. SHAREHOLDER'S CHANGE OF NAME OR ADDRESS. Each
shareholder shall promptly notify the secretary of the Corporation, at its
principal business office, by written notice sent by certified mail, return
receipt requested, of any change in name or address of the shareholder from that
as it appears upon the official list of shareholders of record of the
Corporation. The secretary of the Corporation shall then enter such changes into
all affected Corporation records, including, but not limited to, the official
list of shareholders of record.
SECTION 2.4. TRANSFER OF STOCK. The shares represented by any
certificate of the Corporation are transferable only on the books of the
Corporation by the holder of record thereof or by his duly authorized attorney
or legal representative upon surrender of the certificate for such shares,
properly endorsed or assigned. The Board of Directors may make such rules and
regulations concerning the issue, transfer, registration and replacement of
certificates as they deem desirable or necessary.
SECTION 2.5. TRANSFER AGENT AND REGISTRAR. The Board of Directors
may appoint one or more transfer agents or registrars of the shares, or both,
and may require all share certificates to bear the signature of a transfer agent
or registrar, or both.
SECTION 2.6. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may issue a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed; but, the
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as the Board may
direct, in order to indemnify the Corporation and its transfer agents and
registrars, if any, against any claim that may be made on account of the alleged
loss, theft or destruction of such certificate.
SECTION 2.7. FRACTIONAL SHARES. Only whole shares of the stock of
the Corporation shall be issued. In case of any transaction by reason of which a
fractional share might otherwise be issued, the directors, or the officers in
the exercise of powers delegated by the directors, shall take such measures
consistent with the law, the Articles of Incorporation and these Bylaws,
including (for example, and not by way of limitation) the payment in cash of an
amount equal to the fair value of any fractional share, as they may deem proper
to avoid the issuance of any fractional share.
ARTICLE III
THE SHAREHOLDERS
SECTION 3.1. ANNUAL MEETING. The annual meeting of the shareholders,
for the election of directors and for the transaction of such other business as
may properly come before the meeting, shall be held at the principal office of
the Corporation, at 10:00 a.m. local time, on the 10th day of May of each year
unless such day is a legal holiday, in which case such
2
<PAGE>
meeting shall be held at such hour on the first day thereafter which is not a
legal holiday; or, at such other place and time as may be designated by the
Board of Directors. Failure to hold any annual meeting or meetings shall not
work a forfeiture or dissolution of the Corporation. If a shareholder intends to
bring up items of business or nominate directors at any annual meeting, notice
of such intent must be received at the Corporation's principal executive offices
not later than the date that is at least the number of days before the annual
meeting that is required from time to time under federal securities laws with
respect to companies registered under the Securities Exchange Act of 1934.
SECTION 3.2. SPECIAL MEETINGS. Except as otherwise provided by law
or by the Articles of Incorporation, special meetings of the shareholders may be
called by the chairman of the Board of Directors, the president, any one of the
directors, or the holders of not less than twenty-five (25%) of all the shares
having voting power at such meeting, and shall be held at the principal office
of the Corporation or at such other place, and at such time, as may be stated in
the notice calling such meeting. Business transacted at any special meeting of
shareholders shall be limited to the purpose stated in the notice of such
meeting given in accordance with the terms of section 3.3.
SECTION 3.3. NOTICE OF MEETINGS - WAIVER. Written notice of each
meeting of shareholders, stating the place, day and hour of any meeting and, in
case of a special shareholders' meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than sixty days
before the date of such meeting, either personally or by mail, by or at the
direction of the president, the secretary, or the persons calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. Such further or earlier
notice shall be given as may be required by law. The signing by a shareholder of
a written waiver of notice of any shareholders' meeting, whether before or after
the time stated in such waiver, shall be equivalent to the receiving by him of
all notice required to be given with respect to such meeting. Attendance by a
person at a shareholders' meeting shall constitute a waiver of notice of such
meeting except when a 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. No notice of any
adjournment of any meeting shall be required.
SECTION 3.4. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. In
order that the Corporation may determine the shareholders entitled to notice of
or to vote at any meeting of shareholders or adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
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 of Directors
may fix, in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed, the record date shall be as
follows: The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of
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business on the day next preceding the day on which the meeting is held; the
record date for determining shareholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which the first written consent
is expressed; and, the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 3.5. VOTING LIST. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall be subject to lawful
inspection by any shareholder at any time during the usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholders during the whole time
of the meeting.
SECTION 3.6. QUORUM AND OFFICERS. Except as otherwise provided by
law, by the Articles of Incorporation or by these Bylaws, the holders of a
majority of the shares entitled to vote and represented in person or by proxy
shall constitute a quorum at a meeting of shareholders, but the shareholders
present at any meeting, although representing less than a quorum, may from time
to time adjourn the meeting to some other day and hour, without notice other
than announcement at the meeting. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law. The Chairman of
the Board shall preside at, and the Secretary shall keep the records of, each
meeting of shareholders, and in the absence of either such officer, his duties
shall be performed by any other officer authorized by these Bylaws or any person
appointed by resolution duly adopted at the meeting.
SECTION 3.7. VOTING AT MEETINGS. Each outstanding share shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders except to the extent that the Articles of Incorporation or the laws
of the State of Texas provide otherwise.
SECTION 3.8. PROXIES. A shareholder may vote either in person or by
proxy executed in writing by the shareholder; but, no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
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SECTION 3.9. BALLOTING. All elections of directors shall be by
written ballot. Upon the demand of any shareholder, the vote upon any other
question before the meeting shall be by ballot. At each meeting, one or more
inspectors of election may be appointed by the presiding officer of the meeting;
and, at any meeting for the election of directors, inspectors shall be so
appointed on the demand of any shareholder present or represented by proxy and
entitled to vote in such election of directors. No director or candidate for the
office of director shall be appointed as such inspector. The number of votes
cast by shares in the election of directors shall be recorded in the minutes.
SECTION 3.10. VOTING RIGHTS-PROHIBITION OF CUMULATIVE VOTING FOR
DIRECTORS. Each outstanding share of Common Stock shall be entitled to one (1)
vote upon each matter submitted to a vote at a meeting of shareholders. No
shareholder shall have the right to cumulate his votes for the election of
directors but each share shall be entitled to one vote in the election of each
director. In the case of any contested election for any directorship, the
candidate for such position receiving a plurality of the votes cast in such
election shall be elected to such position.
SECTION 3.11. RECORD OF SHAREHOLDERS. The Corporation shall keep at
its principal business office, or the office of its transfer agents or
registrars, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
SECTION 3.12. NO ACTION WITHOUT MEETING. Any action required or
permitted to be taken by shareholders of the Corporation must be affected at a
duly called annual or special meeting of such shareholders and may not be
affected by consent in writing by such shareholders.
ARTICLE IV
The Board of Directors
SECTION 4.1. NUMBER, QUALIFICATIONS AND TERM. The business and
affairs of the Corporation shall be managed or be under the direction of the
Board of Directors; and, subject to any restrictions imposed by law, by the
Articles of Incorporation, or by these Bylaws, the Board of Directors may
exercise all the powers of the Corporation. The Board of Directors shall consist
of five (5) members, unless otherwise determined from time to time by resolution
adopted by at least 80% of the shareholders or by unanimous consent of the Board
of Directors. No decrease in the number of directors shall shorten the term of
any incumbent director. Directors need not be residents of Texas or shareholders
of the Corporation absent provision to the contrary in the Articles of
Incorporation or laws of the State of Texas. Except as otherwise provided in
section 4.3 of these Bylaws, the Board of Directors shall be divided into three
classes, each class to be as nearly equal in number as possible. The terms of
office of directors of the first class are to expire at the first annual meeting
of shareholders after their election, that of the second class is to expire at
the second annual meeting after their election, and that of the third class is
to expire at the third annual meeting after their election. Thereafter, each
director shall serve for a term ending on the date of the third annual meeting
of shareholders following
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the annual meeting at which such director was elected. Any such election shall
be conducted in accordance with section 3.10 of these Bylaws. Each person
elected a director shall hold office until his successor is duly elected and
qualified or until his earlier resignation or removal in accordance with section
4.2 of these Bylaws. To alter or repeal this classified board provision, the
affirmative vote of the holders of at least 80% of the shares entitled to vote
in the election of directors is required.
SECTION 4.2. REMOVAL. Any director or the entire Board of Directors
may be removed from office, at any time, but only for cause, at any meeting of
shareholders by the affirmative vote of at least 80% of the shares of the
shareholders entitled to vote at such meeting, if notice of the intention to act
upon such matter shall have been given in the notice calling such meeting. If
the notice calling such meeting shall have so provided, the vacancy caused by
such removal may be filled at such meeting by the affirmative vote of at least
80% of the shares of the shareholders present in person or by proxy and entitled
to vote. "Cause" is defined to include only: Conviction of a felony; declaration
of unsound mind by order of court; gross dereliction of duty; commission of an
action involving moral turpitude; or commission of an action which constitutes
intentional misconduct or a knowing violation of law if such action in either
event results both in an improper substantial personal benefit and a material
injury to the Corporation.
SECTION 4.3. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining Director. When one or more directors shall die, resign, or
be removed from the Board, effective at a future date, a majority of the
directors then in office, including, if applicable, those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in this section in the filling
of other vacancies. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office.
SECTION 4.4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held immediately following each annual meeting of
shareholders, at the place of such meeting, and at such other times and places
as the Board of Directors shall determine. No notice of any kind of such regular
meetings needs to be given to either old or new members of the Board of
Directors.
SECTION 4.5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held at any time by call of the Chairman of the Board, the
President, the Secretary or a majority of the directors. The Secretary shall
give notice of each special meeting to each director at his usual business or
residence address by mail at least three days before the meeting or by telegraph
or telephone at least one day before such meeting. Except as otherwise provided
by law, by the Articles of Incorporation, or by these Bylaws, such notice need
not specify the business to be transacted at, or the purpose of, such meeting.
No notice shall be necessary for any adjournment of any meeting. The signing of
a written waiver of notice of any special meeting by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be equivalent to the receiving of such notice. Attendance of a director at a
meeting
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shall also constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express and announced purpose of objecting,
at the beginning of the meeting, to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
SECTION 4.6. QUORUM. A majority of the number of directors fixed by
or in accordance with these Bylaws shall constitute a quorum for the transaction
of business and the act of not less than a majority of such quorum of the
directors shall be required in order to constitute the act of the Board of
Directors, unless the act of a greater number shall be required by law, by the
Articles of Incorporation or by these Bylaws.
SECTION 4.7. PROCEDURE AT MEETINGS. The Board of Directors, at each
regular meeting held immediately following the annual meeting of shareholders,
shall appoint one of their number as chairman of the Board of Directors. The
Chairman of the Board shall preside at meetings of the Board. In his absence at
any meeting, any officer authorized by these Bylaws or any member of the Board
selected by the members present shall preside. The Secretary of the Corporation
shall act as secretary at all meetings of the Board. In his absence, the
presiding officer of the meeting may designate any person to act as secretary.
At meetings of the Board of Directors, the business shall be transacted in such
order as the Board may from time to time determine.
SECTION 4.8. PRESUMPTION OF ASSENT. Any director of the Corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 4.9. ACTION WITHOUT A MEETING. Any action required by
statute or permitted to be taken at a meeting of the directors of the
Corporation, or of any committee thereof, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
directors or all committee members as the case may be, and if the consent in
writing shall be filed with the minutes of the proceedings of the Board or
committee.
SECTION 4.10. COMPENSATION. As determined from time to time by
resolution of the Board of Directors, directors may receive stated annual
directors fees for their service payable in one or more installments, and a
fixed sum and reimbursement for reasonable expenses of attendance, if any, that
may be allowed for attendance at each regular or special meeting of the Board of
Directors or at any meeting of the executive committee of directors, if any, to
which such director may be elected in accordance with the following section
4.11; but, nothing herein shall preclude any director from serving the
Corporation in any other capacity or receiving compensation therefor.
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SECTION 4.11. EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate an executive
committee. The executive committee shall consist of two or more directors, one
of whom shall be the Chief Executive Officer. The executive committee shall
serve at the discretion of the Board of Directors. The executive committee, to
the extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors and the management of the business and
affairs of the Corporation, including authority over the use of the corporate
seal. However, the executive committee shall not have the authority of the Board
in reference to: (i) amending the Articles of Incorporation; (ii) approving a
plan of merger or consolidation; (iii) recommending to the shareholders the
sale, lease or exchange of all or substantially all of the property and assets
of the Corporation otherwise than in the usual and regular course of its
business; (iv) recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof; (v) amending, altering or repealing these
Bylaws or adopting new Bylaws; (vi) filling vacancies in or removing members of
the Board of Directors or of any committee appointed by the Board of Directors;
(vii) electing or removing officers or members of any such committee; (viii)
fixing the compensation of any member of such committee; (ix) altering or
repealing any resolution of the Board of Directors which by its terms provides
that it shall not be so amendable or repealable; (x) declaring a dividend; or
(xi) authorizing the issuance of shares of the Corporation.
The number of executive committee members may be increased or decreased
from time to time by resolution adopted by a majority of the whole Board of
Directors. Any member of the executive committee may be removed by the Board of
Directors by the affirmative vote of a majority of the whole board, whenever in
its judgment the best interest of the Corporation will be served thereby. A
vacancy occurring in the executive committee by death, resignation, removal or
otherwise may be filled by the Board of Directors in the manner provided for
original designation above.
The time, place and notice of executive committee meetings shall be
determined by the executive committee. At meetings of the executive committee, a
majority of the number of members designated by the Board of Directors shall
constitute a quorum for the transaction of business. The act of a majority of
the members present at any meeting at which a quorum is present shall be the act
of the executive committee, except as otherwise specifically provided by
statute, the Articles of Incorporation, or these Bylaws. If a quorum is not
present at a meeting of the executive committee, the members present may adjourn
the meeting from time to time without notice other than an announcement at the
meeting until a quorum is present. The executive committee shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required. The minutes of the proceedings of the executive committee shall be
placed in the minute book of the Corporation.
By resolution of the whole Board of Directors, the members of the
executive committee may be paid their expenses, if any, for attendance at each
meeting of the executive committee and may be paid a fixed sum for attendance at
each meeting of the executive committee or a stated salary as a member. No such
payment shall preclude any member from serving the Corporation in any other
capacity and receiving compensation therefor.
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Any action required or permitted to be taken at a meeting of the executive
committee may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed by all members of the executive committee. Such
consent shall have the same force and effect as a unanimous vote at a meeting.
The signed consent, or a signed copy, shall be placed in the minute book.
The designation of an executive committee and the delegation of authority
to it shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or him by law.
The executive committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors when required. The minutes of the
proceedings of the executive committee shall be placed in the minute book of the
Corporation.
SECTION 4.12. ADVISORY COMMITTEES. The Board of Directors shall
appoint an audit committee and a compensation committee, and may, for its
convenience and at its discretion, appoint one or more other advisory committees
of two or more directors each; but, no such committees, other than the
compensation committee, shall have any power or authority except to advise the
Board of Directors, any such committee shall exist solely at the discretion of
the Board of Directors, regular minutes of the proceedings of any such committee
may, at the discretion of the committee, be kept and, to the extent kept, shall
be reported to the Board of Directors when required. Any minutes of the
proceedings of such committees shall be placed in the minute books of the
Corporation. Each member of any such committee shall receive such compensation
for such committee membership and participation in committee meetings, including
reimbursement for reasonable expenses actually incurred by him by reason of such
membership, as may be approved from time to time by the Board of Directors.
ARTICLE V
OFFICERS
SECTION 5.1. NUMBER. The officers of the Corporation shall consist
of a Chief Executive Officer, a President, one or more Vice Presidents, a
Secretary and a Treasurer; and, in addition, such other officers and assistant
officers and agents as may be deemed necessary or desirable. Officers shall be
elected or appointed by the Board of Directors. Any two or more offices may be
held by the same person except that the President and Secretary shall not be the
same person.
SECTION 5.2. ELECTION; TERM; QUALIFICATION. Officers shall be chosen
by the Board of Directors annually at the meeting of the Board of Directors
following the annual shareholders' meeting. Each officer shall hold office until
his successor has been chosen and qualified, or until his death, resignation, or
removal, subject to reappointment at each annual Board of Directors' meeting
immediately following the annual shareholders' meeting.
SECTION 5.3. REMOVAL. Any officer or agent elected or appointed b
the Board of Directors may be removed by the Board of Directors whenever in its
judgment the best
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interests of the Corporation will be served thereby; but, such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create any
contract rights.
SECTION 5.4. VACANCIES. Any vacancy in any office for any cause
may be filled by the Board of Directors at any meeting.
SECTION 5.5. DUTIES. The officers of the Corporation shall have such
powers and duties, except as modified by the Board of Directors, as generally
pertain to their offices, respectively, as well as such powers and duties as
from time to time shall be conferred by the Board of Directors and by these
Bylaws.
SECTION 5.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be subject to the control of the Board of Directors, and shall in general
supervise and control all business and affairs of the Corporation. The Chief
Executive Officer may sign, with the Secretary or any other proper officer of
the Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, deeds, mortgages, bonds, contracts, and other
obligations in the name of the Corporation, which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed and executed; and in general shall perform all
duties incident to the office of Chief Executive Officer and such other duties
as may be prescribed by the Board of Directors from time to time. In the absence
of the chairman, or if the directors neglect or fail to elect a Chairman, then
the Chief Executive Officer of the Corporation, if he is a member of the Board
of Directors, shall automatically serve as Chairman of the Board of Directors.
SECTION 5.7. THE PRESIDENT. In the absence of the Chief Executive
Officer, or in the event of his death or inability or refusal to act, the
President shall perform the duties of the Chief Executive Officer and when so
acting shall have all of the powers of and be subject to all of the restrictions
upon the Chief Executive Officer. In general, he shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Chief Executive Officer or the Board of Directors from time to time.
SECTION 5.8. THE VICE PRESIDENTS. At the request of the Chief
Executive Officer and/or the President, or in the event of their death or
inability or refusal to act, the Vice Presidents, in the order of their
election, shall perform the duties of the Chief Executive Officer and President,
and when so acting shall have all the powers of and be subject to all
restrictions upon the Chief Executive Officer and President. Any action taken by
a Vice President in the performance of the duties of the Chief Executive Officer
shall be conclusive evidence of the absence or inability to act of the Chief
Executive Officer at the time such action was taken. The Vice Presidents shall
perform such other duties as may, from time to time, be assigned to them by the
Chief Executive Officer, President, or the Board of Directors. A Vice President
may sign, with the Secretary or an Assistant Secretary, certificates of stock of
the Corporation.
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SECTION 5.9. SECRETARY. The Secretary shall keep the minutes of all
meetings of the shareholders, of the Board of Directors, and of the executive
committee, if any, in one or more books provided for such purpose and shall see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law. He shall be custodian of the corporate records and
of the seal (if any) of the Corporation and see, if the Corporation has a seal,
that the seal of the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized; shall have
general charge of the stock certificate books, transfer books and stock ledgers,
and such other books and papers of the Corporation as the Board of Directors may
direct, all of which shall, at all reasonable times, be open to the examination
of any director, upon application at the office of the Corporation during
business hours; and in general shall perform all duties and exercise all powers
incident to the office of the Secretary and such other duties and powers as the
Chief Executive Officer, the President, or the Board of Directors may assign to
or confer on him from time to time.
SECTION 5.10. TREASURER. The Treasurer shall keep complete and
accurate records of account, showing at all times the financial condition of the
Corporation. He shall be the legal custodian of all money, notes, securities and
other valuables which may from time to time come into the possession of the
Corporation. He shall furnish at meetings of the Board of Directors, or whenever
requested, a statement of the financial condition of the Corporation, and shall
perform such other duties as these Bylaws may require or the Chief Executive
Officer, the President, or the Board of Directors may prescribe from time to
time.
SECTION 5.11. ASSISTANT OFFICERS. Any Assistant Secretary or
Assistant Treasurer appointed by the Board of Directors shall have power to
perform, and shall perform, all duties incumbent upon the Secretary or Treasurer
of the Corporation, respectively, subject to the general direction of such
respective officers, and shall perform such other duties as these Bylaws may
require or the Chief Executive Officer, the President, or the Board of Directors
may prescribe from time to time.
SECTION 5.12. SALARIES. The salaries or other compensation of the
officers shall be fixed from time to time by the Board of Directors or the
compensation committee thereof approved by the Board of Directors. No officer
shall be prevented from receiving such salary or other compensation by reason of
the fact that he is also a Director of the Corporation. In the absence of action
taken by the Board of Directors or compensation committee to fix the salary of
any officers during the prior twelve month period, the Chief Executive Officer
shall have the sole discretionary authority to fix such salary of any officer.
SECTION 5.13. BONDS OF OFFICERS. The Board of Directors may secure
the fidelity of any officer of the Corporation by bond or otherwise, on such
terms and with such surety or sureties, conditions, penalties or securities as
shall be deemed proper by the Board of Directors.
SECTION 5.14. DELEGATION. The Board of Directors may delegate
temporarily the powers and duties of any officer of the Corporation, in case of
his absence or for any other reason, to any other officer, and may authorize the
delegation by any officer of the Corporation of any of his powers and duties to
any agent or employee, subject to the general supervision of such officer.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1. DIVIDENDS. Dividends on the outstanding shares of the
Corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid by the Corporation in cash, in property,
or in the Corporation's own shares, but only out of the surplus of the
Corporation, except as otherwise allowed by law.
Subject to limitations upon the authority of the Board of Directors
imposed by law or by the Articles of Incorporation, the declaration of and
provision for payment of dividends shall be at the discretion of the Board of
Directors.
SECTION 6.2. CONTRACTS. The Chief Executive Officer and President
shall have the power and authority to execute, on behalf of the Corporation,
contracts or instruments in the usual and regular course of business, and in
addition the Board of Directors may authorize any officer or officers, agent or
agents, of the Corporation to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances. Unless so authorized by the
Board of Directors or by these Bylaws, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement, or
to pledge its credit or to render it pecuniarily liable for any purpose or in
any amount.
SECTION 6.3. CHECKS, DRAFTS, ETC. All checks, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officers or
employees of the Corporation as shall from time to time be authorized pursuant
to these Bylaws or by resolution of the Board of Directors.
SECTION 6.4. DEPOSITORIES. All funds of the Corporation shall be
deposited from time to time to the credit of the Corporation in such banks or
other depositories as the Board of Directors may from time to time designate,
and upon such terms and conditions as shall be fixed by the Board of Directors.
The Board of Directors may from time to time authorize the opening and
maintaining within any such depository as it may designate, of general and
special accounts, and may make such special rules and regulations with respect
thereto as it may deem expedient.
SECTION 6.5. ENDORSEMENT OF STOCK CERTIFICATES. Subject to the
specific directions of the Board of Directors, any share or shares of stock
issued by any corporation and owned by the Corporation, including reacquired
shares of the Corporation's own stock, may, for sale or transfer, be endorsed in
the name of the Corporation by the President or any Vice President; and such
endorsement may be attested or witnessed by the Secretary or any Assistant
Secretary either with or without the affixing thereto of the corporate seal.
SECTION 6.6. CORPORATE SEAL. The corporate seal, if any, shall be
in such form as the Board of Directors shall approve, and such seal, or a
facsimile thereof, may be impressed
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on, affixed to, or in any manner reproduced upon, instruments of any nature
required to be executed by officers of the Corporation.
SECTION 6.7. FISCAL YEAR. The fiscal year of the Corporation shall
begin and end on such dates as the Board of Directors at any time shall
determine.
SECTION 6.8. BOOKS AND RECORDS. The Corporation shall keep correct
and complete books and records of account and shall keep minutes of the
proceedings of its shareholders and Board of Directors, and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held by
each.
SECTION 6.9. RESIGNATIONS. Any director or officer may resign at any
time. Such resignations shall be made in writing and shall take effect at the
time specified therein, or, if no time is specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
SECTION 6.10. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS.
(a) MANDATORY INDEMNIFICATION. Each person who at any time is or was
a director, officer, employee or agent of the Corporation, and is threatened to
be or is made a party to or witness in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, any appeal in such action, suit or proceeding, and any inquiry
or investigation that could lead to such an action, suit or proceeding (a
"Proceeding"), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, employee benefit plan, other enterprise or other entity (all such
persons entitled to indemnification hereunder being referred to individually as
"Indemnitee" and collectively as "Indemnitees"), whether the basis of a
Proceeding is alleged action in such person's official capacity or in another
capacity while holding such office, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Texas Business
Corporation Act (the "TBCA") or any other applicable law as may from time to
time be in effect (but, in the case of any amendment of an existing statute or
enactment of a new statute, only to the extent that such amendment or new
statute permits the Corporation to provide broader indemnification rights than
law existing prior to such amendment or enactment permitted the Corporation to
provide), against all expense, liability and loss (including, without
limitation, court costs and attorneys' fees, judgments, fines, excise taxes or
penalties, and amounts paid or to be paid in settlement) actually and reasonably
incurred or suffered by such person in connection with a Proceeding (provided,
however, that if the person is found liable to the Corporation or is found
liable on the basis that a personal benefit was improperly received by the
person, the indemnification (i) shall be limited to reasonable expenses actually
incurred by the person in connection with the Proceeding and (ii) shall not be
made in respect of any Proceeding in which the person is found liable for
willful or intentional conduct in the performance of his duty to the
Corporation), so long as a majority of a quorum of disinterested
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directors, a majority of a quorum of a committee of disinterested directors, the
shareholders or legal counsel through a written opinion determines, pursuant to
the applicable provisions of the TBCA, that such person acted in good faith and
in a manner he reasonably believed to be in (in the case of conduct in his
official capacity as a director of the Corporation) or not opposed to (in all
other cases) the best interests of the Corporation, and in the case of a
criminal Proceeding, such person had no reasonable cause to believe his conduct
was unlawful. Such indemnification shall continue as to a person who has ceased
to be a director or officer of the Corporation or a director, officer, partner,
venturer, proprietor, member, employee, trustee, agent or similar functionary of
another domestic or foreign corporation, employee benefit plan, other
enterprise, or other entity and shall inure to the benefit of such person's
heirs, executors and administrators. The Corporation's obligations under this
Section 6.10(a) include, but are not limited to, the convening of any meeting
and the consideration thereat of any matter which is required by statute to
determine the eligibility of any person for indemnification.
(b) PREPAYMENT OF REASONABLE EXPENSES. Reasonable Expenses incurred
by a director or officer of the Corporation in defending a Proceeding shall be
paid by the Corporation in advance of the final disposition of such Proceeding
to the fullest extent permitted by, and only in compliance with, the TBCA or any
other applicable laws as may from time to time be in effect, including, without
limitation, any provision of the TBCA which requires, as a condition precedent
to such expense advancement, the delivery to the Corporation of a written
affirmation by a director or officer stating his good faith belief that he
satisfies the requirements set forth in Section 6.10(a) for indemnification and
a written undertaking, by or on behalf of such person, to repay all amounts so
advanced if it shall ultimately be determined that such person is not entitled
to be indemnified under Section 6.10(a) or is otherwise prohibited under Section
6.10(a). Repayments of all amounts so advanced shall be upon such terms and
conditions, if any, as the Corporation's Board of Directors deems appropriate.
(c) VESTING. The Corporation's obligation to indemnify and to prepay
expenses under Sections 6.10(a) and 6.10(b) shall arise, and all rights granted
to the Corporation's directors and officers hereunder shall vest, at the time of
the occurrence of the transaction or event to which a Proceeding relates, or at
the time that the action or conduct to which such Proceeding relates was first
taken or engaged in (or omitted to be taken or engaged in), regardless of when
such Proceeding is first threatened, commenced or completed (and whether arising
out of a transaction or event occurring before or after adoption of this Section
6.10). Notwithstanding any other provision of the Articles of Incorporation or
Bylaws of the Corporation, no action taken by the Corporation subsequent to the
adoption of this Section 6.10, either by amendment of the Articles of
Incorporation or these Bylaws of the Corporation or otherwise, shall diminish or
adversely affect any rights to indemnification or prepayment of expenses granted
under Sections 6.10(a) and 6.10(b) which shall have become vested as aforesaid
prior to the date that such amendment or other corporate action is effective or
taken, whichever is later.
(d) ENFORCEMENT. If a claim under Section 6.10(a) and/or Section
6.10(b) is not paid in full by the Corporation within 30 days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit in a court of competent jurisdiction against the
Corporation to recover the unpaid amount of the claim and, if successful
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in whole or in part, the claimant shall also be entitled to be paid the expense
of prosecuting such claim. It shall be a defense to any such suit (other than a
suit brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition when the required undertaking, if
any is required, has been tendered to the Corporation) that the claimant has not
met the standards of conduct which make it permissible under the TBCA or other
applicable law to indemnify the claimant for the amount claimed, in which case
the indemnification shall be limited to reasonable expenses actually incurred,
but the burden of proving such defense shall be on the Corporation. The failure
of the Corporation (including its Board of Directors, independent legal counsel,
or shareholders) to have made a determination prior to the commencement of such
suit as to whether indemnification is proper in the circumstances based upon the
applicable standard of conduct set forth in the TBCA or other applicable law
shall neither be a defense to the action nor create a presumption that the
claimant has not met the applicable standard of conduct. The termination of any
Proceeding by judgment, order, settlement, conviction, or on a plea of NOLO
CONTENDERE or its equivalent, is not, of itself, determinative that the person
did not act in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal Proceeding, had reasonable cause to believe that his
conduct was unlawful. A person shall be deemed to have been found liable in
respect of any claim, issue or matter only after the person shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom.
(e) NONEXCLUSIVE. The indemnification provided by this Section 6.10
shall not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any statute, the Corporation's Articles of
Incorporation, other provisions of these Bylaws, agreement, vote of shareholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(f) PERMISSIVE INDEMNIFICATION. The rights to indemnification and
prepayment of expenses which are conferred on the Corporation's directors and
officers by Sections 6.10(a) and 6.10(b) may be conferred upon any employee or
agent of the Corporation or other person serving in any capacity at the request
of the Corporation if, and to the extent, authorized by the Board of Directors.
(g) INSURANCE. The Corporation shall have power to purchase and
maintain insurance or another arrangement, at its expense, on behalf of any
Indemnitee against any expense, liability or loss asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
Corporation's Articles of Incorporation, the provisions of this Section 6.10,
the TBCA or other applicable law.
SECTION 6.11. MEETINGS BY TELEPHONE. Subject to the provisions
required or permitted by these Bylaws or the laws of the State of Texas for
notice of meetings, members of the Board of Directors, or members of any
committee designated by the Board of Directors, may participate in and hold any
meeting required or permitted under these Bylaws by telephone or similar
communications equipment by means of which all persons participating in the
meeting
15
<PAGE>
can hear each other. Participation in a meeting pursuant to this section shall
constitute presence in person at such a meeting, except where a person
participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
SECTION 6.12. TRANSACTIONS WITH AFFILIATED PARTIES. Any transactions
with affiliated parties must be approved by a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors, and must be on terms no less favorable than those that are deemed by
the Board to be equivalent to those the Corporation could obtain from
unaffiliated parties.
ARTICLE VII
AMENDMENTS
SECTION 7.1. AMENDMENTS. These Bylaws may be altered, amended or
repealed or new Bylaws adopted as set forth in the Articles of Incorporation.
16
EXHIBIT 10.1
LOAN AGREEMENT
United Wellhead Services, Inc., hereinafter referred to as the "Borrower"
has had negotiations with Community National Bank hereinafter referred to as the
"Bank" for the purpose of establishing a $700,000.00 working capital line of
credit with the Bank.
The Bank is willing to establish said working capital line of credit upon
the terms, provisions, and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. GENERAL PROVISIONS: On the date hereof and for and period of one year
from the date hereof, Bank agrees, upon the terms, provisions and conditions
contained in this Loan Agreement, to lend to Borrower sums requested by Borrower
provided that said sums, when added to the unpaid principal balance of other
sums lent to Borrower pursuant to the terms hereof do not exceed the lesser of
the following amounts:
(a) an aggregate unpaid principal balance at any one time of $700,000.00
and
(b) the Borrower's Borrowing Base.
The Borrowing Base is defined as the sum of 75% of Borrower's accounts
receivable less than 60 days past due and 25% of Borrower's inventory less the
outstanding balance of the $50M capital loan executed simultaneously with the
aforementioned. At its option, Bank may reduce the Borrowing Base by eliminating
any or all accounts receivable; however, before Bank may reduce the Borrowing
Base by eliminating these accounts receivable, Bank must give Borrower written
notice of the specific accounts that Bank intends to eliminate from the
calculation of the Borrowing Base. The reduction in the Borrowing Base will be
effective 3 days after the Bank transacts such written notice.
Bank shall lend to Borrower an amount equal to the sum specified by the
Borrower, subject to the restrictions and conditions contained in this Loan
Agreement and the Promissory Note.
2. PROMISSORY NOTE: The working capital line of credit (the "Loan") shall
be evidenced by a draw type promissory note of the Borrower dated of even date
herewith in the face amount of $700,000.00 (the "Promissory Note"). Said
Promissory Note shall bear interest on advances from the date of each advance
until maturity at a variable rate equal to Wall Street Journal Prime Floating
daily, plus two percent. Said rate shall be subject to renegotiation as
compensating balances dictate. Accrued interest shall be payable monthly on the
1st day of each month, beginning February 1, 1997. And continuing monthly until
all principal and unpaid accrued interest become due and payable on the 16th day
of January, 1998.
3. COLLATERAL: Borrower agrees to grant Bank a first lien security interest
in all of its accounts receivable to secure payment of the indebtedness
evidenced by the Promissory Note and performance by Borrower of all the terms,
provisions and conditions of this Loan Agreement. Borrower agrees to execute and
deliver to Bank any and all documents (the "Security Documents") necessary to
create and perfect said security interest.
4. GUARANTEES: As further and additional security for the repayment of the
loans and the performance by Borrower of the terms, provisions and conditions of
this Loan Agreement, Wallace C. Sparkman, Al Dueitt and Martin Tomlin
(collectively hereinafter referred to as the "Guarantors") hereby agree to
execute said promissory note as a Guarantor, by the terms of which each agrees
to guarantee the payment of the Promissory Note and the compliance by Borrower
with the terms, provisions and conditions of this Loan Agreement.
5. BORROWER'S REPRESENTATIONS: Borrower represents and warrants that:
(a) Financial Statements: The financial statements that have been furnished
to Bank reflect accurately the current status of operations of the Borrower as
of the respective dates of said statements.
(b) Litigation: There are no actions, suits, or proceedings pending or, to
the knowledge of its officers, directors and shareholders of Borrower threatened
against the Borrower, in any court or before any
1
<PAGE>
governmental department, agency or instrumentally, an adverse decision in which
might materially affect the ability of Borrower to perform its obligations under
this Loan Agreement, the Promissory Note and the Security Documents.
(c) Authority and Compliance: Borrower has full power and authority to
enter into this Agreement, and to make the borrowing hereunder, all of which
have been duly authorized by all proper and necessary corporate action. No
consent or approval of stockholders or of any public authority is required as a
condition to the validity of this Agreement or the Note, and Borrower is in
compliance with all laws and regulatory requirements to which it is subject.
(d) Binding Agreement: This Agreement constitutes, and the Promissory Note
when issued and delivered pursuant hereto for value received will constitute,
valid and legally binding obligations of Borrower in accordance with their
terms.
(e) No Conflicting Agreements: There are no charter, bylaw or stock
provisions of Borrower and no provisions of any existing agreement, mortgage,
indenture or contract binding on Borrower or affecting its property, which would
conflict with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the Promissory Note.
6. CONDITIONS TO LOAN AND ADVANCE: The obligation of Bank to make the Loan
and advances hereunder is conditioned upon the following matters:
(a) Bank's approval of the advance based upon intended purpose and use of
funds.
(b) At the of the requested advance and at the time of disbursement of the
advance, Borrower shall not be in default under this Loan Agreement or the
Promissory Note.
(c) At the time of the requested advance and at the time of disbursement of
the advance, Borrower must have provided Bank a current Borrowing Base
Certificate, which reflects that the Borrowing Base exceeds the sum of the
additional advance required and the current unpaid principal balance of the
Promissory Note. The Borrowing Base Certificate shall be certified statement by
the President or Secretary of the Borrower setting forth the Borrowing Base and
supporting calculations as of the date of the certificate. (A form of said
Borrowing Base Certificate is attached hereto and made a part hereof as Exhibit
"B".)
(d) Inclusion of a receivable representing a concentration exceeding 30% of
the total value of the Borrowing Base for any one customer in the calculation of
the Borrowing Base will be subject to the Bank's approval. Community National
Bank agrees to entertain additional loan requests which will be subject to
further approval.
7. AFFIRMATIVE COVENANTS: So long as Borrower may borrow hereunder and
until payment in full of the Note and performance of all other obligations of
Borrower hereunder, Borrower will:
(a) Maintain the following balances sheet requirements in accordance with
generally accepted accounting principals:
1. Maintain Working Capital of not less than $400,000.00. Working
Capital is defined as current assets minus current liabilities.
2. Maintain a Minimum Tangible New Worth of not less than $750,000.00.
Net Worth is defined as total assets less total liabilities.
(b) Accounting: Maintain a system of accounting satisfactory to Bank and in
accordance with generally accepted accounting principles consistently applies,
and will permit Bank's officers or authorized representatives to visit and
inspect Borrower's books of account and other records at such reasonable times
and as often as Bank may desire, at the Bank's cost and expense. Unless written
notice of another location is given to Bank, Borrower's books and records will
be held at Borrower's place of business located at 615 Upper North Broadway,
Corpus Christi, Texas 78477.
(c) Monthly Financial Statements: Furnish to bank monthly financial
statements, to include balance sheet and profit and loss statement, and showing
all amounts for the past calendar month and for the
2
<PAGE>
calendar year to date, together with an officer's certificate of compliance with
this Agreement, within 30 days of the end of each such accounting period (see
attached Exhibit "A". Additionally, Borrower is required to provide a current
accounts receivable and account payable aging within the same 30 days.
(d) Borrowing Base Calculations: As soon as available and in any event
within 30 days after the end of each month, a calculation of the Borrowing Base
for the preceding month accompanied by a payment then due by Borrower or
Guarantors as may be required under such Borrowing Base Calculations. Such shall
be certified by an authorized officer of the corporation and shall be
accompanied by an officer's certificate stating Borrower is in compliance with
all terms and conditions of this Agreement (see Exhibit "B").
(e) Other: Promptly provide Bank with such additional information, reports
or statements reflecting its business operations and financial condition as Bank
may reasonably request from time to time.
(f) Insurance: Due to the nature of inventory, Borrower is not required to
maintain insurance on same.
(g) Corporate Existence and Compliance: Maintain its corporate existence in
good standing and comply with all laws, regulations and governmental
requirements to which it is subject.
(h) Adverse Conditions or Events: Promptly advise Bank in writing of any
conditions, event or act which comes to its attention that would or might
materially affect Borrower's financial condition, Bank's rights in or to the
Collateral under this Agreement or the loan documents, and any litigation filed
against Borrower.
(i) Taxes: Pay all taxes as the same become due and payable.
8. NEGATIVE COVENANTS: So long as Borrower may borrow hereunder and until
payment in full of the Note and performance of all other obligations of Borrower
hereunder, Borrower will not, without the prior written consent of Bank:
(a) Transfer Assets: Enter into any merger or consolidation, sell, lease,
assign or otherwise dispose of or transfer any assets except in the normal
course of its business.
(b) Liens: Knowingly grant, suffer or permit liens on or security interests
in Borrower's assets, excluding vehicle financing and insurance premium
financing.
(c) Loans: Make any loans, advances or investments to or in any joint
venture, corporation or other entity not consolidated with Borrower.
(d) Borrowing: Create, incur, assume or become liable in any manner for any
indebtedness other than that (I) to Bank, (II) normal trade debts incurred in
the ordinary course of Borrower's business, (III) the existing indebtedness.
(e) Violate Other Covenants: Violate or fail to comply with any covenants
or agreements regarding other debt which will or would with the passage of time
or upon demand cause the maturity of any other debt to be accelerated.
9. EVENTS OF DEFAULT: If one or more of the following events of default
shall occur, all outstanding principal plus unpaid interest shall be due and
payable immediately:
(a) Default shall be made in the payment of any installment of principal or
interest upon the Promissory Note when due and payable, whether at maturity or
otherwise and such default shall continue for 30 days; or
(b) After 3 days from written notice by Bank to Borrower that the unpaid
aggregate balance of the Promissory Note still exceeds Borrower's Borrowing
Base; or
(c) Default shall be made in the performance of any term, covenant or
agreement contained herein; or
(d) Any representation or warranty herein contained or in any financial
statement, certificate, report or opinion submitted to Bank in connection with
this loan or pursuant to the requirements of this Agreement shall prove to have
been incorrect in any material respect when made; or
(e) Any judgement against Borrower or any attachment or other levy against
the property of Borrower with respect to a claim remains unpaid, unstayed on
appeal, undischarged, for a period of 30 days; or
3
<PAGE>
(f) A Guarantor shall be the subject of voluntary or involuntary bankruptcy
proceedings, or there is a substantial change in ownership or control of
Borrower; or
(g) Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy or is adjudicated insolvent or bankrupt.
10. NOTICES: All notices, demand and documents of any kind which one party
hereto may be required or may desire to serve upon another party hereunder may
be served by delivering the same to the part personally or by depositing such
notice, demand or document in the United States mail, postage prepaid, certified
mail, return receipt requested, and addressed to the other party at the address
shown herein or to such other address as may be furnished by written notice for
one party to the other pursuant hereto. Any communication shall be deemed
effectively given on the date of personal delivery or the third business day
following deposit in mail.
11. TERM OR AGREEMENT: This Loan Agreement shall be and remain in full
force and effect until the termination of all obligations of the Bank to make
advances hereunder to until the payment in full of the Promissory Note and the
performance by Borrower of all the terms, provisions and conditions of this Loan
Agreement, the Promissory Note and Security Documents, whichever is later.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of this 16th day of January, 1997.
BORROWER: BANK:
UNITED WELLHEAD SERVICES, INC. COMMUNITY NATIONAL BANK
by: /s/ Wallace C. Sparkman by: /s/ Jeb Hughes
Wallace C. Sparkman Jeb Hughes
Chairman of the Board Senior Vice President
UNITED WELLHEAD SERVICES, INC.
by: /s/ Al Dueitt
Al Dueitt
President
4
EXHIBIT 10.2
BORROWER
FLARE KING, INC.
WALLACE SPARKMAN
ADDRESS
PO BOX 60757
MIDLAND, TX 79711
TELEPHONE NO.
512-882-3536
IDENTIFICATION NO.
[LOGO]MIDLAND AMERICAN BANK
401 WEST TEXAS
MIDLAND, TEXAS 79701 (915) 687-3013
MIDLAND COUNTY "LENDER"
COMMERCIAL
REVOLVING OR DRAW
NOTE-VARIABLE RATE
<TABLE>
<CAPTION>
PRINCIPAL
OFFICER INTEREST AMOUNT/ FUNDING/ MATURITY CUSTOMER OFFICER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER INITIALS NUMBER
<S> <C> <C> <C> <C> <C> <C> <C>
CJH VARIABLE $150,000.00 06/19/97 06/19/00 72931 CJH 67011
</TABLE>
PROMISE TO PAY
FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender indicated
above the principal amount of ONE HUNDRED FIFTY THOUSAND AND NO/100 Dollars
($150,000.00) or, if less, the aggregate unpaid principal amount of all advances
made by the Lender to the Borrower, plus interest on the unpaid principal
balance at the rate and in the manner described below. All amounts received by
Lender shall be applied first to expenses, then to accrued unpaid interest, and
then to outstanding principal, or in any other manner as determined by Lender,
in Lender's sole discretion, as permitted by law.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note may
change from time to time if the Index Rate identified below changes. Interest
shall be computed on the basis of 360 days and the actual number of days per
year (and in any event, 365 or 366 days per year during periods when the Maximum
Lawful Rate which is defined on the reverse is in effect) and the actual number
of days elapsed. So long as there is no default under this Note, interest on
this Note shall be calculated at the variable rate of TWO AND 750/1000 percent
(2.750%) per annum over the Index Rate, provided that such rate shall not exceed
the Maximum Lawful Rate. The initial Index Rate is currently EIGHT AND 500/1000
percent (8.500%) per annum. Therefore, the initial interest rate on this Note
shall be ELEVEN AND 250/1000 percent (11.250%) per annum. Any change in the
interest rate resulting from a change in the Index Rate will be effective on:
SAME DAY AS WALL STREET JOURNAL PRIME CHANGES.
INDEX RATE: The Index Rate for this Note shall be: WALL STREET JOURNAL PRIME.
If the index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (n/a %) per annum. The maximum interest rate on this Note shall not
exceed EIGHTEEN AND NO/1000 percent (18.000%) per annum, or the Maximum Lawful
Rate, whichever is less.
<PAGE>
DEFAULT RATE: In the event of a default under this Note, the Lender may, in its
sole discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT, or the Maximum Lawful Rate, whichever is less.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the
following schedule:
35 PAYMENTS OF $4,940.32 BEGINNING JULY 19, 1997 AND CONTINUING AT MONTHLY TIME
INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS
ACCRUED INTEREST IS DUE AND PAYABLE ON JUNE 19, 2000.
All payments will be made to Lender at its address in the county described above
and in lawful currency of the United States of America.
RENEWAL: If checked [ ] this Note is given in renewal of, but not in novation or
discharge of, Loan Number __________________.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to
Lender's right of common law setoff. [X] If checked, the obligations under this
Note are also secured by a lien and/or security interest in the property
described in the documents executed in connection with this Note as well as any
other property designated as security for this Note now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
shall be applied as determined by Lender and as permitted by law.
REVOLVING OR DRAW FEATURE: This Note possesses a revolving or draw feature as
indicated below.
[ ] This Note possesses a revolving feature. Borrower shall be entitled to
borrow up to the full principal amount of the Note from time to time during
the term of this Note.
[X] This Note possesses a draw feature. Borrower shall be entitled to make one
or more draws under this Note. The aggregate amount of such draws shall not
exceed the full principal amount of this Note.
Lender shall maintain a written ledger of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
ledger shall be rebuttable presumptive evidence of the outstanding principal
amount owing and unpaid on this Note. The Lender's failure to record the date
and amount of any advance on such ledger shall not limit or otherwise affect the
obligations of the Borrower under this Note to repay the outstanding principal
amount of the advances together with all accrued, unpaid interest thereon.
Lender shall not be obligated to provide Borrower with a copy of the ledger on a
periodic basis, however, Borrower shall be entitled to inspect or obtain a copy
of the ledger during Lender's business hours.
CONDITIONS FOR ADVANCES: Borrower shall be entitled to borrow monies under this
Note (subject to the limitations described above) under the following
conditions:
CUSTOMER REQUEST/OFFICER APPROVAL
- --------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND
NOTE DATE: JUNE 19, 1997
BORROWER: FLARE KING, INC. BORROWER: WALLACE SPARKMAN
<PAGE>
/s/ WALLACE SPARKMAN /s/ WALLACE SPARKMAN
CHAIRMAN OF THE BOARD INDIVIDUALLY
BORROWER: BORROWER:
_________________________________ ______________________________
BORROWER: BORROWER:
_________________________________ ______________________________
BORROWER: BORROWER:
_________________________________ ______________________________
<PAGE>
TERMS AND CONDITIONS
1. COMPLIANCE WITH APPLICABLE LAW: It is Lender's intention to comply fully with
Texas law, and federal law as applicable, regulating credit terms, interest,
fees, charges, expenses, and other amounts. For purposes of determining Lender's
compliance with such laws, the following shall apply to the extent permitted by
law: (a) any contract, charge or receipt by Lender, whether occurring now or in
the future, shall be strictly limited by this provision; (b) the "Maximum Lawful
Rate" shall mean the maximum lawful ceiling, rate or amount that Lender could
have contracted to charge or receive under Texas law or applicable federal law,
whichever permits the highest maximum ceiling, rate or amount; (c) to the extent
Texas Article 5069-1.04, as amended, provides the Maximum Lawful Rate, the
"indicated rate ceiling" shall apply unless changed by Lender in accordance with
Texas Law; (d) Lender may calculate rates or amounts by aggregating, amortizing,
prorating, allocating, and spreading amounts contracted for, charged or received
over the full term of the transaction; (e) no contract, charge or receipt shall
obligate Borrower or any obligor to pay any amount in excess of the Maximum
Lawful Rate or waive any right under Texas Article 5069; and (f) any contract,
charge or receipt that in the event of acceleration or under any other
contingency purports to require the payment or collection of any amount in
excess of the Maximum Lawful Rate shall automatically be reformed to not
obligate Borrower or any other obligor to pay any amount in excess of the
Maximum Lawful Rate. If Lender ever contracts for, charges or receives a rate or
amount in excess of the Maximum Lawful Rate, the excess (whether denominated
principal, interest or otherwise) shall be automatically subject to
reallocation, cancellation, credit, application, or refund to eliminate any
amount in excess of the Maximum Lawful Rate.
2. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor:
(a) fails to make any payment on this Note or any other indebtedness to
Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant
to Lender contained in this Note or any other present or future
written agreement regarding this or any indebtedness of Borrower to
Lender;
(c) provides or causes any false or misleading signature or representation
to be provided to Lender;
(d) allows any loss, diminution, or impairment of the physical condition,
value, title, priority, possession, or control of any collateral
securing this Note or Borrower's Lender's rights therein, including,
but not limited to, allowing any part of the collateral to be placed
into receivership, removed, impaired, lost, stolen, destroyed,
damaged, seized, confiscated or affected in any material way;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases
to operate its business, becomes insolvent, makes an assignment for
the benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure in good faith.
3. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law):
(a) to declare the principal amount plus accrued interest under this Note
and all other present and future obligations of Borrower immediately
due and payable in full;
(b) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(c) to lawfully and peaceably take possession of any collateral;
(d) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance in the manner permitted by law;
<PAGE>
(f) to set-off Borrower's obligations (including past due installments)
against any amounts due to Borrower including, but not limited to,
monies, instruments, and deposit accounts maintained with Lender; and
(g) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately
and in any order.
4. DEMAND FEATURE: If this Note contains a demand feature, then notwithstanding
anything to the contrary contained in this Note, Lender's rights with respect to
the events of default identified above shall not be limited, restricted,
impaired or otherwise adversely affected by the demand feature of this Note.
Lender's right to demand payment, at any time and from time to time, shall be in
Lender's sole and absolute discretion, whether or not any default has occurred.
5. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements including, but not limited to, balance sheets and profit and loss
statements and other information upon request.
6. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if Lender
amends, compromises, exchanges, fails to exercise, impairs or releases any of
the obligations belonging to any co-borrower or guarantor or any of its rights
against any co-borrower, guarantor or collateral.
7. SEVERABILITY: If any provision of this Note violates the law or is
unenforceable, the rest of the Note will remain valid.
8. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will be
entitled to assign some or all of its rights and remedies described in this Note
without notice to or the prior consent of Borrower in any manner.
9. NOTICE. Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
10. APPLICABLE LAW: THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS AND APPLICABLE FEDERAL LAWS. BORROWER CONSENTS TO THE JURISDICTION AND
VENUE OF ANY COURT LOCATED IN THE COUNTY IN WHICH THIS NOTE IS SIGNED OR IN
WHICH BORROWER RESIDES IN THE EVENT OF ANY LEGAL PROCEEDING UNDER THIS NOTE.
11. COLLECTION EXPENSES: If Lender hires an attorney (who is not a salaried
employee of Lender) to assist in collecting any amount due or enforcing any
right or remedy under this Note, Borrower agrees to pay Lender's reasonable
attorneys' fees and collection costs subject to court award.
12. MISCELLANEOUS: This Note is being executed for commercial purposes. Borrower
and Lender agree that time is of the essence. Borrower waives presentment,
demand for payment, notice of intent to accelerate, notice of acceleration,
notice of dishonor and protest. All references to Borrower in this Note shall
include all of the parties signing this Note. If there is more than one
Borrower, their obligations will be joint and several. This Note and any related
documents represent the complete and integrated understanding between Borrower
and Lender pertaining to the terms and conditions of those documents.
13. ADDITIONAL TERMS:
PURPOSE: ADVANCING LOC TO PAYOFF DEBT AT COMMUNITY BANK OF ROCKWALL.
SECURED BY: 1ST D/T 4925 SCR 1303 MIDLAND/EQUIP/RENTAL EQP/OFFICE
FURN/MACH.
EXHIBIT 10.3
BORROWER
FLARE KING, INC.
WALLACE SPARKMAN
ADDRESS
PO BOX 60757
MIDLAND, TX 79711
TELEPHONE NO.
512-882-3536
IDENTIFICATION NO.
[LOGO] MIDLAND AMERICAN BANK
401 WEST TEXAS
MIDLAND, TEXAS 79701 (915) 687-3013
MIDLAND COUNTY "LENDER"
COMMERCIAL
REVOLVING OR DRAW
NOTE-VARIABLE RATE
<TABLE>
<CAPTION>
PRINCIPAL
OFFICER INTEREST AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
<S> <C> <C> <C> <C> <C> <C>
CJH VARIABLE $125,000.00 06/19/97 06/19/98 72931 67021
</TABLE>
PROMISE TO PAY
FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender indicated
above the principal amount of ONE HUNDRED TWENTY-FIVE THOUSAND AND NO/100
Dollars ($125,000.00) or, if less, the aggregate unpaid principal amount of all
advances made by the Lender to the Borrower, plus interest on the unpaid
principal balance at the rate and in the manner described below. All amounts
received by Lender shall be applied first to expenses, then to accrued unpaid
interest, and then to outstanding principal, or in any other manner as
determined by Lender, in Lender's sole discretion, as permitted by law.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note may
change from time to time if the Index Rate identified below changes. Interest
shall be computed on the basis of 360 days and the actual number of days per
year (and in any event, 365 or 366 days per year during periods when the Maximum
Lawful Rate which is defined on the reverse is in effect) and the actual number
of days elapsed. So long as there is no default under this Note, interest on
this Note shall be calculated at the variable rate of TWO AND 750/1000 percent
(2.750%) per annum over the Index Rate, provided that such rate shall not exceed
the Maximum Lawful Rate. The initial Index Rate is currently EIGHT AND 500/1000
percent (8.500%) per annum. Therefore, the initial interest rate on this Note
shall be ELEVEN AND 250/1000 percent (11.250%) per annum. Any change in the
interest rate resulting from a change in the Index Rate will be effective on:
SAME DAY AS WALL STREET JOURNAL PRIME CHANGES.
INDEX RATE: The Index Rate for this Note shall be: WALL STREET JOURNAL PRIME.
If the index becomes unavailable during the term of the loan, Lender may
substitute another index which is similar.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (n/a %) per annum. The maximum interest rate on this Note shall not
exceed EIGHTEEN AND NO/1000 percent (18.000%) per annum, or the Maximum Lawful
Rate, whichever is less.
<PAGE>
DEFAULT RATE: In the event of a default under this Note, the Lender may, in its
sole discretion, determine that all amounts owing to Lender shall bear interest
as follows: EIGHTEEN PERCENT, or the Maximum Lawful Rate, whichever is less.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the
following schedule:
ON DEMAND, BUT IF NO DEMAND IS MADE, THEN INTEREST ONLY PAYMENTS
BEGINNING JULY 19, 1997 AND CONTINUING AT MONTHLY TIME INTERVALS
THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS
ACCRUED INTEREST IS DUE AND PAYABLE ON JUNE 19, 1998.
All payments will be made to Lender at its address in the county described above
and in lawful currency of the United States of America.
RENEWAL: If checked [ ] this Note is given in renewal of, but not in novation or
discharge of, Loan Number ______________________________.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest in all monies,
instruments, and savings, checking, and other deposit accounts of Borrower's,
(excluding IRA, Keogh, and trust accounts and deposits subject to tax penalties
if so assigned), that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to
Lender's right of common law setoff. [X] If checked, the obligations under this
Note are also secured by a lien and/or security interest in the property
described in the documents executed in connection with this Note as well as any
other property designated as security for this Note now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
shall be applied as determined by Lender and as permitted by law.
REVOLVING OR DRAW FEATURE: This Note possesses a revolving or draw feature as
indicated below.
[X] This Note possesses a revolving feature. Borrower shall be entitled to
borrow up to the full principal amount of the Note from time to time during
the term of this Note.
[ ] This Note possesses a draw feature. Borrower shall be entitled to make one
or more draws under this Note. The aggregate amount of such draws shall not
exceed the full principal amount of this Note.
Lender shall maintain a written ledger of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
ledger shall be rebuttable presumptive evidence of the outstanding principal
amount owing and unpaid on this Note. The Lender's failure to record the date
and amount of any advance on such ledger shall not limit or otherwise affect the
obligations of the Borrower under this Note to repay the outstanding principal
amount of the advances together with all accrued, unpaid interest thereon.
Lender shall not be obligated to provide Borrower with a copy of the ledger on a
periodic basis, however, Borrower shall be entitled to inspect or obtain a copy
of the ledger during Lender's business hours.
CONDITIONS FOR ADVANCES: Borrower shall be entitled to borrow monies under this
Note (subject to the limitations described above) under the following
conditions:
CUSTOMER REQUEST/OFFICER APPROVAL
- --------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
THIS NOTE AND RELATED DOCUMENTS HAVE BEEN SIGNED IN THE COUNTY OF LENDER'S
ADDRESS UNLESS OTHERWISE SPECIFIED: MIDLAND
NOTE DATE: JUNE 19, 1997
<PAGE>
BORROWER: FLARE KING, INC. BORROWER: WALLACE SPARKMAN
/s/ WALLACE SPARKMAN /s/ WALLACE SPARKMAN
WALLACE SPARKMAN WALLACE SPARKMAN
CHAIRMAN OF THE BOARD INDIVIDUALLY
BORROWER: BORROWER:
BORROWER: BORROWER:
BORROWER: BORROWER:
<PAGE>
TERMS AND CONDITIONS
1. COMPLIANCE WITH APPLICABLE LAW: It is Lender's intention to comply fully with
Texas law, and federal law as applicable, regulating credit terms, interest,
fees, charges, expenses, and other amounts. For purposes of determining Lender's
compliance with such laws, the following shall apply to the extent permitted by
law: (a) any contract, charge or receipt by Lender, whether occurring now or in
the future, shall be strictly limited by this provision; (b) the "Maximum Lawful
Rate" shall mean the maximum lawful ceiling, rate or amount that Lender could
have contracted to charge or receive under Texas law or applicable federal law,
whichever permits the highest maximum ceiling, rate or amount; (c) to the extent
Texas Article 5069-1.04, as amended, provides the Maximum Lawful Rate, the
"indicated rate ceiling" shall apply unless changed by Lender in accordance with
Texas Law; (d) Lender may calculate rates or amounts by aggregating, amortizing,
prorating, allocating, and spreading amounts contracted for, charged or received
over the full term of the transaction; (e) no contract, charge or receipt shall
obligate Borrower or any obligor to pay any amount in excess of the Maximum
Lawful Rate or waive any right under Texas Article 5069; and (f) any contract,
charge or receipt that in the event of acceleration or under any other
contingency purports to require the payment or collection of any amount in
excess of the Maximum Lawful Rate shall automatically be reformed to not
obligate Borrower or any other obligor to pay any amount in excess of the
Maximum Lawful Rate. If Lender ever contracts for, charges or receives a rate or
amount in excess of the Maximum Lawful Rate, the excess (whether denominated
principal, interest or otherwise) shall be automatically subject to
reallocation, cancellation, credit, application, or refund to eliminate any
amount in excess of the Maximum Lawful Rate.
2. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor:
(a) fails to make any payment on this Note or any other indebtedness to
Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant
to Lender contained in this Note or any other present or future
written agreement regarding this or any indebtedness of Borrower to
Lender;
(c) provides or causes any false or misleading signature or representation
to be provided to Lender;
(d) allows any loss, diminution, or impairment of the physical condition,
value, title, priority, possession, or control of any collateral
securing this Note or Borrower's or Lender's rights therein,
including, but not limited to, allowing any part of the collateral to
be placed into receivership, removed, impaired, lost, stolen,
destroyed, damaged, seized, confiscated or affected in any material
way;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases
to operate its business, becomes insolvent, makes an assignment for
the benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure in good faith.
3. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law):
(a) to declare the principal amount plus accrued interest under this Note
and all other present and future obligations of Borrower immediately
due and payable in full;
(b) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(c) to lawfully and peaceably take possession of any collateral;
(d) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance in the manner permitted by law;
<PAGE>
(f) to set-off Borrower's obligations (including past due installments)
against any amounts due to Borrower including, but not limited to,
monies, instruments, and deposit accounts maintained with Lender; and
(g) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order.
4. DEMAND FEATURE: If this Note contains a demand feature, then
notwithstanding anything to the contrary contained in this Note, Lender's
rights with respect to the events of default identified above shall not be
limited, restricted, impaired or otherwise adversely affected by the demand
feature of this Note. Lender's right to demand payment, at any time and
from time to time, shall be in Lender's sole and absolute discretion,
whether or not default has occurred.
5. FINANCIAL INFORMATION: Borrower will provide Lender with current
financial statements including, but not limited to, balance sheets and
profit and loss statements and other information upon request.
6. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a
writing signed by Lender. Lender may perform any of Borrower's obligations
or delay or fail to exercise any of its rights without causing a waiver of
those obligations or rights. A waiver on one occasion will not constitute a
waiver on any other occasion. Borrower's obligations under this Note shall
not be affected if Lender amends, compromises, exchanges, fails to
exercise, impairs or releases any of the obligations belonging to any
co-borrower or guarantor or any of its rights against any co-borrower,
guarantor or collateral.
7. SEVERABILITY: If any provision of this Note violates the law or is
unenforceable, the rest of the Note will remain valid.
8. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written
consent of Lender which may be withheld by Lender in its sole discretion.
Lender will be entitled to assign some or all of its rights and remedies
described in this Note without notice to or the prior consent of Borrower
in any manner.
9. NOTICE. Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
10. APPLICABLE LAW: THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS AND APPLICABLE FEDERAL LAWS. BORROWER CONSENTS TO THE JURISDICTION
AND VENUE OF ANY COURT LOCATED IN THE COUNTY IN WHICH THIS NOTE IS SIGNED
OR IN WHICH BORROWER RESIDES IN THE EVENT OF ANY LEGAL PROCEEDING UNDER
THIS NOTE.
11. COLLECTION EXPENSES: If Lender hires an attorney (who is not a salaried
employee of Lender) to assist in collecting any amount due or enforcing any
right or remedy under this Note, Borrower Agrees to pay Lender's reasonable
attorneys' fees and collection costs subject to court award.
12. MISCELLANEOUS: This Note is being executed for commercial purposes.
Borrower and Lender agree that time is of the essence. Borrower waives
presentment, demand for payment, notice of intent to accelerate, notice of
acceleration, notice of dishonor and protest. All references to Borrower in
this Note shall include all of the parties signing this Note. If there is
more than one Borrower, their obligations will be joint and several. This
Note and any related documents represent the complete and integrated
understanding between Borrower and Lender pertaining to the terms and
conditions of those documents.
13. ADDITIONAL TERMS:
PURPOSE: READVANCING LOC TO PYOFF DEBT AT COMMUNITY BK & WORKING CAPITAL
CARRY A/R
SECURED BY: 1ST D/T 4925 SCR 1303 MIDLAND/EQUIP/RENTAL EQP/OFFICE
FURN/MACH. A/R
EXHIBIT 10.4
LOAN AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$425,000.00 10-01-1996 10-01-1999 5554337 CIF-72217 730
</TABLE>
References in the shaded area are for Leander's use only and do not limit
the applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
<S> <C>
Borrower: HI-TECH COMPRESSOR COMPANY, L.C. Lender: NORTHWEST BANK TEXAS, MIDLAND, N.A.
(TIN: 74-2697643) 500 WEST TEXAS AVENUE
2911 S. COUNTY ROAD 1260 P.O. BOX 2097
MIDLAND, TX 79706-8560 MIDLAND, TX 79702-2097
</TABLE>
THIS LOAN AGREEMENT between HI-TECH COMPRESSOR COMPANY, L.C. ("Borrower")
and NORWEST BANK TEXAS, MIDLAND, N.A. ("Lender") is made and executed on the
following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any exhibit
or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement Individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all
times shall be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of October 1, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not other wise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to Borrower (or
to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means HI-TECH COMPRESSOR COMPANY, L.C. The
word "Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean the lessor of the face
amount of the note #5532809 in the amount of $250,000.00 or (a) 80% of accounts
receivable less than 90 days in age, plus (b) 50% of eligible inventory and
equipment, plus (c) 100% of the depreciated book value of lease equipment, plus
(c) 80% of purchase orders received, less: principal balance of monthly pay note
#5554337.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in the State of Texas.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
<PAGE>
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed or trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise. The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. the net amount of any Eligible Account against which Borrower may borrow
shall exclude all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is a member, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is affiliated with or
related to Borrower.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a resident of
the United States, except to the extent such Accounts are supported by
insurance, bonds or other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower.
(f) Accounts which are subject to dispute, conterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account Debtor.
(h) Accounts with respect to which Lender, in its sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed against
it a petition in bankruptcy or an application for relief under any
provision of any state or federal bankruptcy, insolvency, or debtor-
in-relief acts; or who has had appointed a trustee, custodian, or receiver
for the assets of such Account Debtor; or who has made an assignment for
the benefit of creditors or has become insolvent or fails generally to pay
its debts (including its payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
(k) Accounts which have not been paid in full within Ninety (90) days from
the invoice date.
ELIGIBLE EQUIPMENT. The words "Eligible Equipment" mean, at any time, all of
Borrower's Equipment as defined below except:
(a) Equipment which is not owned by Borrower free and clear of all security
interests, liens, encumbrances, and claims of third parties.
(b) Equipment which Lender, in its sole discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for operation.
(c) INCLUDING LEASE EQUIPMENT.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all
of Borrower's Inventory as defined below except:
<PAGE>
(a) Inventory which is not owned by Borrower free and clear of all security
interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for further processing.
EQUIPMENT. The word "Equipment" means all of Borrower's goods used or
bought for use primarily in Borrower's business and which are not included in
inventory, whether now or hereafter existing.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and liabilities
of Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor, surety,
or otherwise.
INVENTORY. The word "Inventory" means all of Borrower's raw materials,
work in process, finished goods, merchandise, parts and supplies, of every kind
and description, and goods held for sale or lease or furnished under contracts
of service in which Borrower now has or hereafter acquires any right, whether
held by Borrower or others, and all documents of title, warehouse receipts,
bills of lading, and all other documents of every type covering all or any part
of the foregoing. Inventory includes inventory temporarily out of Borrower's
custody or possession and all returns on Accounts.
LENDER. The word "Lender" means NORWEST BANK TEXAS, MIDLAND, N.A., its
successors and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without lmitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (d) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
<PAGE>
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to
time from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or
wholly prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to the
following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall be in
full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, and be in full force
and effect.
(e) Lender, at its option and for its sole benefit, shall have conducted an
audit of Borrower's Accounts, Inventory, Equipment books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due and
payable.
<PAGE>
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for in the
paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the credit facility, as well as
directions for payment from Borrower's accounts, may be requested orally or in
writing by authorized persons. Lender may, but need not, require that all oral
requests be confirmed in writing. Each Advance shall be conclusively deemed to
have been made at the request of and for the benefit of Borrower (a) when
credited to any deposit account of Borrower maintained with Lender or (b) when
advanced in accordance with the instructions of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for Advances will be
treated as having been requested on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility. Lender
shall provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30) days
after Borrower's receipt of any such statement which Borrower deems to be
incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"). Lender's Security
Interests in the Collateral shall be continuing liens and shall include the
proceeds and products of the Collateral, including without limitation the
proceeds of any insurance. With respect to the Collateral, Borrower agrees and
represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's Security Interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
<PAGE>
including without limitation information concerning Eligible Inventory and
records itemizing and describing the kind, type, quality, and quantity of
Inventory, Borrower's Inventory costs and selling prices, and the daily
withdrawals and additions to Inventory. With respect to the Equipment,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Equipment and
records itemizing and describing the kind, type, quality, and quantity of
Equipment, Borrower's Equipment costs, and the daily withdrawals and
additions to Equipment. The following is an accurate and complete list of
all locations at which Borrower keeps or maintains business records
concerning Borrower's Accounts, Inventory and Equipment: 2911 S. COUNTY
ROAD 1260, MIDLAND TX 79706.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts, Inventory and Equipment and schedules of Eligible Accounts,
Eligible Inventory and Eligible Equipment in form and substance
satisfactory to the Lender. Thereafter, Supplemental schedules shall be
delivered according to the following schedule: PROVIDE LENDER WITH ACCOUNTS
RECEIVABLE (INCLUDING PURCHASE ORDERS) LISTINGS WITHIN 60 DAYS OF EACH
QUARTER END.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Inventory will be determined on a consistent accounting basis; (d)
Except as agreed to the contrary by Lender in writing, all Eligible
Inventory is now and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment, sale on
approval, or sale or return; (e) Except as reflected in the Inventory
schedules delivered to Lender, all Eligible Inventory is now and at all
times hereafter will be of good and merchantable quality, free from
defects; (f) Eligible Inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower will
concurrently at the time of bailment cause any such bailee, warehouseman,
or similar party to issue and deliver to Lender, in form acceptable to
Lender, warehouse receipts in Lender's name evidencing the storage of
Inventory; and (g) Lender, its assigns, or agents shall have the right at
any time and at Borrower's expense to inspect and examine the Inventory and
to check and test the same as to quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES CONCERNING EQUIPMENT. With respect to the
Equipment, Borrower represents and warrants to Lender: (a) All Equipment
represented by Borrower to be Eligible Equipment for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Equipment; (b) All Equipment values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Equipment will be determined on a consistent accounting basis; (d)
Except as agreed to the contrary by Lender in writing, all Eligible
Equipment is now and at all times hereafter will be in Borrower's physical
possession; (e) Except as reflected in the Equipment schedules delivered to
Lender, all Eligible Equipment is now and at all times hereafter will be of
good and merchantable quality, free from defects; (f) Eligible Equipment is
not now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lender's prior written consent, and,
in such event, Borrower will concurrently at the time of bailment cause any
such bailee, warehouseman, or similar party to issue and deliver to Lender,
in form acceptable to Lender, warehouse receipts in Lender's name
evidencing the storage of Equipment; and
<PAGE>
(g) Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect and examine the Equipment and to check and
test the same as to quality, quantity, value, and condition.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility,
the following credit accommodations are either in place or will be made
available to Borrower:
OTHER FACILITY. Subject to the terms and conditions of this Agreement, the
following described credit facility is either in place or will be made
available to Borrower: REVOLVING LINE OF CREDIT DATED MAY 1, 1996 IN THE
PRINCIPAL AMOUNT OF $250,000.00.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each
disbursement of Loan proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a limited liability company which is duly
organized, validly existing, and in good standing under the laws of the
state of Borrower's organization and is validly existing and in good
standing in all states in which Borrower is doing business. Borrower has
the full power and authority to own its properties and to transact the
businesses in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a limited liability company and
is in good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of organization, operating agreement, or any
other agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title
to all of Borrower's properties free and clear of all Security Interests,
and has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled in
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et. seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et. seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate,
<PAGE>
manufacture, store, treat, dispose of, or release any hazardous waste or
substance on, under, about or from any of the properties; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the Related
Documents are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 2911 S. COUNTY ROAD 1260, MIDLAND, TX 79706-8560. Unless
Borrower has designated otherwise in writing this location is also the office or
offices where Borrower keeps its records concerning the Collateral.
<PAGE>
INFORMATION. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that
Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit Lender
to examine and audit Borrower's books and records at all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no event
later than sixty (60) days after the end of each fiscal quarter, Borrower's
balance sheet and profit and loss statement for the period ended, prepared and
certified as correct to the best knowledge and belief by Borrower's chief
financial officer or other officer or person acceptable to Lender. All financial
reports required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivable and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than
$100,000,000.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 2.50 to 1.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities in
excess of 1.00 to 1.00.
CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the following
level: BORROWER TO MAINTAIN A MINIMUM MONTHLY AVERAGE CASH FLOW OF $20,000.00
BEGINNING DECEMBER 1, 1996. Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph shall be
made in accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, and coverages reasonably
acceptable to Lender. BORROWER MAY FURNISH THE REQUIRED INSURANCE WHETHER
THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY BORROWER OR THROUGH EQUIVALENT
INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN THE
STATE OF TEXAS. If Borrower fails to provide any required insurance or fails to
continue such insurance in force, Lender may, but shall not be required to, do
so at Borrower's expense, and the cost of the insurance will be added to the
indebtedness. If any such insurance
<PAGE>
is procured by Lender at a rate or charge not fixed or approved by the State
Board of Insurance, Borrower will be so notified, and Borrower will have the
option for five (5) days of furnishing equivalent insurance through any insurer
authorized to transact business in Texas. Borrower, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of insurance in
form satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way by any act, omission
or default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other endorsements
as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
GUARANTORS AMOUNTS
- ------------------- ------------------------
RICHARD L. YADON 14.500% of $425,000.00
WAYNE L. VINSON Unlimited
WALLACE SPARKMAN Unlimited
OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, with furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
OPERATIONS. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee benefit
plans.
<PAGE>
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender with
a Compliance Certificate at the maturity date of note #5532809 with a
certificate executed by Borrower's chief financial officer, or other officer or
person acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate, no
Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with
all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course
of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume additional indebtedness for borrowed money, including capital
leases, in excess of the aggregate amount of U.S. $50,000.00, (b) except as
allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease,
grant a security interest in, or encumber any of Borrower's assets, or (c) sell
with recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (c) make any distribution
with respect to any capital account, whether by reduction of capital or
otherwise.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise or
entity, or (c) incur any obligation as surety or guarantor other than in the
ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of
<PAGE>
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged
a bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
GUARANTOR FINANCIALS. PROVIDE LENDER WITH, AS SOON AS AVAILABLE, IN NO EVENT
LATER THAN NINETY (90) DAYS OF EACH FISCAL YEAR END, A COMPLETE FINANCIAL
STATEMENT FOR EACH GUARANTOR.
OWNER DRAWS. BORROWER WILL NOT ALLOW OWNER DRAWS WITHOUT WRITTEN PERMISSION FROM
LENDER.
COLLATERAL SCHEDULE. BORROWER TO PROVIDE LENDER WITH, AS SOON AS AVAILABLE, IN
NO EVENT LATER THAN THIRTY (30) DAYS AFTER EACH MONTH END, A COMPLETE COLLATERAL
SCHEDULE (BORROWING BASE CERTIFICATE) AS PER SAMPLE ATTACHED.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the
Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform
when due any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents, or failure of Borrower to comply
with or to perform any other term, obligation, covenant or condition contained
in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective obligations under this
Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower or any Grantor under this Agreement or the
Related Documents is false or misleading in any material respect at the time
made or furnished, or becomes false or misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and for
any reason.
DEATH OR INSOLVENCY. The dissolution (regardless of whether election to continue
is made), any member withdraws from Borrower, or any other termination of
Borrower's existence as a going business or the death of any member, the
insolvency of Borrower, the appointment of a receiver for any part of Borrower's
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if there is
a good faith dispute by Borrower or Grantor, as the case may be, as to the
validity or reasonableness of the claim which is the basis of the
<PAGE>
creditor or forfeiture proceeding, and if Borrower or Grantor gives Lender
written notice of the creditor or forfeiture proceeding and furnishes reserves
or a surety bond for the creditor or forfeiture proceeding satisfactory to
Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender, and,
in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured (and no
Event of Default will have occurred) if Borrower or Grantor, as the case may be,
after receiving written notice from Lender demanding cure of such default: (a)
cures the default within fifteen (15) days; or (b) if the cure requires more
than fifteen (15) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF TEXAS. IF THERE IS A LAWSUIT, AND IF THE
TRANSACTION EVIDENCED BY THIS AGREEMENT OCCURRED IN MIDLAND COUNTY,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF MIDLAND COUNTY, THE STATE OF TEXAS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE FEDERAL LAWS.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES. All obligations of Borrower under this Agreement shall
be joint and several, and all references to Borrower shall mean each and
every Borrower. This means that each of the Borrowers signing below is
responsible for ALL obligations in this Agreement.
<PAGE>
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Except as otherwise limited by the Texas Credit Code,
Borrower agrees to pay upon demand all of Lender's expenses, including
without limitation attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may hire one or more attorneys to help collect the indebtedness if
Borrower does not pay, and Borrower will pay Lender's reasonable attorneys'
fees. Borrower also will pay Lender all other amounts actually incurred by
Lender as court costs, lawful fees for filing, recording, or releasing to
any public office any instrument securing the Indebtedness; the reasonable
cost actually expended for repossessing, storing, preparing for sale, and
selling any security; and fees for noting a lien on or transferring a
certificate of title to any motor vehicle offered as security for the
Indebtedness, or premiums or identifiable charges received in connection
with the sale of authorized insurance.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
PAYMENT OF INTEREST AND FEES. Notwithstanding any other provision of this
Agreement or any provision of any Related Document, Borrower does not agree
or intend to pay, and Lender does not agree or intend to contract for,
charge, collect, take, reserve or receive (collectively referred to herein
as "charge or collect"), any amount in the nature of interest or in the
nature of a fee for this Loan, or any other Loan with Borrower, which would
in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for the Loan than the maximum Lender would
be permitted to charge or collect by any applicable federal law or any
applicable law of the State of Texas. Any such excess interest or
unauthorized fee shall, instead of anything stated to the contrary, be
applied first to reduce the unpaid principal balance of the excess interest
or unauthorized fee shall, instead of anything stated to the contrary, be
applied first to reduce the unpaid principal balance of the Loan, and when
the principal has been paid in full, be refunded to Borrower. The right to
accelerate maturity of sums due under this Agreement does not include the
right to accelerate any interest which has not otherwise accrued on the
date of such acceleration, and Lender does not intend to charge or collect
any unearned interest in the event of acceleration. All sums paid or agreed
to be paid to Lender for the use, forbearance or detention of sums paid
under this Agreement shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of the
loan evidenced by this Agreement until payment in full so that the rate or
amount of
<PAGE>
interest on account of the loan evidenced by this Agreement does not exceed
the applicable usury ceiling. When the term "interest" is used in the
context of "payment of interest," it is the intent of the parties that
all such references shall be to accrued and unpaid interest, and in no
event will Borrower ever be required to pay unearned interest.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
OCTOBER 1, 1996.
BORROWER:
HI-TECH COMPRESSOR COMPANY, L.C.
/s/ WAYNE L. VINSON /s/ WALLACE SPARKMAN
WAYNE L. VINSON, PRESIDENT WALLACE SPARKMAN, VICE PRESIDENT/SEC.
LENDER: GUARANTORS:
NORWEST BANK TEXAS, MIDLAND, N.A. /s/ WAYNE L. VINSON
WAYNE L. VINSON
By: /s/ /s/ WALLACE SPARKMAN
AUTHORIZED OFFICER WALLACE SPARKMAN
EXHIBIT 10.5
LOAN AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$250,000.00 05-01-1997 05-01-1998 6545532809 CIF:162873 730
</TABLE>
References in the shaded area are for Leander's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: HI-TECH COMPRESSOR COMPANY, L.C. Lender: NORWEST BANK TEXAS, N.A.
(TIN: 74-2697643) 500 WEST TEXAS AVENUE
615 UPPER N. BROADWAY, SUITE 950 P.O. BOX 2097
CORPUS CHRISTI, TX 78477 MIDLAND, TX 79702-2097
THIS LOAN AGREEMENT between HI-TECH COMPRESSOR COMPANY, L.C. ("Borrower")
and NORWEST BANK TEXAS, N.A. ("Lender") is made and executed on the following
terms and conditions. Borrower has received prior commercial loans from Lender
or has applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all
times shall be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of May 1, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods or services rendered owing to Borrower (or to a
third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means HI-TECH COMPRESSOR COMPANY, L.C.. The
word "Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean as determined by Lender
from time to time, the lessor of (a) $250,000.00; or (b) the sum of (i) 80.00%
of the aggregate amount of Eligible Accounts, plus (ii) 50.000% of the aggregate
amount of Eligible Inventory, plus (iii) 50.000% of the aggregate amount of
Eligible Equipment, plus (iv) 100.000% of the depreciated book value of lease
equipment.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in the State of Texas.
<PAGE>
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise. The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may borrow
shall exclude all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is a member, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is affiliated with or
related to Borrower.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a resident of
the United States, except to the extent such Accounts are supported by
insurance, bonds or other assurances satisfactory to Lender.
(e)
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account Debtor.
(h) Accounts with respect to which Lender, in its sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed against
it a petition in bankruptcy or an application for relief under any
provision of any state or federal bankruptcy, insolvency, or debtor-
in-relief acts; or who has had appointed a trustee, custodian, or receiver
for the assets of such Account Debtor; or who has made an assignment for
the benefit of creditors or has become insolvent or fails generally to pay
its debts (including its payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
(k) Accounts which have not been paid in full within 90 days from the
invoice date.
ELIGIBLE EQUIPMENT. The words "Eligible Equipment" mean, at any time, all
of Borrower's Equipment as defined below except:
(a) Equipment which is not owned by Borrower free and clear of all security
interests, liens, encumbrances, and claims of third parties.
(b) Equipment which Lender, in its sole discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for operation.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all
of Borrower's inventory as defined below except:
<PAGE>
(a) Inventory which is not owned by Borrower free and clear of all security
interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for further processing.
EQUIPMENT. The word "Equipment" means all of Borrower's goods used or
bought for use primarily in Borrower's business and which are not included in
inventory, whether now or hereafter existing.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and liabilities
of Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor, surety,
or otherwise.
INVENTORY. The word "Inventory" means all of Borrower's raw materials,
work in process, finished goods, merchandise, parts and supplies, of every kind
and description, and goods held for sale or lease or furnished under contracts
of service in which Borrower now has or hereafter acquires any right, whether
held by Borrower or others, and all documents of title, warehouse receipts,
bills of lading, and all other documents of every type covering all or any part
of the foregoing. Inventory includes inventory temporarily out of Borrower's
custody or possession and all returns on Accounts.
LENDER. The word "Lender" means NORWEST BANK TEXAS, N.A., its successors
and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower or Lender; (b) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (d) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
<PAGE>
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to
time from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or
wholly prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to the
following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and shall be in
full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have
been executed by each Guarantor, delivered to Lender, and be in full force
and effect.
(e) Lender, at its option and for its sole benefit, shall have conducted an
audit of Borrower's Accounts, Inventory, Equipment books, records, and
operations, and Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due and
payable.
<PAGE>
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for in the
paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the credit facility, as well as
directions for payment from Borrower's accounts, may be requested orally or in
writing by authorized persons. Lender may, but need not, require that all oral
requests be confirmed in writing. Each Advance shall be conclusively deemed to
have been made at the request of and for the benefit of Borrower (a) when
credited to any deposit account of Borrower maintained with Lender or (b) when
advanced in accordance with the instructions of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for Advances will be
treated as having been requested on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility. Lender
shall provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30) days
after Borrower's receipt of any such statement which Borrower deems to be
incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"). Lender's Security
Interests in the Collateral shall be continuing liens and shall include the
proceeds and products of the Collateral, including without limitation the
proceeds of any insurance. With respect to the Collateral, Borrower agrees and
represents and warrants to Lender.
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
<PAGE>
including without limitation information concerning Eligible Inventory and
records itemizing and describing the kind, type, quality, and quantity of
Inventory, Borrower's inventory costs and selling prices, and the daily
withdrawals and additions to Inventory. With respect to the Equipment,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Equipment and
records itemizing and describing the kind, type, quality, and quantity of
Equipment, Borrower's Equipment costs, and the daily withdrawals and
additions to Equipment.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts, Inventory and Equipment and schedules of Eligible Accounts,
Eligible Inventory and Eligible Equipment in form and substance
satisfactory to the Lender. Thereafter, Supplemental schedules shall be
delivered according to the following schedule: ACCOUNTS RECEIVABLE LISTING
(INCLUDING PURCHASE ORDERS) AS SOON AS AVAILABLE BUT IN NO EVENT LATER THAN
60 DAYS OF EACH MONTH-END.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Inventory will be determined on a consistent accounting basis; (d)
Except as agreed to the contrary by Lender in writing, all Eligible
inventory is now and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment, sale on
approval, or sale or return; (e) Except as reflected in the inventory
schedules delivered to Lender, all Eligible Inventory is now and at all
times hereafter will be of good and merchantable quality, free from
defects; (f) Eligible inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower will
concurrently at the time of bailment cause any such bailee, warehouseman,
or similar party to issue and deliver to Lender, in form acceptable to
Lender, warehouse receipts in Lender's name evidencing the storage of
inventory; and (g) Lender, its assigns, or agents shall have the right at
any time and at Borrower's expense to inspect and examine the Inventory and
to check and test the same as to quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES CONCERNING EQUIPMENT. With respect to the
Equipment, Borrower represents and warrants to Lender: (a) All Equipment
represented by Borrower to be Eligible Equipment for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Equipment; (b) All Equipment values listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; (c) The value of
the Equipment will be determined on a consistent accounting basis; (d)
Except as agreed to the contrary by Lender in writing, all Eligible
Equipment is now and at all times hereafter will be in Borrower's physical
possession; (e) Except as reflected in the Equipment schedules delivered to
Lender, all Eligible Equipment is now and at all times hereafter will be of
good and merchantable quality, free from defects; (f) Eligible Equipment is
not now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lender's prior written consent, and,
in such event, Borrower will concurrently at the time of bailment cause any
such bailee, warehouseman, or similar party to issue and deliver to Lender,
in form acceptable to Lender, warehouse receipts in Lender's name
evidencing the storage of Equipment; and (g) Lender, its assigns, or agents
shall have the right at any time and at Borrower's expense to inspect and
examine the Equipment and to check and test the same as to quality,
quantity, value, and condition.
<PAGE>
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each
disbursement of Loan proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a limited liability company which is duly
organized, validly existing, and in good standing under the laws of the
state of Borrower's organization and is validly existing and in good
standing in all states in which Borrower is doing business. Borrower has
the full power and authority to own its properties and to transact the
businesses in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a limited liability company and
is in good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of organization, operating agreement, or any
other agreement of other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title
to all of Borrower's properties free and clear of all Security Interests,
and has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled in
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et. seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et. seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The
<PAGE>
representations and warranties contained herein are based on Borrower's due
diligence in investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the payment
of the Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition or any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 615 Upper N. Broadway, Suite 950, Corpus
Christi, TX 78477. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in
<PAGE>
extending Loan Advances to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as Borrower's
indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than sixty (60) days after the end of each month, Borrower's
balance sheet and profit and loss statement for the period ended, prepared
and certified as correct to the best knowledge and belief by Borrower's
chief financial officer or other officer or person acceptable to Lender.
All financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivable and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than
$100,000,000.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 2.50 to 1.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities in
excess of 1.00 to 1.00.
CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the following
level: Borrower must maintain a minimum annual cash flow of $150,000.00.
Except as provided above, all computations made to determine compliance
with the requirements contained in this paragraph shall be made in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, and coverages
reasonably acceptable to Lender. BORROWER MAY FURNISH THE REQUIRED
INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY BORROWER
OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY AUTHORIZED TO
TRANSACT BUSINESS IN THE STATE OF TEXAS. If Borrower fails to provide any
required insurance or fails to continue such insurance in force, Lender
may, but shall not be required to, do so at Borrower's expense, and the
cost of the insurance will be added to the Indebtedness. If any such
insurance is procured by Lender at a rate or charge not fixed or approved
by the State Board of Insurance, Borrower will be so notified, and Borrower
will have the option for five (5) days of furnishing equivalent insurance
through any insurer authorized to transact business in Texas. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender. Each
insurance policy also shall include an endorsement providing that coverage
in favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection
<PAGE>
with all policies covering assets in which Lender holds or is offered a
security interest for the Loans, Borrower will provide Lender with such
loss payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors named
below, on Lender's forms, and in the amounts and under the conditions spelled
out in these guaranties.
GUARANTORS AMOUNTS
- ------------------ ------------------------
RICK YADON 14.500% of $250,000.00
WALLACE SPARKMAN Unlimited
WAYNE VINSON Unlimited
OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its Indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, with furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
OPERATIONS. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee benefit
plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a
<PAGE>
third party, Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender as
soon as available but in no event later than 60 days after each month-end and at
the time of each disbursement of Loan proceeds with a certificate executed by
Borrower's chief financial officer, or other officer or person acceptable to
Lender, certifying that the representations and warranties set forth in this
Agreement are true and correct as of the date of the certificate and further
certifiying that, as of the date of the certificate, no Event of Default exists
under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with
all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and agreements as Lender or its attorneys may reasonably
request to evidence and secure the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume additional indebtedness for borrowed
money, including capital leases, in excess of the aggregate amount of U.S.
$50,000.00, (b) except as allowed as a Permitted Lien, sell, transfer,
mortgage, assign, pledge, lease, grant a security interest in, or encumber
any of Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, or (c)
make any distribution with respect to any capital account, whether by
reduction of capital or otherwise.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings,
or is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender; or (e)
Lender in good faith deems itself insecure, even though no Event of Default
shall have occurred.
<PAGE>
GUARANTORS FINANCIAL STATEMENT. Guarantors, Wallace C. Sparkman, Wayne
Vinson and Rick Yadon agree to provide Lender with a Financial Statement as
soon as available but in no event later than 90 days after each fiscal
year-end.
BORROWING BASE CERTIFICATE. Borrower agrees to provide Lender with a
Borrowing Base Certificate as soon as available but in no event later than
60 days after each month-end.
DRAWS. Owner is prohibited from draws, with the exception of those made for
payment on taxes.
PURCHASE ORDERS. Borrower agrees to provide Lender with photo copies of
Purchase Orders when advances against those orders are requested.
OIL AND GAS ACTIVITY. Borrower agrees not to engage in any oil and gas
exploration or drilling activity.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for which the
grant of a security interest would be prohibited by law. Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on the Indebtedness against any and all such
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
DEATH OR INSOLVENCY. The dissolution (regardless of whether election to
continue is made), any member withdraws from Borrower, or any other
termination of Borrower's existence as a going business or the death of
any member, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of
<PAGE>
any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and
if Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness. Lender, at its
option, may, but shall not be required to permit the Guarantor's estate
to assume unconditionally the obligations arising under the guaranty in
a manner satisfactory to Lender, and, in doing so, cure the Event of
Default.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured (and no
Event of Default will have occurred) if Borrower or Grantor, as the case may be,
after receiving written notice from Lender demanding cure of such default: (a)
cures the default within fifteen (15) days; or (b) if the cure requires more
than fifteen (15) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Texas. If there is a lawsuit, and if the
transaction evidenced by this Agreement occurred in MIDLAND County,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of MIDLAND County, the State of Texas. This agreement shall be
governed by and construed in accordance with the laws of the State of Texas
and applicable Federal laws.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
<PAGE>
MULTIPLE PARTIES. All obligations of Borrower under this Agreement shall
be joint and several, and all references to Borrower shall mean each and
every Borrower. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Except as otherwise limited by the Texas Credit Code,
Borrower agrees to pay upon demand all of Lender's expenses, including
without limitation attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may hire one or more attorneys to help collect the Indebtedness if
Borrower does not pay, and Borrower will pay Lender's reasonable attorneys'
fees. Borrower also will pay Lender all other amounts actually incurred by
Lender as court costs, lawful fees for filing, recording, or releasing to
any public office any instrument securing the Indebtedness; the reasonable
cost actually expended for repossessing, storing, preparing for sale, and
selling any security; and fees for noting a lien on or transferring a
certificate of title to any motor vehicle offered as security for the
Indebtedness, or premiums or identifiable charges received in connection
with the sale of authorized insurance.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
PAYMENT OF INTEREST AND FEES. Notwithstanding any other provision of this
Agreement or any provision of any Related Document, Borrower does not agree
or intend to pay, and Lender does not agree or intend to contract for,
charge, collect, take, reserve or receive (collectively referred to herein
as "charge or collect"), any amount in the nature of interest or in the
nature of a fee for this Loan, or any other Loan with Borrower, which would
in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for the Loan than the maximum Lender would
be permitted to charge or collect by any applicable federal law or any
applicable law of the State of Texas. Any such excess interest or
unauthorized fee shall, instead of anything stated to the contrary, be
applied first to reduce the unpaid principal balance of the excess interest
or unauthorized fee shall, instead of anything stated to the contrary, be
applied first to reduce the unpaid principal balance of the Loan, and when
the principal has been paid in full, be refunded to Borrower. The right to
accelerate maturity of sums due under this Agreement does not include the
right to accelerate any interest which has not otherwise accrued on the
date of such acceleration, and Lender does not intend
<PAGE>
to charge or collect any unearned interest in the event of acceleration.
All sums paid or agreed to be paid to Lender for the use, forbearance or
detention of sums paid under this Agreement shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread throughout
the full term of the loan evidenced by this Agreement until payment in full
so that the rate or amount of interest on account of the loan evidenced by
this Agreement does not exceed the applicable usury ceiling. When the term
"interest" is used in the context of "payment of interest," it is the
intent of the parties that all such references shall be to accrued and
unpaid interest, and in no event will Borrower ever be required to pay
unearned interest.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
MAY 1, 1997.
BORROWER:
HI-TECH COMPRESSOR COMPANY, L.C.
By: /s/ WALLACE SPARKMAN By: /s/ WAYNE VINSON
WALLACE SPARKMAN, DESIGNATED AGENT WAYNE VINSON, DESIGNATED AGENT
LENDER:
NORWEST BANK TEXAS, N.A.
By:
AUTHORIZED OFFICER
================================================================================
GUARANTORS:
/s/ WALLACE SPARKMAN /s/ WAYNE VINSON
Wallace Sparkman Wayne Vinson
Rick Yadon
EXHIBIT 10.6
PREFERRED STOCK REDEMPTION AND LOAN AGREEMENT
by and between
UNITED WELLHEAD SERVICES, INC.
a Texas Corporation
(the "Company")
and
GAY A. ROANE
("Holder")
Concerning the Redemption
of Shares of the Company's Preferred Stock
August 27, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I .............................................................. 1
REDEMPTION OF PREFERRED SHARES; ISSUANCE OF NOTE ....................... 1
Section 1.1. REDEMPTION OF PREFERRED SHARES; ISSUANCE OF NOTE ....... 1
Section 1.2. RIGHT TO EXCHANGE THE NOTE FOR PREFERRED STOCK ......... 1
ARTICLE II ............................................................. 2
REPRESENTATIONS AND WARRANTIES ......................................... 2
Section 2.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .......... 2
Section 2.2. REPRESENTATIONS AND WARRANTIES OF HOLDER ............... 4
ARTICLE III ............................................................ 5
AFFIRMATIVE COVENANTS OF THE COMPANY ................................... 5
Section 3.1. FINANCIAL INFORMATION .................................. 5
Section 3.2. ISSUANCE OF OTHER STOCK ................................ 7
Section 3.3. TRANSACTIONS WITH AFFILIATES ........................... 8
Section 3.4. PAYMENT OF OBLIGATIONS ................................. 9
Section 3.5. CONDUCT OF BUSINESS AND CORPORATE EXISTENCE ............ 9
Section 3.6. ACCESS ................................................. 9
Section 3.7. COMPLIANCE WITH LAWS ................................... 9
Section 3.8. COMPLIANCE WITH ARTICLES ............................... 10
ARTICLE IV ............................................................. 10
DEFAULTS AND EVENTS OF DEFAULT ......................................... 10
ARTICLE V .............................................................. 12
REMEDIES ON EVENT OF DEFAULT ........................................... 12
(a) OPTIONAL ACCELERATION ............................. 12
(b) AUTOMATIC ACCELERATION ............................ 12
(c) ADDITIONAL REMEDIES ............................... 12
ARTICLE VI ............................................................. 13
HOLDER'S RIGHT OF FIRST REFUSAL ........................................ 13
Section 6.1. RIGHT OF FIRST REFUSAL ................................. 13
ARTICLE VII ............................................................ 14
THE COMPANY'S INDEMNIFICATION .......................................... 14
Section 7.1. INDEMNIFICATION ........................................ 14
ARTICLE VIII ........................................................... 14
GOVERNANCE ............................................................. 14
Section 8.1. ADVISORY DIRECTOR ...................................... 14
ARTICLE IX ............................................................. 15
MISCELLANEOUS .......................................................... 15
Section 9.1. GOVERNING LAW .......................................... 15
Section 9.2. SURVIVAL ............................................... 15
Section 9.3. SUCCESSORS AND ASSIGNS ................................. 15
Section 9.4. ENTIRE AGREEMENT, AMENDMENT ............................ 15
Section 9.5. NOTICES, ETC ........................................... 15
Section 9.6. DELAYS OR OMISSIONS .................................... 16
Section 9.7. COUNTERPARTS ........................................... 16
Section 9.8. SEVERABILITY ........................................... 16
Section 9.9. TITLES AND SUBTITLES ................................... 16
Section 9.10. SPECIFIC PERFORMANCE ................................... 16
Section 9.11. LEGAL FEES OF HOLDER'S COUNSEL ......................... 16
Section 9.12. TERMINATION ............................................ 17
- i -
<PAGE>
PREFERRED STOCK REDEMPTION AND LOAN AGREEMENT
This Preferred Stock Redemption and Loan Agreement (the "Agreement") is
made and entered into as of August 27, 1997 by and between United Wellhead
Services, Inc., a Texas corporation (the "Company"), and Gay A. Roane
("Holder").
W I T N E S S E T H :
WHEREAS, Pursuant to that certain Agreement and Plan of Merger dated as of
June 6, 1994 by and among the Company, WRI, Inc., certain shareholders of the
Company and certain shareholders of WRI, Inc., the Holder received 202,960
shares (the "Preferred Shares") of the Company's Preferred Stock, $4.73 par
value per share (the "Preferred Stock") and
WHEREAS, the Preferred Shares and the Preferred Stock have the rights,
privileges and preferences set forth in the Company's Articles (as hereinafter
defined); and
WHEREAS, on the terms and conditions set forth herein, the Company desires
to redeem the Preferred Shares and the Holder desires to exchange the Preferred
Shares for the promissory note described herein;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, as well as for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, contract and agree as follows:
ARTICLE I.
REDEMPTION OF PREFERRED SHARES; ISSUANCE OF NOTE
Section 1.1. REDEMPTION OF PREFERRED SHARES; ISSUANCE OF NOTE. The Company
hereby agrees to redeem the Preferred Shares and to issue to the Holder a
promissory note in the principal amount of $960,000.00 (the "Note") and the
Holder agrees to exchange the Preferred Shares for the Note. The Note shall be
in the form of Exhibit A attached hereto and incorporated herein. In connection
with such redemption, the Holder has delivered to the Company the certificates
representing the Preferred Shares endorsed in blank and the Company has
delivered to the Holder the Note. The Note shall become due and payable in full
three (3) business days after: (a) the consummation and funding of any
registered public offering by the Company of its common stock or equity
securities; (b) any merger by the Company; or (c) the sale of any controlling
interest of the Company.
Section 1.2. RIGHT TO EXCHANGE THE NOTE FOR PREFERRED STOCK. Subject to the
terms and conditions set forth herein, if the Note has not been repaid in full
by March 31, 1998, then the Holder may at any time thereafter exchange the Note
for shares of Preferred Stock equal to the unpaid principal amount of the Note
plus any accrued but unpaid interest divided by $4.73 (such amount to be
adjusted prorata by any stock splits, stock dividends, reverse stock splits or
other similar changes in the capitalization of the Company). The Holder may
exercise such exchange right (the "Exchange Right") by providing written
notice (the "Exchange Notice") to the Company specifying Holder's desire to
exchange the Note for shares of Preferred Stock. All shares of Preferred Stock
to be received pursuant to the exchange of the Note shall have the rights,
privileges and preferences as set forth in the Company's Articles of
Incorporation attached hereto as Exhibit "B" and incorporated herein (the
"Articles"). The shares of Preferred Stock to be received by the Holder due to
the exchange of the Note are referred to herein as the "Exchange Shares." The
closing of the exchange of the Note for the Exchange Shares shall occur on the
date specified by the Holder in the Exchange Notice (which date shall not be
more than sixty (60) days after the date of the Exchange Notice) and shall occur
at the place specified in the Exchange Notice (which shall be at either the
Company's offices in Corpus Christi, Texas or at the offices of the Holder's
counsel in Houston, Texas). At such closing (the "Exchange Closing"), the
Company will deliver to Holder a certificate representing the Exchange Shares
registered in the name of Holder against the delivery of the Note marked
cancelled. All such of the Exchange Shares shall be validly, issued, fully paid
and nonassessable.
<PAGE>
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Section 2.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
induce Holder to enter into this Agreement, the Company hereby represents and
warrants to Holder and each subsequent holder of the Note, as follows:
(a) ORGANIZATION AND STANDING; CERTIFICATE AND BY-LAWS. The Company is
a corporation legally incorporated, duly organized, validly existing, and
in good standing under the laws of the State of Texas. The Company has all
requisite corporate power and authority to own and operate its properties
and assets, and to carry on its business as presently conducted and as
proposed to be conducted. The Company is qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which
the Company owns or leases property or in which the failure to be so
qualified would have a material adverse affect on the Company's business as
currently conducted.
(b) CORPORATE POWER. The Company has, and will have at the Exchange
Closing, all requisite corporate power and authority to execute and deliver
this Agreement, to issue the Note hereunder, to issue the Exchange Shares
upon exercise of the Holder's right to exchange the Note for the Exchange
Shares pursuant to the Exchange Right and to carry out and perform its
obligations under the terms of this Agreement and the Note.
(c) AUTHORIZATION. All corporate action necessary for the
authorization, execution, delivery and performance of this Agreement and
the Note by the Company, the authorization, sale, issuance and delivery of
the Note and (upon exercise of the Exchange Right) the Exchange Shares and
the performance of all of the Company's obligations hereunder and under the
Note have been taken. This Agreement and the Note each constitutes a valid
and binding obligation of the Company, enforceable in accordance with its
terms, except as may be limited by insolvency, bankruptcy, moratorium or
other laws affecting the rights of creditors in general. The Exchange
Shares have been duly and validly reserved and, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid
and nonassessable and will have the rights, preferences and privileges set
forth in the Articles. Upon issuance upon exercise of the Exchange Right,
the Exchange Shares will be free of any liens, claims or encumbrances,
other than any liens, claims or encumbrances created by or imposed upon the
holders thereof through no action of the Company; provided, however, that
the Exchange Shares will be subject to restrictions on transfer under state
and federal securities laws. Except as set forth on Schedule 3.01(c)
attached hereto, the Exchange Shares are not subject to any preemptive
rights or rights of first refusal.
(d) CAPITALIZATION. The authorized capital stock of the Company
consists of 1,000,000 shares of Common Stock, of which 526,133 shares are
issued and outstanding as of the date hereof and 202,960 shares of
Preferred Stock, all of which are outstanding prior to the redemption set
forth in Section 1.1. The outstanding shares of Company capital stock have
been duly authorized and validly issued, and are fully paid and
nonassessable. All outstanding securities of the Company were issued in
compliance with applicable federal and state securities laws. The Company
has reserved 202,960 shares of Preferred Stock for issuance upon exercise
by the Holder of the Exchange Right. Other than the Preferred Shares and
the Exchange Right, the Company does not have any outstanding capital stock
or securities convertible into or exchangeable for any shares of its
capital stock, or any outstanding rights (either preemptive or other) to
subscribe for or to purchase, or any outstanding rights or options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any outstanding calls, commitments or claims of any
character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of the Company.
Except as provided in this Agreement pursuant to the Exchange Right, the
Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock
or any convertible securities, rights or options of the type described in
the preceding sentence. Except as set forth on Schedule 3.01(d) attached
hereto, the Company is not a party to any agreement (except as set forth in
this Agreement) restricting the transfer of any shares of the Company's
capital stock.
- 2 -
<PAGE>
(e) GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of (or designation, declaration or filing with) any governmental authority
on the part of the Company is required in connection with the valid
execution, delivery or performance of this Agreement, or the offer, sale or
issuance of the Note and the Exchange Shares pursuant hereto, or the
consummation of any other transaction contemplated hereby.
(f) OFFERING. The offer, sale and issuance of the Note, and the
issuance of the Exchange Shares upon exercise of the Exchange Right,
constitute transactions exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities laws.
(g) BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by the
Company any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement.
(h) DISCLOSURE. This Agreement and the Exhibits and Schedules hereto,
when taken as a whole, does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
Section 2.2. REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder hereby
represents and warrants to the Company as follows:
(a) INVESTMENT INTENT. Holder is acquiring the Note for investment for
its own account, not as a nominee or agent, and not with the view to, or
for resale in connection with, any distribution thereof. Holder understands
and agrees that the Note and (upon exercise of the Exchange Right) the
Exchange Shares have not been registered under the Securities Act.
(b) RULE 144. Holder acknowledges that the Exchange Shares and any
other securities that may be issuable upon exercise of the Exchange Right
must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available.
Holder is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the
resale occurring not less than one year after Holder has purchased and paid
for the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and, in
certain circumstances, the number of shares being sold during any
three-month period not exceeding specified limitations.
ARTICLE III.
AFFIRMATIVE COVENANTS OF THE COMPANY
Section 3.1. FINANCIAL INFORMATION. The Company will mail to a person
designated in writing by the Holder to the Company or by a majority of the
holders of the Exchange Shares:
(a) As soon as available but in any event not later than ninety (90)
days after the close of each fiscal year of the Company commencing with the
fiscal year ending December 31, 1997, the annual financial statements of
the Company, reported on and without qualification arising out of or due to
the scope of the audit, by either Karlins, Fuller, Arnold & Klodosky, or a
regionally or nationally recognized independent certified public
accountants selected by the Company and reasonably acceptable to the
Holder, and prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistently maintained throughout
the period involved and, the immediately prior period, which financial
statements shall consist of a balance sheet of the Company as of the close
of such fiscal year and related statements of income, retained earnings and
changes in financial position of the Company for such fiscal year, setting
forth in each case in comparative form the corresponding figures for the
preceding fiscal year;
(b) Within forty-five (45) days after the close of each of the first
three fiscal quarters in each fiscal year of the Company commencing with
the fiscal quarter or three months ending September 30, 1997,
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the unaudited balance sheet of the Company as of the end of such fiscal
quarter and the related unaudited statements of income, retained earnings
and changes in financial position of the Company for such period and for
the portion of the fiscal year through such date, setting forth in each
case in comparative form the corresponding figures for the corresponding
period(s) of the preceding fiscal year, all in reasonable detail and
certified by an executive officer of the Company; and all such financial
statements shall be prepared in accordance with GAAP, applied on a basis
consistent with the audited financial statements of the Company for the
immediately preceding fiscal year and consistently maintained throughout
the period involved and the immediately preceding period(s) (subject to
normal year-end audit adjustments and the effects thereof as noted
therein);
(c) Simultaneously with the delivery of the financial statements
described in Section 3.1(a), (i) a letter from the accountants, addressed
to the Holder, reporting on such statements, which letter shall state that
in the course of their audit they have obtained no knowledge of any Default
or Event of Default or, if in their opinion a Default or Event of Default
then exists, such letter shall specify the nature and status thereof, and
(ii) a copy of the management letter of such accountants, if any, addressed
to the Board of Directors of the Company;
(d) Simultaneously with each delivery of the financial statements
described in Sections 3.1(a) and 3.1(b) a certificate of the Chief
Financial Officer of the Company (a "Compliance Certificate") stating (i)
that a review of the activities of the Company during such period has been
made with a view to determining whether the Company has kept, observed,
performed and fulfilled all of the Company's covenants and conditions under
this Agreement and (ii) that, to the best of such officer's knowledge,
information and belief, the Company has, during such period, kept,
observed, performed and fulfilled each and every covenant and condition
contained in this Agreement and the Company is not at the time in violation
of any of the terms and conditions contained herein or therein, or, if the
Company shall be in violation of any such terms and conditions, specifying
all such violations and the nature and status thereof;
(e) As soon as available, but in any event, within 30 days after the
end of each month during the term hereof, a report showing a monthly
listing and aging of accounts receivable of the Company, together with a
Compliance Certificate for the appropriate time period, certified by a
proper accounting officer of the Company containing a certificate of a
proper financial officer of the Company stating that a review of the
activities of the Company during the period covered by such certificate has
been made under his supervision with a view to determining whether the
Company has kept, observed, performed and fulfilled all of its obligations
under this Agreement, the Note, and that, to the best of his knowledge,
during such period, it has kept, observed, performed and fulfilled each and
every covenant in this Agreement and the Note and is not at the time in
default under any of the same, or if it shall have been or shall be in
default, specifying the same;
(f) Within ten (10) business days after the same are sent, copies of
all financial statements, reports, notices and proxy statements which the
Company sends to its stockholders (PROVIDED, however, that the Company
shall not be deemed to make any representation hereunder with respect to
the correctness of estimates contained in financial information in
internally prepared management reports sent by it to its stockholders,
other than that such estimates have been made by the Company in good
faith); copies of all press releases and other statements generally made
available by the Company to the public concerning material developments in
the business of the Company; and copies of all regular, periodic and
special reports and registration statements or other official statements
and prospectuses (and all amendments and supplements thereto) filed or
required to be filed by the Company with the Securities and Exchange
Commission or any successor thereto or to the functions thereof or with any
national securities exchange in which any of its securities are listed with
respect to its securities outstanding or to be outstanding or furnished to
a purchaser or a prospective purchaser thereof;
(g) Upon request by the Holder, a copy of the federal income tax
return of the Company for the current fiscal year then ended and any
relevant prior years, certified by a proper financial officer of the
Company; and
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(h) Such other financial information and such information concerning
the affairs of the Company as may from time to time be made available to
the Company's shareholder or other creditors.
Section 3.2 ISSUANCE OF OTHER STOCK. The Company agrees that for so long
as the Exchange Right has not been exercised in full and for so long as any
Exchange Shares continue to be outstanding, it will not issue any capital stock
of any class or series, or securities convertible into or exchangeable for such
capital stock, or phantom stock, stock appreciation rights or similar contract
rights that are preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary liquidation or winding up unless the rights of
holders thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends and
to a fixed sum or percentage of par value in such distribution or assets, unless
consented to the by the Holder, such consent to be in the sole discretion of the
Holder.
Section 3.3 TRANSACTIONS WITH AFFILIATES. Except for employment agreements
with employees where the employees' bonuses are tied to the net profits of the
Company entered into in the ordinary course of business, the Company will not,
and will not permit any of its Subsidiaries (as hereinafter defined) to, (i)
enter into any transaction or series of related transactions with any Affiliate
(as hereinafter defined) or Affiliates (other than a wholly-owned subsidiary)
including shareholders, directors and officers and their respective Affiliates,
if the aggregate amount paid or payable to such persons with respect to such
transaction or series of transactions is in excess of $25,000 unless such
transaction (a) is fair to the Company, (b) is not materially adverse to the
rights of the holders of Note and the Exchange Right and (c) is on terms
equivalent to those available on an arm's length basis, or (ii) issue, or agree
to issue, any shares of capital stock (including rights or warrants with respect
thereto) or stock appreciation rights, stock benefit plans, phantom stock rights
or plans or any similar plans or rights or other rights measured by earnings,
profits, or revenues of the Company or its Subsidiaries to any Affiliate
including shareholders, directors and officers and their respective Affiliates,
unless such transaction (a) is fair to the Company, (b) is not materially
adverse to the rights to the holders of Note with respect to the Exchange Right,
and (c) is on terms equivalent to those available on an arm's length basis. If a
transaction referred to in subsection (i) or (ii) hereof is approved by a
majority of Independent Directors, such approval shall be presumptive evidence
that such transaction complies with the provisions of this Section. As used
herein, an Independent Director shall mean any director who is not an officer or
employee of the Company and who does not beneficially own more than 5% of any
outstanding class or series of capital stock of the Company and who is not
related by blood or marriage to any of the foregoing. For the purposes of this
Agreement, the term "Subsidiary" means with respect to any Person (as
hereinafter defined), any corporation with respect to which more than 50% of the
outstanding shares of stock of each class having ordinary voting power (other
than stock having such power only by reason of the happening of a contingency)
is at the time owned, directly or indirectly, by such Person or by one or more
subsidiaries of such Person and the term "Affiliate" means when used with
reference to a specified Person, (a) any Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with the specified Person or (b) any Person that is an officer or
director of, partner in, or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director, partner, or trustee, or with respect to which the specified Person
serves in a similar capacity. As used herein, the term "Person" means any
individual, partnership, limited liability company, corporation, trust, or other
entity.
Section 3.4. PAYMENT OF OBLIGATIONS. The Company will pay, discharge or
otherwise satisfy at or before maturity or before they become more than 45 days
delinquent, as the case may be, all its obligations and liabilities of whatever
nature, except when 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 Company, and except
for obligations and liabilities as to which the failure so to pay, discharge or
otherwise satisfy does not, in the aggregate, have a material adverse effect on
the business, operations, property, prospects or financial or other condition of
the Company (a "Company Material Adverse Effect").
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Section 3.5. CONDUCT OF BUSINESS AND CORPORATE EXISTENCE. The Company will
(i) continue to engage in the business presently being operated by the Company,
(ii) maintain its corporate existence and good standing in each jurisdiction in
which it is required to be qualified (except where the failure to do so would
not have a Company Material Adverse Effect), (iii) keep and maintain all
franchises, licenses and properties useful and necessary in the conduct of its
business in good order and condition (except where the failure to do so would
not have a Company Material Adverse Effect), and (iv) duly observe and conform
to all material requirements of law relative to the conduct of its business or
the operation of its properties or assets, if such failure duly to observe and
conform to said requirements would have a Company Material Adverse Effect or
could result in criminal prosecution.
Section 3.6 ACCESS. The Company will allow, and will cause its Subsidiaries
to allow, any holder of the Note or proposed assignee of the Note designated by
such holder, and their respective representatives, upon two Business Days prior
telephonic notice, to visit and inspect any of its property during normal
business hours, to examine its books of record and account, and to discuss its
affairs, finances and accounts with its officers, provided, (i) the holder of
the Note, proposed assignee or representative signs a customary confidentiality
agreement if requested by the Company and (ii) the examination will not
unreasonably disrupt, in any material manner, the operations of the Company.
Section 3.7 COMPLIANCE WITH LAWS. At all times while owning and operating
its property, the Company agrees duly to comply with the requirements of all
applicable federal, state and local environmental, occupational health, safety
and sanitation laws, ordinances, codes, rules and regulations, permits, licenses
and interpretations and orders of regulatory and administrative authorities with
respect thereto unless the failure to so comply with requirements would not have
a Company Material Adverse Effect.
Section 3.8. COMPLIANCE WITH ARTICLES. The Company will comply with all of
the covenants contained in the Articles as if the Preferred Shares were still
outstanding.
ARTICLE IV.
DEFAULTS AND EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
(a) if the Company shall default in the payment of any principal of or
premium, if any, on the Note more than ten (10) days after the same become
due and payable, whether at maturity or at a date fixed for prepayment or
date declared due or otherwise; or
(b) if the Company shall dafault in the payment of any interest on the
Note more than ten (10) days after the same became due or declared due; or
(c) if the Company shall default in the performance of or compliance
with any of the covenants, terms or agreements contained in this Agreement
or other instruments or documents now or hereafter executed in connection
herewith or therewith and such default is not cured or remedied within
thirty (30) days of the earlier of (i) the Company or its officers having
actual knowledge of such default or (ii) the date the Company receives
written notice of such default; or
(d) if any representation or warranty made in writing by or on behalf
of the Company contained in this Agreement or in any instrument furnished
in compliance with or in reference to this Agreement or otherwise in
connection with the transactions contemplated by this Agreement shall prove
to be false or incorrect in any material respect on the date as of which
made; or
(e) if the Company shall (i) be generally not paying its debts as they
become due, or (ii) default (as principal or guarantor or other surety) in
the payment of any principal of or premium or interest on any indebtedness
having an aggregate outstanding principal amount of at least $100,000
(other than the Note), or if any event shall occur or condition shall exist
in respect of, or under evidence of, any indebtedness (other than the Note)
having an aggregate outstanding principal amount of at least $100,000, or
in respect of any mortgage, indenture or other agreement relating to such
indebtedness, which shall have caused or permit the acceleration of the
payment of such indebtedness, and such default, event or condition shall
continue for more than the period of grace, if any, specified therein and
shall not have been waived or cured pursuant thereto; or
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<PAGE>
(f) if the Company shall (i) file, or consent by answer or otherwise
to the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (ii)
make an assignment for the benefit of its creditors, (iii) consent to the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, (iv) be adjudicated insolvent or be liquidated, or (v) take
corporate action for the purpose of any of the foregoing; or
(g) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without the consent of the Company, a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, or
if an order for relief shall be entered in any case or proceeding for
liquidation or reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of the Company, or if any petition
for any such relief shall be filed against the Company and such petition
shall not be dismissed within sixty (60) days; or
(h) if a final judgment shall be rendered against the Company which,
with other outstanding final judgments against the Company, to the extent
not covered by insurance or bonded around, exceeds in the aggregate $50,000
and if, within thirty (30) days after entry thereof, such judgment shall
not have been discharged or execution thereof stayed pending appeal, or if,
within thirty (30) days after the expiration of any such stay, such
judgment shall not have been discharged; or
(i) any financial statements submitted pursuant to Section 3.1 hereof
reflect any deterioration in the financial condition of the Company from
the financial condition reflected on the latest prior financial statements
submitted to Holder, the effect of which results in a Company Material
Adverse Effect; or
(j) if the Exchange Right shall have been exercised by the Holder and
if the Exchange Closing shall not had occurred within five (5) business
days of the date set forth in the Exchange Notice; or
(k) if the Company shall have consummated and funded a public offering
and the Note shall not have been repaid with a portion of the proceeds of
such public offering.
ARTICLE V.
REMEDIES ON EVENT OF DEFAULT
(a) OPTIONAL ACCELERATION. Upon the occurrence of any Event of Default set
forth in Section 4(a), 4(b), 4(c), 4(d), 4(e), 4(h), 4(i), 4(j) or 4(k) or
hereof, the holder of the Note, at its option, without any additional notice to
the Company, may declare the principal of and interest accrued on the Note to be
forthwith due and payable, whereupon the same shall become due and payable
without any presentment, demand, protest, notice of protest, notice of intent to
accelerate, notice of acceleration or notice of any kind (except notice required
pursuant to this Agreement or otherwise by law), all of which are hereby waived;
provided, however, that Holder shall give telegraphic or written notice to the
Company promptly after taking any such action.
(b) AUTOMATIC ACCELERATION. Upon the occurrence of any Event of Default set
forth in Subsection 4(f) or 4(g) hereof, the principal of and interest accrued
on the Note shall be immediately and automatically due and payable without
notice or demand of any kind, and the same shall be due and payable immediately
without any presentment, acceleration, demand, protest, notice of intent to
accelerate, notice of acceleration, notice of protest or notice of any kind
(except notice required pursuant to this Agreement or otherwise by law), all of
which are hereby waived.
(c) ADDITIONAL REMEDIES. In case any one or more Events of Default or
Defaults shall occur and be continuing, the holder of the Note may proceed to
protect and enforce the rights of such holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in the Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law, or otherwise. In addition, the
Company will pay to the holder thereof such further amount as shall be
sufficient to cover the reasonable cost and expenses of collection, including,
without limitation, reasonable attorneys' fees,
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expenses and disbursements. No course of dealing and no delay on the part of any
holder of the Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by the Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise.
ARTICLE VI.
HOLDER'S RIGHT OF FIRST REFUSAL
Section 6.1. RIGHT OF FIRST REFUSAL. The Company hereby grants to each
holder of the Note and the Exchange Shares the preemptive right, right of first
refusal and option to purchase its pro rata share of all or any part of any New
Securities (as defined in this Section 6.1) which the Company may, from time to
time, propose to issue or sell. A pro rata share, for purposes of this right, is
the ratio that the sum of the number of shares of Common and Preferred Stock (or
Shares of Common and Preferred Stock that a holder of the Exchange Right would
be entitled to purchase on exercise of the Exchange Right) then held bears to
the sum of the total number of shares of Common Stock and Preferred Stock then
actually outstanding plus the number of shares of Preferred Stock issuable upon
exercise of the Exchange Right.
(a) DEFINITION OF NEW SECURITY. Except as set forth below, "New
Securities" shall mean any securities of the Company which are part of the
same class or series as the shares, whether now authorized or not, and
rights, options or warrants to purchase such securities. Notwithstanding
the foregoing, "New Securities" does not include (i) the Exchange Shares,
(ii) securities offered to the public generally pursuant to a registration
statement under the Securities Act in which the Company is likely to
receive as net proceeds at least Five Million and No/100 Dollars
($5,000,000.00), (iii) securities issued in the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or other reorganization whereby the Company or its shareholders own
not less than fifty-one percent (51%) of the voting power of the surviving
or successor corporation, (iv) shares of the Company's Common Stock or
related options exercisable for such Common Stock issued to employees,
officers and directors of, and consultants, customers, and vendors to, the
Company, pursuant to any arrangement approved by the Board of Directors of
the Company, and (v) stock issued pursuant to any rights or agreements,
including without limitation, convertible securities, options, warrants and
rights.
(b) PURCHASE RIGHT. In the event the Company proposes to undertake an
issuance of New Securities, it shall give Holder written notice of its
intention, describing the type of New Securities, and the price and terms
upon which the Company proposes to issue the same. Holder shall have
fifteen business days from the date of receipt of any such notice to agree
to purchase up to the Holder's pro rata share of such New Securities for
the price and upon the terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to
be purchased.
(c) FAILURE TO EXERCISE. In the event Holder fails to exercise such
right within said fifteen Business Day period, the Company shall have
ninety days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at
all, within sixty days from the date of said agreement) to sell the New
Securities not elected to be purchased by Holder at the price and upon the
terms no more favorable to the purchasers of such securities than specified
in the Company's notice. In the event the Company has not sold the New
Securities or entered into an agreement to sell the New Securities within
said ninety day period (or sold and issued New Securities in accordance
with the foregoing within sixty days for the date of said agreement), the
Company shall not thereafter issue or sell any of such New Securities,
without first offering such securities in the manner provided above.
ARTICLE VII.
THE COMPANY'S INDEMNIFICATION
Section 7.1. INDEMNIFICATION. The Company will indemnify and hold
harmless Holder, and her successors, assigns, heirs, legal representatives,
employees, agents, representatives and affiliates (collectively "Indemnitees")
from and against any and all expenses, claims, charges, losses, damages, fines
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or penalties, including without limitation reasonable attorneys' fees incurred
in defending or resisting any claims, actions or proceedings or in enforcing
this indemnity (hereinafter "Damages"), that an Indemnitee may suffer,
sustain, incur or become subject to, whether directly or indirectly, arising out
of, based upon, resulting from any violation or inaccuracy of any
representatives, warranties, obligations or covenants of the Company contained,
disclosed or set forth in this Agreement, unless said Damages are caused by the
willful misconduct, gross negligence, or bad faith by any of the Indemnitees.
Not withstanding any provision of this Agreement to the contrary, the provisions
of this Article VII shall survive the repayment of the Note, the exercise of the
Exchange Right or the termination of any other provision of this Agreement.
ARTICLE VIII.
GOVERNANCE
Section 8.1. ADVISORY DIRECTOR. The Company shall appoint one person
designated in writing by the Holder as an advisory director ("Advisory
Director") of the Company. At the written direction of the Holder, the Company
shall remove the Advisory Director appointed hereunder and replace him with
another person designated in writing by the Holder. The Advisory Director shall
be entitled to notice of and to attend each directors' meetings and receive
copies of written consents of directors in the same manner as other directors,
and shall have the same access to the books, records, premises, management, and
employees as other directors. The Advisory Director shall have no vote or right
to consent on any corporate action, and shall not be counted in determining
whether a quorum of directors is present at a meeting. The Company shall pay all
out of pocket expenses of the Advisory Director in attending meetings of
directors, and shall indemnify and hold harmless the Advisory Director in the
same manner as other directors. If the Company carries directors liability
insurance, it shall cause the Advisory Director to be insured thereby in the
same manner as other directors.
ARTICLE IX.
MISCELLANEOUS
Section 9.1. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE STATE
OF TEXAS.
Section 9.2. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by Holder and the
closing of the transactions contemplated hereby.
Section 9.3. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
Section 9.4. ENTIRE AGREEMENT, AMENDMENT. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
Section 9.5. NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to Holder, at: 5847 San Felipe, Suite 320, Houston, TX 77057
with a copy to Schlanger, Mills, Mayer & Grossberg, LLP, 5847 San Felipe, Suite
1700, Houston, Texas 77057, Attention: Steven D. Lerner, P.C., or at such other
address as Holder shall have furnished to the Company in writing, or (b) if to
the Company, to its address set forth on the signature page of this Agreement
and addressed to the attention of the President, or at such other address as the
Company shall have furnished to Holder, with a copy to Winstead, Sechrest &
Minick, P.C., 910 Travis, Suite 2400, Houston, Texas 77002, Attention: Clyde
Parker.
Section 9.6. DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any holder
of the Note or any Exchange Shares,
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upon any breach or default of the Company under this Agreement, shall impair any
such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder or any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
Section 9.7. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, and all of which together
shall constitute one agreement.
Section 9.8. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
Section 9.9. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
Section 9.10. SPECIFIC PERFORMANCE. The Company acknowledges that any
breaches of the agreements and covenants contained in of this Agreement would
cause irreparable injury to Holder for which Holder would have no adequate
remedy at law. In addition to any other remedy that Holder may be entitled to,
the parties agree that Holder shall be entitled to the remedy of specific
performance.
Section 9.11. LEGAL FEES OF HOLDER'S COUNSEL. The Company agrees to pay
the reasonable legal fees and costs of Holder's counsel incurred in connection
with the transactions contemplated by this Agreement.
Section 9.12. TERMINATION. The provisions of this Agreement other than
Article VII shall terminate and be of no further force and effect when the Note
is no longer outstanding due to the Company paying the same in accordance with
its terms. If the Exchange Right is exercised and the Exchange Shares are
actually delivered to the Holder, then Articles IV, V and VIII and Sections 3.2
through 3.8 shall terminate and be of no further force and effect. When the
Exchange Shares have been redeemed or retired in accordance with the provisions
of the Articles, then the remaining provisions of this Agreement other than
Article VII shall terminate and be of no further or effect.
The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
Address: UNITED WELLHEAD SERVICES, INC.,
615 Upper North Broadway, a Texas corporation
Suite 950 By: /s/ ALVIN H. DUEITT
Corpus Christi, TX 78477 Name: ALVIN H. DUEITT
Title: PRESIDENT
"HOLDER"
Address: /s/ GAY A. ROANE
5847 San Felipe, Suite 320 GAY A. ROANE
Houston, Texas 77057
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EXHIBIT 10.7
INSTALLMENT NOTE
FOR VALUE RECEIVED, the undersigned, UNITED WELLHEAD SERVICES, INC., a
Texas Corporation ("Maker"), promises to pay to the order of J. RICHARD
ESPINOSA ("Payee"), at 6122 Kuldell Street, Houston, Harris County, Texas
77074, the principal sum of one hundred thirty-five thousand and no/100 dollars
($135,000.00), together with interest on the outstanding unpaid principal
balance calculated at the annual rate of one and one-fourth percent (1 1/4%)
over the prime established by Texas Commerce Bank, as it may fluctuate from time
to time.
This Note is a renewal of a Note dated June 6, 1995, given in partial
consideration for Maker's purchase from Payee of Payee's twenty-one thousand
(21,000) shares of common stock of WRI, INC., a Texas corporation, pursuant to
that certain "Agreement and Plan of Merger" dated June 6, 1994, by and among
Maker, Payee, and various other parties.
This Note is non-negotiable and non-assignable. The term of this Note is
July 1, 1996 through August 1, 1998.
Principal payments of $5,625.00 (Five thousand six hundred and twenty five
dollars & 00/100) plus accrued interest are due and payable in monthly
installments, with the first such installment due and payable on August 1, 1996,
and the remaining installments of principal plus accrued interest due and
payable in consecutive order on the first day of each and every succeeding
calendar month thereafter until the expiration of twenty four (24) months. If
payment is not received by the 10th day of each calendar month, a late fee of
five percent (5%) of the entire payment due (both principal and interest) shall
be added to the amount due. Notwithstanding the foregoing, the entire amount
remaining unpaid shall be due and payable within five (5) days of receipt of
demand from Payee.
If default is made in a payment of the principal and interest hereof, as
and when the same is or becomes due, Payee will advise Maker in writing by
certified mail. Maker shall have ten (10) days after receipt of notice to cure
any default. If default is not cured within the ten (10) day period, Payee may,
without notice or demand declare all sums owing hereon at once due and payable.
If default is made in the payment of this Note and maturity (regardless of how
its maturity may be brought about) and the same is placed in the hands of an
attorney for collection, or suit is filed hereon, or proceedings are had in
bankruptcy, probate, receivership, reorganization, arrangement, or other
judicial proceedings for the establishment or collection of any amount called
for hereunder, or any amount payable or to be payable hereunder is collected
through any such proceedings, Maker agrees to pay Payee reasonable attorney's
fees. Reasonable attorney's fees shall not exceed ten percent (10%) of all
amounts due.
Maker and guarantors, and each of them, expressly waive demand and
presentment for payment, notice of nonpayment, notice of acceleration, notice of
intent to accelerate, protest, notice of protest, notice of dishonor, bringing
of suit and diligence in taking any action to collect amounts called for
hereunder and in handling of securities at any time existing in connection
herewith; and are and shall be jointly, severally, directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder or in connection with any right,
lien, interest or property at any and all times had or existing of security for
any amount called for hereunder.
It is the intention of Maker and Payee to conform strictly to all
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law (including the laws of the State of Texas
and the laws of the United States of America), then, in that event,
notwithstanding anything to the contrary in any agreement and entered into in
connection with or as security for this Note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is taken, reserved, contracted for, charged or received under this Note or
under any of the other aforesaid agreements or otherwise in connection with this
Note allowed by applicable law, and any excess shall be credited on this Note by
the holder hereof (or, if this Note shall have been paid in full, refunded to
Maker); and (ii) in the event that maturity of this Note is accelerated by
reason of an election of any required or
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permitted prepayment, then such consideration that constitutes interest may
never include more than the maximum amount allowed by applicable law, and excess
interest, if any, provided for in this Note or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on this Note (or if this Note shall have
been paid in full, refunded to Maker).
Payee has the right to review the books and financial records of Maker
during reasonable business hours and after providing reasonable notice of intent
to examine the books and records.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas.
DATED: July 30th, 1996.
UNITED WELLHEAD SERVICES, INC.
/s/ Al Dueitt
By: Al Dueitt
Title: President
Page 2 of 2
EXHIBIT 10.8
COMMERCIAL LEASE AGREEMENT
This Lease Agreement (hereinafter referred to as the "Lease") entered
into as of the date set forth below between J. Richard Espinosa, an individual,
whose address is 6122 Kuldell Street, Houston, Texas 77074 (hereinafter referred
to as "Lessor") and United Wellhead Services, Inc., a Texas corporation, whose
address is Suite 950, Mercantile Bank Tower, 615 North Upper Broadway, Corpus
Christi, Texas 78401 (hereinafter referred to as "Lessee").
WITNESSETH:
1. LEASED PREMISES.
1.1 In consideration of the rents, terms, provisions and covenants of this
Lease, Lessor hereby leases, lets and demises to Lessee, and Lessee does hereby
lease and take from Lessor the land and all improvements, buildings and fixtures
located on the land, together with all appurtenances thereto located at County
Road 48, Robstown, Nueces County, Texas (the "Leased Premises").
2. CONSTRUCTION BY LESSEE.
2.1 After the execution of this Lease, Lessor shall undertake to promptly
commence and complete an addition to the building comprising a part of the
Leased Premises in accordance with the plans and specifications set forth on
Exhibit A attached hereto and made a part hereof.
2.2 Any and all improvements, additions, alterations, modifications and
fixtures, except furniture, machinery, equipment and other trade fixtures,
constructed, placed or maintained on any part of the Leased Premises during the
Lease term shall be considered part of the real property of the premises and
shall remain on the Leased Premises and become the property of the Lessor upon
termination of this Lease.
2.3 Lessee shall have the right at any time during Lessee's occupancy of
the Leased Premises, or within a reasonable time thereafter, to remove any and
all furniture, machinery, equipment and other trade fixtures owned or placed by
Lessee in, under, or on the Leased Premises, or required by Lessee, whether
before or during the Lease term, but prior to the termination of the Lease.
Lessee must repair any damage to the building or improvements on the Leased
Premises resulting from their removal.
3. TERM.
3.1 Subject to and upon the conditions set forth below, the term of this
Lease shall commence on June 1, 1994 (the "Commencement Date") and end on the
last day of the sixtieth (60th) full calendar month after the Commencement Date
(the "Initial Term"), subject to early termination as hereinafter provided in
this Lease. Lessor shall not be liable or responsible for any claims, damages or
liabilities of any nature whatsoever in connection with or by reason of any
delayed occupancy.
4. RENT AND MAINTENANCE FEE.
4.1 Beginning on the Commencement Date and for the duration of the first
twelve (12) months of the Initial Term of this Lease, Lessee hereby agrees to
pay Lessor monthly, in advance, at Lessor's address at 6122 Kuldell Street,
Houston, Texas 77074, the sum of Two Thousand Six Hundred Fifty and No/100
Dollars ($2,650.00) per month, due and payable on the first day of each calendar
month, without offset or deduction. During the rest of the Initial Term, Lessee
agrees to pay Lessor, in the manner set forth above, the following amounts:
(a) the second twelve month period of the Initial Term, the Lessee
shall pay Two Thousand Seven Hundred Eighty-Two and 50/100 ($2,782.50);
(b) the third twelve month period of the Initial Term Lessee shall pay
Two Thousand Nine Hundred Twenty-One and 63/100 ($2,921.63);
(c) the fourth twelve month period of the Initial Term, the Lessee
shall pay Three Thousand Sixty-Seven and 71/100 ($3,067.71); and
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(d) the fourth twelve month period of the Initial Term, the Lessee
shall pay Three Thousand Two Hundred Twenty-One and 09/100 ($3,221.09).
4.2 Commencing as of the first month after the addition of the building
provided for in Section 2 hereinabove has been completed, or after the Lessor
has substantially completed such addition and a certificate of occupancy has
been issued, if applicable, an additional amount of rent ("Additional Rent")
shall be paid on the first day of each calendar month, without offset or
deduction, for the balance of the Initial Term in an amount equal to one-one
hundred twentieth (1/120th) of the product of one hundred sixty percent (160%)
of the actual out-of-pocket third party costs incurred by Lessor in construction
of the addition to the building provided for under Section 2 hereof.
4.3 All rent due under this Lease shall bear interest from the date due
until paid at the lessor of (a) ten percent (10%) per annum or (b) the maximum
nonusurious rate of interest permitted by the applicable laws of the State of
Texas, and as to which the Lessee could not successfully assert a claim or
defense of usury at the applicable time and effect.
5. USAGE.
5.1 During the term of this Lease, Lessee shall be permitted to use and
occupy the Leased Premises for its wellhead and oilfield equipment sales,
remanufacturing and service business. No other activities or use of the
facilities is permitted without Lessor's express written consent. Lessee shall
occupy the Leased Premises, conduct its business and control its agents,
employees, invitees and visitors in such a way as is lawful, reputable and will
not create any nuisance on the Leased Premises or use the Leased Premises for
any unlawful purpose. Lessee shall not commit, or suffer to be committed, any
waste on the Leased Premises.
5.2 Lessee shall not use or permit the Leased Premises to be used for any
purpose which is deemed to be extra hazardous on account of fire.
6. UTILITY SERVICE.
6.1 Lessee shall pay for all water, natural gas, electricity, telephone
and any other public utility services provided to the Leased Premises including,
but not limited to, applicable initial connection charges. In no event shall the
Lessor assume any obligation for the payment of same.
6.2 Lessee shall be responsible for maintaining all utility and sanitary
service connections into the Leased Premises, including hot and cold domestic
water and related plumbing, electricity, air conditioning and heat, telephone,
or otherwise. Lessee shall pay the cost of all utility and sanitary services.
7. REPAIRS AND MAINTENANCE.
Lessor shall at its expense maintain only the roof, foundation, and the
structural soundness of the exterior walls of the building in good repair,
reasonable wear and tear excepted. With such exceptions and unless otherwise
expressly provided in this Agreement, Lessor shall not be required to make any
replacements or repairs of any kind or character to the Leased Premises during
the term of this Lease. Lessee shall, at its own cost and expense, maintain the
Leased Premises in good repair and condition (including all necessary
replacements).
Lessee shall keep the Leased Premises free from nuisance. At the
termination of this Lease, by lapse of time or otherwise, Lessee, subject to any
casualty loss, shall deliver the Leased Premises to Lessor in as good condition
as existed at the Commencement Date, ordinary wear and tear excepted. The cost
and expense of any repairs necessary to restore the condition of the Leased
Premises shall be borne by the Lessee other than those necessitated by fire or
other casualty, and if the Lessor undertakes to restore the Leased Premises it
shall have a right of reimbursement against Lessee.
8. LAWS.
8.1 Lessee will at all times use its best efforts to comply with all laws,
ordinances, orders, rules, regulations and requirements of all governmental
authorities having jurisdiction of the Leased Premises
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including, but not limited to, environmental and OSHA regulations; and Lessee
shall comply promptly with the requirements of the insurance underwriters
providing insurance coverage on the Leased Premises.
8.2 Lessor and Lessee agrees to the following regarding their
responsibilities under The Americans With Disabilities Act ("ADA"):
(a) Lessee warrants and represents to the Lessor that the modifications,
alterations, or other improvements made by Lessee to the Leased
Premises shall be in full compliance with the ADA.
(b) Lessor warrants and represents to the Lessee that the modifications,
alterations, or other improvements made by Lessor to the Leased
Premises shall be in full compliance with the ADA.
(c) Lessor and Lessee shall secure a survey or audit indicating that the
Leased Premises is in compliance with the ADA and agree to make such
modifications as are necessary to keep the Leased Premises in
compliance with the ADA during any term of this Lease.
(d) Lessor's approval of the Lessee's plans for any modifications,
alterations or improvements to the Leased Premises shall not create
any liability whatsoever on the part of Lessor under the ADA.
(e) Lessee's approval of the Lessor's plans for any modifications,
alterations or improvements to the Leased Premises shall not create
any liability whatsoever on the part of Lessee under the ADA.
(f) Lessee will cooperate with Lessor in all efforts to make the Building
in which the Leased Premises is a part comply with the ADA.
(g) Lessee agrees to save, indemnify, defend, reimburse and hold Lessor
harmless from and against any and all damages arising in any manner
whatsoever out of the Lessee's modification, alteration, improvement,
or use of the Leased Premises in violation of any present or future
statute, regulations, rules, ordinances, codes, or similar items
pertaining to the ADA, or the breach of any warranties or covenants or
the inaccuracy of any representation of Lessee contained in this
Agreement related to Lessee's compliance with the ADA.
(h) Lessor agrees to save, indemnify, defend, reimburse and hold Lessee
harmless from and against any and all damages arising in any manner
whatsoever out of the Lessor's modification, alteration, improvement,
or use of the Leased Premises in violation of any present or future
statute, regulations, rules, ordinances, codes, or similar items
pertaining to the ADA, or the breach of any warranties or covenants or
the inaccuracy of any representation of Lessor contained in this
Agreement related to Lessor's compliance with the ADA.
The indemnity obligations of Lessee set forth in this Section 8.2 shall
include, but not be limited to, the burden and expense of defending all claims,
suits, and administrative proceedings (with counsel reasonably approved by the
Lessor), even if such claims, suits or proceedings are groundless, false or
fraudulent, and conducting all negotiations of any description, and paying and
discharging, when and as the same become due, any and all judgments, penalties,
or other sums due against Lessor. Lessee, at its sole expense, may employ
additional counsel of its choice to associate with counsel representing Lessor.
The indemnity obligations of Lessor set forth in this Section 8.2 shall
include, but not be limited to, the burden and expense of defending all claims,
suits, and administrative proceedings (with counsel reasonably approved by the
Lessee), even if such claims, suits, or proceedings are groundless, false or
fraudulent, and conducting all negotiations of any description, and paying and
discharging, when and as the same become due, any and all judgments, penalties,
or other sums due against Lessee. Lessor, at its sole expense, may employ
additional counsel of its choice to associate with counsel representing Lessee.
9. CONDEMNATION.
If, during the Initial Term, or any renewal term of this Lease, all or a
substantial part of the Leased Premises are taken for any public or quasi public
use under any governmental law, ordinance or regulation, or by right of eminent
domain or by purchase in lieu thereof, and the taking would prevent or
materially interfere with the use of the Leased Premises for the purpose for
which they are then being used, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease effective on the date
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physical possession is taken by the condemning authority. Lessee shall have no
claim to the condemnation award which shall be for the sole benefit and the
property of Lessor.
10. TAXES.
Lessor shall pay all taxes and fees levied or assessed on or against the
Leased Premises or any part thereof and the Lessee shall pay to Lessor as
additional rent due on demand the full amount of such property taxes in addition
to all other sums due hereunder. Lessee shall pay all taxes, license, and fees
levied or assessed on or against the personal property on the Leased Premises.
Lessee shall reimburse Lessor on demand for all taxes or governmental charges
including municipal, state or federal, which Lessor may be required or deem
necessary to pay on account of Lessee. Lessee agrees to furnish Lessor with the
information required to enable Lessor to make the necessary reports and to pay
the taxes or charges. Lessee agrees to reimburse Lessor for any such payment
upon demand by Lessor.
11. CASUALTY INSURANCE.
Lessee shall, at all times during the term of this Lease, or any renewal
thereof, maintain a policy or policies of insurance with the premiums thereon
fully paid in advance, issued by and binding upon an insurance company
acceptable to both Lessor and Lessee, insuring the premises against loss or
damage by fire and other hazards within the coverage of the Texas Standard Form
of Fire and Extended Coverage Policy, for the full replacement value thereof,
with payments for losses thereunder payable to both Lessor and Lessee, as their
interest may appear. Lessee shall have no responsibility or liability to Lessor
for the insolvency or inability of the insurance carrier to pay benefits under
such insurance policy.
Lessee shall, at all times during the term of this Lease, maintain a policy
or policies of insurance on all personal property placed on the Leased Premises
with the premiums thereon fully paid in advance, issued by and binding upon some
solvent insurance company, insuring the personal property against loss or damage
by fire and other hazards within the coverage of the Texas Standard Form of Fire
and Extended Coverage Policy for the full replacement value thereof, with
payments for losses thereunder payable to Lessee.
12. LIABILITY INSURANCE.
Lessee shall maintain, at its expense, a policy or policies of
comprehensive general liability insurance with the premiums thereon fully paid
in advance, issued by and binding upon some solvent insurance company, licensed
to do business in the State of Texas, such insurance to afford minimum
protection of not less than One Million and No/100 Dollars ($1,000,000.00)
combined, single limit bodily injury and property damage per occurrence. Said
policy or policies shall name Lessor as an additional insured and shall contain
an agreement by the insurer that such policy or policies shall not be canceled
without thirty (30) days prior written notice to Lessor. Lessee shall provide
Lessor a copy of the required policy or a certificate evidencing the required
coverage prior to the Commencement Date.
13. FIRE AND CASUALTY DAMAGE.
13.1 If the Leased Premises should be totally destroyed by fire or other
casualty, or if the Leased Premises should be so damaged so that the rebuilding
cannot reasonably be completed within ninety (90) working days after the date of
written notification by Lessee to Lessor of the destruction, this Lease shall
terminate and the rent shall be abated for the unexpired portion of the Lease,
effective as of the date of the written notification.
13.2 If the Leased Premises should be partially damaged by fire or other
casualty, and rebuilding or repairs can reasonably be completed within ninety
(90) working days from the date of written notification by Lessee to Lessor of
the destruction, this Lease shall not terminate, but Lessor may, at its sole
risk and expense, proceed with reasonable diligence to rebuild or repair the
building or other improvements to substantially the same condition to which they
existed prior to the damage. If the leased Premises are to be rebuilt or
repaired and are untenantable in whole or in part following the damage, and the
damage or destruction was not caused or contributed to by the act or negligence
of Lessee, its agents, employees, invitees, or those for whom Lessee is
responsible, the rent payable under this Lease during the period for which the
Leased Premises are untenantable shall be adjusted to such an extent as may be
fair and
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reasonable under the circumstances based upon the amount of the Leased Premises
still available for use by Lessee. In the event Lessor fails to complete the
necessary repairs within ninety (90) days from the date of written notification
by Lessee to Lessor of the destruction Lessee may, at its option, terminate this
Lease by delivering written notice of termination to Lessor, whereupon all
rights and obligations under this Lease shall cease to exist.
14. HOLD HARMLESS.
Lessor shall not be liable to Lessee's employees, contractors, agents,
invitees, licensees, or visitors, or to any other person entering upon the
Leased Premises under express or implied invitation by Lessee, for any injury to
person or damage to property on or about the Leased Premises caused by the
negligence or misconduct of Lessee, its agents, servants or employees, or caused
by the building or other improvements located on the Leased Premises coming out
of repair, or caused by leakage of gas, oil, sewer, water, or steam, or by
electricity emanating from the Leased Premises. Lessee agrees to save, defend,
indemnify and hold Lessor harmless from and against any claim, demand, loss, or
cause of action arising in any way or manner out of such damage, loss, or
injury.
15. LESSOR'S RIGHT OF ENTRY
Lessor shall have the right, at all reasonable hours, to enter the Leased
Premises for the following reasons: inspections; cleaning or making repairs;
making alterations or additions as Lessor may deem necessary or desirable;
determining Lessee's use of the Leased Premises or determining if an act of
default under this Lease has occurred.
16. ASSIGNMENT OR SUBLEASE.
Lessor shall have the right to sell, transfer, or assign, in whole or in
part, its rights and obligations in the Leased Premises; provided, however, any
such sale, transfer or assignment shall be made expressly subject to this Lease
and shall not release Lessor from his obligations under this Lease. Lessee shall
not assign this Lease or sublet all or any part of the Leased Premises without
the prior written consent of Lessor.
17. DEFAULT BY LESSEE.
17.1 The following shall be deemed to be events of the default by Lessee
under this Lease:
(a) Lessee shall fail to pay when due or within ten (10) days thereof any
installment of rent or any other payment required pursuant to this Lease;
(b) Lessee shall abandon any substantial portion of the Leased Premises for
a period of at least thirty (30) days and fail to maintain adequate
insurance;
(c) Lessee shall fail to comply with any term, provision or covenant of
this Lease, other than the payment of rent, and the failure is not cured
within ten (10) days after written notice to Lessee;
(d) Lessee shall do, or permit to be done, any act which results in a lien
being filed against the Leased Premises or the Building of which the Leased
Premises are a part.
(e) The adjudication of Lessee to be bankrupt; or Lessee shall generally
not pay its debts as they become due or shall admit in writing its
inability to pay its debts, or shall make a general assignment for the
benefit of creditors; or Lessee shall commence any case, proceeding, or
other action seeking to have an order for relief entered on Lessee's behalf
as debtor or to adjudicate Lessee as bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution, or
composition of Lessee or Lessee's debts under any law relating to
bankruptcy, insolvency, reorganization, or relief of debtors, or seeking
appointment of a receiver, trustee, custodian, or other similar official
for Lessee or for all or any substantial part of Lessee's property.
18. REMEDIES FOR LESSEE'S DEFAULT.
18.1 Upon the occurrence of any event of default set forth in this Lease,
Lessor shall have the option to pursue any one or more of the following
remedies without any notice or demand:
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(a) Terminate this Lease, in which event Lessee shall immediately
surrender the Leased Premises to Lessor, and if Lessee fails to surrender
the Leased Premises to Lessor, and if Lessee fails to surrender the Leased
Premises Lessor may, without prejudice to any other remedy which it may
have for possession or arrearages in rent, enter upon and take possession
of the Leased Premises by picking or changing locks if necessary and lock
out, expel, or remove Lessee and any other person who may be occupying all
or any part of the Leased Premises without being liable for prosecution of
any claim for damages. Lessee agrees to pay on demand the amount of all
loss and damage which Lessor may suffer by reason of a termination of the
Lease under this Subsection, whether through inability to relet the Leased
Premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the Leased Premises by picking or
changing locks if necessary and lock out, expel or remove Lessee and any
other person who may be occupying all or any part of the Leased Premises
without being liable for any claim for damages, and relet the Leased
Premises on behalf of Lessee and receive directly the rent by reason of the
reletting. Lessee agrees to pay Lessor on demand any deficiency that may
arise by reason of any reletting of the Leased Premises; further, Lessee
agrees to reimburse Lessor for any expenditures made by it for remodeling
or repairing in order to relet the Leased Premises.
(c) Enter upon the Leased Premises by picking or changing locks if
necessary, without being liable for prosecution of any claim for damages,
and do whatever Lessee is obligated to do under the terms of this Lease.
Lessee agrees to reimburse Lessor on demand for any expenses which Lessor
may incur and effecting compliance with Lessee's obligation under this
Lease; further, Lessee agrees that Lessor shall not be liable for any
damages resulting to Lessee from effecting compliance with Lessee's
obligations under this Subsection and CAUSED BY THE NEGLIGENCE OF LESSOR OR
OTHERWISE.
19. ATTORNEY'S FEES.
If any legal action is brought by either of the parties hereto, it is
expressly agreed that the prevailing party in such legal action shall be
entitled to recover from the other party reasonable attorney's fees in addition
to any other relief that may be awarded.
20. WAIVER.
No acceptance by Lessor of monthly rent or monies owed to Lessor under this
Lease or delay in enforcing any covenant or obligation of any of the Lessee
under the terms of this Lease shall be construed as a waiver of any default in
the performance of any covenant or obligation to be observed, performed, or
discharged by Lessee. Lessor's failure to enforce the default and remedy
provisions hereof if an event of default occurs shall not act as a waiver of
Lessor's right to enforce the default and remedy provisions hereof in the event
of a subsequent breach hereunder.
21. MORTGAGES.
This Lease is and shall always be subordinate to any mortgages or deeds of
trust which are now or shall at any time be placed upon the Leased Premises or
any part thereof, and the Lessee agrees to execute and deliver any instrument,
without cost, which may be deemed necessary to further effect the subordination
of this Lease to any such mortgage or mortgages.
22. LIENS.
In the event that any mechanic's, materialmen's, or other lien shall at any
time be filed against the Leased Premises purporting to be for work, labor,
services or materials performed for or furnished to Lessee or anyone holding the
Leased Premises through or under Lessee, or arising out of any alleged act or
omission of Lessee, Lessee shall forthwith cause the same to be properly bonded
or released. If Lessee shall fail to cause such lien to be bonded or released
within 15 days after being notified of the filing thereof, then, in addition to
any other right or remedy of Lessor, Lessor may, but shall not be obligated to,
discharge the same by posting a bond or paying the amount claimed to be due, and
the amount so paid by Lessor, and all costs and expenses incurred by Lessor in
procuring the discharge of such lien, including reasonable
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attorney's fees, shall be due and payable by Lessee to Lessor as additional rent
on the first day of the next succeeding month. Notice is hereby given that
Lessor shall not be liable for any labor or materials furnished to Lessee upon
credit, and that no mechanic's, materialmen's or other liens for any such labor
or materials shall attach to or affect the estate or interest of Lessor in and
to the Land.
23. ACTS OF GOD.
No party hereto shall be required to perform any covenant or obligation in
this Lease, or be liable in damages to the other, so long as the performance or
non-performance of the covenant or obligation is delayed, caused by or prevented
by an act of God or force majeure.
24. CONSENT OF LESSOR.
Whenever the consent of the Lessor is required herein, such consent must be
given in writing and shall not be unreasonably withheld.
25. ENTIRE AGREEMENT.
This Lease, any attached exhibits referred to herein, and any attached
addenda signed by both of the parties hereto constitutes the entire agreement
between the parties hereto, and no representations, warranties, express or
implied, inducements, promises or agreements, oral or otherwise, between the
parties not embodied herein shall be of any force or effect.
26. SUCCESSORS AND LESSOR'S RIGHT TO TRANSFER.
This Lease shall be binding and inure to the benefit of Lessor and Lessee
and their respective heirs, legal representatives, successors and assigns,
provided that Lessee may not assign this Lease without Lessor's prior written
consent, but Lessee shall have the right to assign this Lease (without Lessee's
being released herefrom) to any subsidiary or affiliate of Lessee without such
consent. It is hereby covenanted and agreed that Lessor shall always have the
right to transfer any part or all of its interest in the Leased Premises to any
third party whomsoever; provided however, in the event of such a transfer for
any reason during the term of this Lease, and notwithstanding the happening of
such event, this Lease nevertheless shall remain unimpaired and in full force
and effect and Lessee hereunder agrees to attorn to the then owner of the Leased
Premises.
27. NOTICES.
All rent and other payments required to be made by Lessee shall be payable
to Lessor at the address set forth below. Any notice or document required or
permitted to be delivered by this Lease shall be deemed to be delivered (whether
or not actually received) when deposited in the United States mail, postage
prepaid, certified mail, return receipt requested, addressed to the parties at
the respective addresses set out below, or other such address as one party may
provide to the other party by certified mail, return receipt requested.
If to Lessor:
6122 Kuldell Street
Houston, Texas 77074
Attention: J. Richard Espinosa
If to Lessee:
Suite 950, Mercantile Bank Tower
615 North Upper Broadway
Corpus Christi, Texas 78401
Attention: Wallace C. Sparkman
28. BINDING EFFECT.
This Lease shall be binding upon and inure to the benefit of the heirs,
successors or assigns of Lessor and Lessee, subject to the limitation on
subleasing and assignment herein contained.
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29. SEVERABILITY.
To the extent that any provision of this Lease or its application to any
person or circumstance is invalid, void, or illegal under any applicable law,
then any such provision shall be inapplicable, but such inapplicability shall in
no way affect, impair or invalidate the remainder of this Lease or the
application of such provision to other persons or circumstances.
30. HEADINGS.
The various headings in each section of this Lease are provided for
convenience only and shall not be considered a part hereof; and the groupings of
provisions of this Lease into separate sections is likewise for convenience
only.
31. GENERAL.
Time is of the essence of this Lease. All rights and remedies of Lessor and
Lessee under this Lease shall be cumulative and none shall exclude any other
rights or remedies allowed by law. This Lease shall be declared to be a Texas
Lease and any and all of the terms hereof shall be construed according to the
laws of the State of Texas. Said Lease shall be performable only in Nueces
County, Texas, and venue for any action shall lie exclusively in Nueces County,
Texas. Lessee warrants that this Lease has been duly authorized and executed on
behalf of Lessee, and that the same is valid and binding upon Lessee.
32. OPTION TO BUY.
32.1 The Lessor hereby grants to the Lessee the right and option to
purchase the Leased Premises, the building and all other improvements thereon at
the expiration of the third year of the term of this Lease for a sum equal to
the aggregate of the following: (a) Two Hundred Seventy-Four Thousand
($274,000.00) Dollars; and (b) a sum equal to the amortized principal balance of
the cost of constructing the addition to building provided for under Section 2
hereof upon the exercise of such option, with simple interest imputed over a ten
year (10) period at the rate of eight and one-half percent (8 1/2%) per annum,
after deducting monthly the amount of each add-on rental payment made by the
Lessee to the Lessor pursuant to Section 4 hereof.
32.2 The Lessor also hereby grants to the Lessee the right and option to
purchase the Leased Premises, the building and all other improvements thereon at
the expiration of the fifth year of the term of this Lease for the sum of Three
Hundred Thousand and No/100 ($300,000.00) Dollars.
32.3 The Lessee may exercise either of the options herein granted to it by
the Lessor at any time within ten (10) days following the expiration of the
Lease year indicated by giving written notice of such election to the Lessor.
The rent provided for in this Lease shall terminate effective as of the date of
the exercise of any such option by the Lessee provided that the closing of the
purchase and shall be effected within sixty (60) days from the date of the
exercise of such option by the Lessee.
33. QUIET ENJOYMENT.
The Lessor agrees that if the Lessee shall pay the rent as aforesaid and
perform the covenants and agreements herein contained on its part to be paid and
performed, the Lessee shall peaceably hold and enjoy the said Leased Premises
without hindrance or interruption by the Lessor or by any other person or
persons.
34. CURING DEFAULTS.
If either party is required to perform or comply with any agreement or
provision hereof and shall fail to do so within the time provided therefor (or
if no time is provided therefor then within thirty (30) days after written
demand for compliance shall have been received by any party hereto from the
other unless such default shall be of such nature that same cannot be completely
cured within such thirty (30) day period but the curing hereof has been
commenced within the said thirty (30) day period and shall thereafter be
continued with reasonable diligence) then, in each such case, upon the
expiration of the time provided in this Section for the performance or
compliance therewith or for the curing of same, the party demanding compliance
therewith or for the curing of same, the party failing to do so immediately upon
receipt of an itemized invoice of the cost and expense thereof, agrees to
promptly pay the reasonable cost and expense
8
<PAGE>
incurred by the other party hereto, with interest at the rate of eight percent
(8%) per annum to the date payment is received. Should the Lessee be the party
failing to make such payment, the cost and expense thereof shall be charged to
the Lessee as additional rent, which shall be paid by the Lessee on the next
rent payment date following the date of receipt by Lessee of such invoice, and
in the event such additional rent shall not be paid when due, it may be
collected in the same manner as is herein provided for the collection of rent.
In any such case if Lessor is in default hereunder, Lessee, without impairing or
affecting any other rights it may have for damages or otherwise, shall have the
right to cancel and terminate this Lease by giving written notice of Lessee's
election to do so, upon giving such notice the life of this Lease shall cease
and come to an end as of the date of receipt of the notice or Lessee's vacating
the premises, whichever occurs last, with the same force and effect as if the
date set forth were the date originally fixed for the termination of the term of
any extended term thereof. In computing the time within which either party is
required to comply with any covenant, agreement or provision of this Lease,
there shall be excluded therefrom periods of reasonable delay on account of war,
"labor troubles", "Acts of God" and other unavoidable delays.
35. OPTION FOR RENEWAL.
The Lessee shall have the right to extend the term of this Lease for a
period of one (1) year, beginning on June 1, 1995 and ending on May 31, 2000
upon said terms, covenants and conditions except that the rent for said
additional one (1) year period shall be payable in twelve (12) equal monthly
installments of one hundred fifteen percent (115%) of the immediate prior year's
monthly payment consisting of both base rent and add-on rent. The Lessee will be
deemed to have elected such right to extend unless it has notified the Lessor,
in writing, to the contrary, by U.S. registered mail, postage prepaid, addressed
to the Lessor at 6122 Kuldell Street, Houston, Texas 77074, on or before sixty
(60) days prior to the end of the initial sixty (60) month rental period.
IN TESTIMONY WHEREOF the parties hereto have executed this Lease in
multiple counterparts, each of which shall constitute an original but
collectively shall constitute only one (1) document.
EXECUTED this 6th day of June, 1994.
LESSOR:
/s/ J. RICHARD ESPINOSA
J. Richard Espinosa
LESSEE:
UNITED WELLHEAD SERVICES, INC.
By: /s/ AL DUEITT
Title: President
9
<PAGE>
EXHIBIT "A"
The Lessor will promptly commence and complete an addition to the existing
building as follows:
(1) A metal building consisting of 4,000 square feet of warehouse space,
with a concrete slab, metal roof and metal walls. The structure will be
complete with all reasonable wiring and plumbing connections. (If
electrical power is requested from the local utilities companies, the
additional costs, if any, will be paid for by the Lessee). The new
building will be adjacent to and connected to the existing building.
(2) Additional office space of approximately 550 square feet consisting
of three offices and a bathroom. The new buildout will be located
directly above the offices located in the existing building.
10
<PAGE>
ADDENDUM TO THE COMMERCIAL LEASE AGREEMENT
BY AND BETWEEN
J. RICHARD ESPINOSA AND UNITED WELLHEAD SERVICES, INC.
DATED JUNE 6, 1994
The language set forth hereinafter below shall replace Section 32 OPTION TO
BUY of the above-referenced Commercial Lease Agreement. The remaining terms of
the Commercial Lease Agreement shall remain as set forth therein, except to the
extent necessary to carry out the intent of this Addendum.
32. OPTION TO BUY.
32.1 The Lessor hereby grants to the Lessee the right and option to
purchase the Leased Premises, the building and all other improvements thereon at
the expiration of the third year of the term of this Lease, and continuing
through the remainder of the term, for a sum equal to the sum of the following:
a) Two Hundred Seventy-Four and No/100 ($274,000.00) Dollars payable
upon the exercise of said option; and
b) a sum equal to the amortized principal of the cost of constructing
the addition to the building as of the date of the option as set forth on
the attached Exhibit A amortization schedule which computes the aggregate
cost of the construction, with simple interest imputed over a ten (10) year
period at a rate of eight and one-half percent (8 1/2%) per annum. By way
of example, if Lessee exercises the option on June 1, 1998, the purchase
price shall be $375,300.81, that being $274,000.00 plus $101,300.81.
32.2 The Lessee may exercise the option granted herein to it by the Lessor
by giving written notice of such election to Lessor. The rent provided for in
this Lease shall terminate effective as of the date of the exercise of the
option by the Lessee provided that the closing of the purchase shall be
effective within sixty (60) days from the date of the receipt of notice of
intent to exercise the option by the Lessee to the Lessor.
By: /s/ J. RICHARD ESPINOSA
J. Richard Espinosa
Date: 6/15/95
UNITED WELLHEAD SERVICES, INC.
By: /s/ AL DUIETT
Title: President
Date: 7/30/96
11
EXHIBIT 10.9
Form A140 Commercial Lease
COMMERCIAL LEASE
This lease is made between NOLAN J. GUIDRY, 1607 RIDGE ROAD, DUSON,
LOUISIANA 70529, herein called Lessor, and UNITED WELLHEAD SERVICES INC., 615
UPPER NORTH BROADWAY SUITE 950, CORPUS CHRISTI, TEXAS 78477, herein called
Lessee.
Lessee hereby offers to lease from Lessor the premises situated in the
JUDICE COMMUNITY, County of LAFAYETTE, State of LOUISIANA, described as 126 CRIP
LANE, DUSON, LOUISIANA 70529, upon the following TERMS and CONDITIONS.
1. TERM AND RENT. Lessor demises the above premises for a term of ONE (1) years,
commencing APRIL 15, 1997 and terminating on APRIL 15, 1998 or sooner as
provided herein at monthly rental of ONE THOUSAND EIGHT HUNDRED FIFTY Dollars
($1,850.00), payable in advance on the 15th day of each month for that month's
rental, during the term of this lease. All rental payments shall be made to
Lessor, at the address specified above.
2. USE. Lessee shall use and occupy the premises for OILFIELD SERVICES. The
premises shall be used for no other purpose. Lessor represents that the premises
may lawfully be used for such purpose.
3. CARE AND MAINTENANCE OF PREMISES. Lessee acknowledges that the premises are
in good order and repair, unless otherwise indicated herein. Lessee shall, at
his own expense and at all times, maintain the premises in good and safe
condition, including plate glass, electrical wiring, plumbing and heating,
installations and any other system or equipment upon the premises and shall
surrender the same, at termination hereof, in as good condition as received,
normal wear and tear excepted. Lessee shall be responsible for all repairs
required, excepting the roof, exterior walls, structural foundations, and:
, which shall be maintained by Lessor. Lessee shall also maintain
in good condition such portions adjacent to the premises, such as sidewalks,
driveways, laws and shrubbery, which would otherwise be required to be
maintained by Lessor.
4. ALTERATIONS. Lessee shall not, without first obtaining the written consent of
Lessor, make any alterations, additions, or improvements, in, to or about the
premises.
5. ORDINANCES AND STATUTES. Lessee shall comply with all statutes, ordinances
and requirements of all municipal, state and federal authorities now in force,
or which may hereafter be in force, pertaining to the premises, occasioned by or
affecting the use thereof by Lessee.
6. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this lease or sublet any
portion of the premises without prior written consent of the Lessor, which shall
not be unreasonably withheld. Any such assignment or subletting without consent
shall be void and, at the option of the Lessor, may terminate this lease.
7. UTILITIES. All applications and connections for necessary utility services on
the demised premises shall be made in the name of Lessee only, and Lessee shall
be solely liable for utility charges as they become due, including those for
sewer, water, gas, electricity, and telephone services.
8. ENTRY AND INSPECTION. Lessee shall permit Lessor or Lessor's agents to enter
upon the premises at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, and will permit Lessor at any time within sixty
(60) days prior to the expiration of this lease, to place upon the premises any
usual "To Let" or "For Lease" signs, and permit persons desiring to lease
the same to inspect the premises thereafter.
9. POSSESSION. If Lessor is unable to deliver possession of the premises at the
commencement hereof, Lessor shall not be liable for any damage caused thereby,
nor shall this lease be void or voidable, but Lessee shall not be liable for any
rent until possession is delivered. Lessee may terminate this lease if
possession is not delivered within N/A days of the commencement of the term
hereof.
10. INDEMNIFICATION OF LESSOR. Lessor shall not be liable for any damage or
injury to Lessee, or any other person, or to any property, occurring on the
demised premises or any part thereof, and Lessee agrees to hold Lessor harmless
from any claims or damages, no matter how caused.
<PAGE>
11. INSURANCE. Lessee, at his expense, shall maintain plate glass and public
liability insurance including bodily injury and property damage insuring Lessee
and Lessor with minimum coverage as follows:
Lessee shall provide Lessor with a Certificate of Insurance showing Lessor as
additional insured. The Certificate shall provide for a ten-day written notice
to Lessor in the event of cancellation or material change of coverage. To the
maximum extent permitted by insurance policies which may be owned by Lessor or
Lessee, Lessee and Lessor, for the benefit of each other, waive any and all
rights of subrogation which might otherwise exist.
12. EMINENT DOMAIN. If the premises or any part thereof or any estate therein,
or any other part of the building materially affecting Lessee's use of the
premises, shall be taken by eminent domain, this lease shall terminate on the
date when title vests pursuant to such taking. The rent, and any additional
rent, shall be apportioned as of the termination date, and any rent paid for any
period beyond that date shall be repaid to Lessee. Lessee shall not be entitled
to any part of the award for such taking or any payment in lieu thereof, but
Lessee may file a claim for any taking of fixtures and improvements owned by
Lessee, and for moving expenses.
13. DESTRUCTION OF PREMISES. In the event of a partial destruction of the
premises during the term hereof, from any cause, Lessor shall forthwith repair
the same, provided that such repairs can be made within sixty (60) days under
existing governmental laws and regulations, but such partial destruction shall
not terminate this lease, except that Lessee shall be entitled to a
proportionate reduction of rent while such repairs are being made, based upon
the extent to which the making of such repairs shall interfere with the business
of Lessee on the premises. If such repairs cannot be made within said sixty (60)
days, Lessor, at his option, may make the same within a reasonable time, this
lease continuing in effect with the rent proportionately abated as aforesaid,
and in the event that Lessor shall not elect to make such repairs which cannot
be made within sixty (60) days, this lease may be terminated at the option of
either party. In the event that the building in which the demised premises may
be situated is destroyed to an extent of not less than one-third of the
replacement costs thereof, Lessor may elect to terminate this lease whether the
demised premises be injured or not. A total destruction of the building in which
the premises may be situated shall terminate this lease.
14. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of rent, or
any additional rent, or defaults in the performance of any of the other
covenants or conditions hereof, Lessor may give Lessee notice of such default
and if Lessee does not cure any such default within 60 days, after the giving of
such notice (or if such other default is of such nature that it cannot be
completely cured within such period, if Lessee does not commence such curing
within such 60 days and thereafter proceed with reasonable diligence and in good
faith to cure such default), then Lessor may terminate this lease on not less
than 60 days' notice to Lessee. On the date specified in such notice the term of
this lease shall terminate, and Lessee shall then quit and surrender the
premises to Lessor, but Lessee shall remain liable as hereinafter provided. If
this lease shall have been so terminated by Lessor, Lessor may at any time
thereafter resume possession of the premises by any lawful means and remove
Lessee or other occupants and their effects. No failure to enforce any term
shall be deemed a waiver.
15. SECURITY DEPOSIT. Lessee shall deposit with Lessor on the signing of this
lease the sum of
Dollars ($ N/A) as security for the performance of Lessee's
obligations under this lease, including without limitation the surrender of
possession of the premises to Lessor as herein provided. If Lessor applies any
part of the deposit to cure any default of Lessee, Lessee shall on demand
deposit with Lessor the amount so applied so that Lessor shall have the full
deposit on hand and at all times during the term of this lease.
16. TAX INCREASE. In the event there is any increase during any year of the term
of this lease in the City, County or State real estate taxes over and above the
amount of such taxes assessed for the tax year during which the term of this
lease commences, whether because of increased rate or valuation, Lessee shall
pay to Lessor upon presentation of paid tax bills an amount equal to 100% of the
increase in taxes upon the land and building in which the leased premises are
situated. In the event that such taxes are assessed for a tax year extending
beyond the term of the lease, the obligation of Lessee shall be proportionate to
the portion of the lease term included in such year.
<PAGE>
17. COMMON AREA EXPENSES. In the event the demised premises are situated in a
shopping center or in a commercial building in which there are common areas,
Lessee agrees to pay his pro-rata share of maintenance, taxes, and insurance for
the common area.
18. ATTORNEY'S FEES. In case suit should be brought for recovery of the
premises, or for any sum due hereunder, or because of any act, which may arise
out of the possession of the premises, by either party, the prevailing party
shall be entitled to all costs incurred in connection with such action,
including a reasonable attorney's fee.
19. NOTICES. Any notice which either party may or is required to give, shall be
given by mailing the same, postage prepaid, to Lessee at the premises, or Lessor
at the address shown below, or at such other places as may be designated by the
parties from time to time.
20. HEIRS, ASSIGNS, SUCCESSORS. This lease is binding upon and inures to the
benefit of the heirs, assigns, and successors in interest to the parties.
21. OPTION TO RENEW. Provided that Lessee is not in default in the performance
of this lease, Lessee shall have the option to renew the lease for an additional
term of 12 months commencing at the expiration of the initial lease term. All of
the terms and conditions of the lease shall apply during the renewal term except
that the monthly rent shall be the sum of $ N/A. The option shall be exercised
by written notice given to Lessor not less than days prior to the expiration
of the initial lease term. If notice is not given in the manner provided herein
within the time specified, this option shall expire.
22. SUBORDINATION. This lease is and shall be subordinated to all existing and
future liens and encumbrances against the property.
23. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement between the
parties and may be modified only by a writing signed by both parties. The
following Exhibits, if any, have been made a part of this lease before the
parties' execution hereof:
Signed this 8th day of APRIL, 1997.
By /s/ AL DUEITT By /s/
Lessee Lessor
<PAGE>
AMORTIZATION SCHEDULE
PREPARED FOR: ESPINOSA PRINCIPAL: 143,920.00
INTEREST: 8.5000
NAME/LOAN #: NO. PAYMENTS: 120
PAYMENT AMT.: 1,918.93
The information herein is believed to be accurate but no warranty thereof
is expressed nor should be implied.
<TABLE>
<CAPTION>
PMNT. INTEREST INTEREST INTEREST PRINCIPAL LOAN DATE CHECK
NO. DUE DATE THIS YEAR TO DATE PAYMENT PAYMENT BALANCE PAID NUMBER
- --------- ----------- ---------- --------- --------- --------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. 2/1/1995 1,019.43 1,019.43 899.50 143,020.50
2. 3/1/1995 2,032.49 1,013.06 905.87 142,114.63
3. 4/1/1995 3,039.14 1,006.65 912.28 141,202.35
4. 5/1/1995 4,039.32 1,000.18 918.75 140,283.60
5. 6/1/1995 5,033.00 993.68 925.25 139,358.35
6. 7/1/1995 6,020.12 987.12 931.81 138,426.54
7. 8/1/1995 7,000.64 980.52 938.41 137,488.13
8. 9/1/1995 7,974.51 973.87 945.06 136,543.07
9. 10/1/95 8,941.69 967.18 951.75 135,591.32
10. 11/1/1995 9,902.13 960.44 958.49 134,632.83
11. 12/1/1995 10,855.78 10,855.78 953.65 965.28 133,667.55
12. 1/1/1996 11,802.59 946.81 972.12 132,695.43
13. 2/1/1996 12,742.52 939.93 979.00 131,716.43
14. 3/1/1996 13,675.51 932.99 985.94 130,730.49
15. 4/1/1996 14,601.52 926.01 992.92 129,737.57
16. 5/1/1996 15,520.49 918.97 999.96 128,737.61
17. 6/1/1996 16,432.38 911.89 1,007.04 127,730.57
18. 7/1/1996 17,337.14 904.76 1,014.17 126,716.40
19. 8/1/1996 18,234.71 897.57 1,021.36 125,695.04
20. 9/1/1996 19,125.05 890.34 1,028.59 124,666.45
21. 10/1/1996 20,008.10 883.05 1,035.88 123,630.57
22. 11/1/1996 20,883.82 875.72 1,043.21 122,587.36
23. 12/1/1996 10,896.37 21,752.15 868.33 1,050.60 121,536.76
24. 1/1/1997 22,613.04 860.89 1,058.04 120,478.72
25. 2/1/1997 23,466.43 853.39 1,065.54 119,413.18
26. 3/1/1997 24,312.27 845.84 1,073.09 118,340.09
27. 4/1/1997 25,150.51 838.24 1,080.69 117,259.40
28. 5/1/1997 25,981.10 830.59 1,088.34 116,171.06
29. 6/1/1997 26,803.98 822.88 1,096.05 115,075.01
30. 7/1/1997 27,619.09 815.11 1,103.82 113,971.19
31. 8/1/1997 28,426.39 807.30 1,111.63 112,859.56
32. 9/1/1997 29,225.81 799.42 1,119.51 111,740.05
33. 10/1/1997 30,017.30 791.49 1,127.44 110,612.61
34. 11/1/1997 30,800.81 783.51 1,135.42 109,477.19
35. 12/1/1997 9,824.12 31,576.27 775.46 1,143.47 108,333.72
36. 1/1/1998 32,343.63 767.36 1,151.57 107,182.15
37. 2/1/1998 33,102.84 759.21 1,159.72 106,022.43
38. 3/1/1998 33,853.83 750.99 1,167.94 104,854.49
39. 4/1/1998 34,596.55 742.72 1,176.21 103,678.28
40. 5/1/1998 35,330.94 734.39 1,184.54 102,493.74
41. 6/1/1998 36,056.94 726.00 1,192.83 101,300.81
42. 7/1/1998 36,774.49 717.55 1,201.38 100,099.43
43. 8/1/1998 37,483.53 709.04 1,209.89 98,889.54
44. 9/1/1998 38,184.00 700.47 1,218.46 97,671.08
45. 10/1/1998 38,875.84 691.84 1,227.09 96,443.99
46. 11/1/1998 39,558.98 683.14 1,235.79 95,208.20
47. 12/1/1998 8,657.10 40,233.37 674.39 1,244.54 93,963.66
48. 1/1/1999 40,898.95 665.58 1,253.35 92,710.31
<PAGE>
49. 2/1/1999 41,555.65 656.70 1,262.23 91,448.08
50. 3/1/1999 42,203.41 647.76 1,271.17 90,176.91
51. 4/1/1999 42,842.16 638.75 1,280.18 88,896.73
52. 5/1/1999 43,471.85 629.69 1,289.24 87,607.49
53. 6/1/1999 44,092.40 620.55 1,298.38 86,309.11
54. 7/1/1999 44,703.76 611.36 1,307.57 85,001.54
55. 8/1/1999 45,305.85 602.09 1,316.84 83,684.70
56. 9/1/1999 45,898.62 592.77 1,326.16 82,358.54
57. 10/1/1999 46,481.99 583.37 1,335.56 81,022.98
58. 11/1/1999 47,055.90 573.91 1,345.02 79,677.96
59. 12/1/1999 7,386.92 47,620.29 564.39 79,677.96 .00
LAST PAYMENT 80,242.35
</TABLE>
EXHIBIT 10.10
STATE OF LOUISIANA:
PARISH OF CADDO:
THIS AGREEMENT, made and entered into by and between:
BRUCE GRAHAM ROBERTS, JENNIFER ANNE ROBERTS BEASON, ROBERT G. PUGH, as
Testamentary Executor of the Estate of Elizabeth Joyce Graham Roberts, and
ROBERT G. PUGH, Trustee of the J. I. Roberts Trust for the Children of
Bruce Graham Roberts Tax I.D. Number 72-6120595, ROBERT G. PUGH, Trustee of
the J. I. Roberts Trust for the Children of Barbara Joyce Roberts Carlton
Tax I.D. Number 72-6120591, ROBERT G. PUGH, Trustee of the J. I. Roberts
Trust for the Children of Jennifer Anne Roberts Beason Tax I.D. Number
72-6120592, all residents of Caddo Parish, Louisiana and BARBARA JOYCE
ROBERTS CARLTON, resident of Rapids Parish, Louisiana (LESSORS)
AND
UNITED WELLHEAD SERVICES, INC., a Texas Corporation, duly
authorized to do business in the State of Louisiana, acting by and
through its undersigned duly authorized officer, (hereinafter referred
to as "LESSEE").
WITNESSETH:
THAT LESSORS, for and in consideration of the covenants and agreements
hereinafter mentioned, have leased to LESSEE the following described property,
to wit:
1325 Fullerton
As recorded in Book 250, Page 38 at the Record of Caddo Parish,
Louisiana, November 18, 1974, located on Block C, Warfield Place, Lots
1, 2, 3, 4, 16, 15, 14, 13 adjacent to Northway Bend (Fullerton)
Uranus Avenue, Rapides Street at Block B, Northeast corner, Southeast
Quarter (SE/4) of Southwest Quarter (SE/4), Section 23, T, BNT.
TO HAVE AND TO HOLD the same unto LESSEE for a term of one (1) year,
commencing on the 1st day of January, 1997 and expiring at midnight o'clock on
the 31st day of December, 1997.
IN CONSIDERATION of said lease, the LESSORS and the LESSEE covenant and
agree as follows:
1.
LESSEE agrees to pay as rent for the leased property, twelve (12) monthly
installments of ONE THOUSAND ONE HUNDRED DOLLARS ($1,100.00), due and payable on
the first of each month, beginning the 1st of January, 1997.
2.
IF LESSEE shall fail to pay any rent when due, such unpaid amounts shall
bear interest at the maximum legal rate, or if no legal rate, at the rate of ten
percent (10%) per month from the due date until paid. Additionally, if LESSEE
shall fail to pay any rent when due LESSEE shall pay as additional rent, the sum
of TWENTY FIVE DOLLARS ($25.00) for each occurrence.
LESSEE shall pay the installments at Roberts Management, Post Office Box
7125, Shreveport, Louisiana, 71137-7125, or at such other place as the LESSOR
may designate by notifying the LESSEE in writing.
3.
LESSEE agrees and obligates itself to pay promptly for all water, sewerage,
gas, electricity and other utilities used on the leased property and agrees to
furnish its own janitor service.
4.
LESSEE represents that the leased property, the title thereto, the
sidewalks and structures adjoining the same, any subsurface conditions thereof,
and the present uses and nonuses thereof have been examined by LESSEE. No
representation, statement, or warranty, express or implied, has been made by or
on behalf of
1
<PAGE>
the LESSORS as to such condition, or as to the use that may be made of such
property. In no event shall the LESSORS be liable for any defect in such
property or for any limitations on its use.
5.
LESSEE agrees and obligates itself to make all ordinary repairs, to replace
all equipment that wears out, and to keep the leased property in good sanitary
condition by properly disposing of all papers and refuse. LESSORS agrees and
obligates themselves to maintain the roof and exterior of the building located
on the leased property. If, within ten days following occurrence LESSEE fails to
repair or replace any damage to the leased property caused by LESSEE, its
agents, employees or invitees, LESSORS may, at their option, cause all required
maintenance, repairs or replacements to be made. LESSEE shall promptly pay
LESSOR all costs incurred plus an administrative fee of 10 percent of such
costs.
6.
LESSORS shall not be held liable and LESSEE shall be held liable for any
damages caused by damage or injury to leased property, or to the building of
which same form a part, or to its fixtures, appurtenances or equipment, in any
way done by or resulting from the carelessness, negligence or improper conduct
of LESSEE or any of LESSEE'S servants, employees, agents, contractors or
invitees.
7.
If, during the period of this lease, the leased property is damaged by
fire, tornado, or windstorm, or any other cause which is not attributable to the
negligence of LESSEE or LESSEE'S agents, servants, employees, contractors,
customers, or invitees, LESSORS shall repair the same with reasonable diligence
and after notice of such damage, but such damage shall not be cause for
terminating this lease. In such event, a reasonable and equitable adjustment in
the rent shall be made.
In case the building of which the leased property forms a part be so
injured or destroyed (although the entire leased property may not be affected),
that LESSORS shall decide within a reasonable time not to rebuild or reconstruct
said building, then this lease shall terminate and the rent shall be apportioned
and paid up to the time of such injury or destruction.
8.
LESSEE agrees that it will comply with all lawful requirements of the
Health Board, Police and Fire Department, municipal, state and federal
authorities respecting the manner in which it uses the leased property.
9.
If the whole of the leased property, or such portion thereof as will make
the leased property unsuitable for the purposes herein leased shall be taken by
City, Parish, State or Federal Authorities or be condemned for any public
purpose or easement, then the term of this lease shall cease from the time when
possession of the part so taken shall be required for such public purpose and
the rent shall be paid up to that time, this provision being intended and
understood by the parties hereto as a conditional limitation of the term hereby
granted; the LESSEE shall not claim or be entitled to any award or any part of
any award made for damages for so taking as aforesaid the whole part of the
premises hereby leased.
10.
LESSEE covenants and agrees to indemnify and save harmless the LESSORS
against any and all claims arising from the conduct or management of or from any
work or thing whatsoever done in, on or immediately adjacent to the leased
property or any building or structure thereon or the equipment thereof during
the term, or arising during said term, from any act of negligence of the LESSEE
or any of its agents, contractors or employees, or arising from any accident,
injury or damages whatsoever, however caused, to any person or persons, or to
the property of any person, persons, corporation or corporations, occurring
during said term on, or about the leased property and from and against all
costs, counsel fees, expenses and liabilities incurred in, about or concerning
any such claim or any action or proceeding. Should any action or proceeding be
brought against the LESSORS by reason of any such claim, the LESSEE, on notice
from the LESSORS, shall resist or defend such action or proceeding, by counsel
satisfactory to the LESSORS.
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11.
LESSEE shall maintain at LESSEE'S expense:
(a) Comprehensive public liability insurance on an occurrence basis
with respect to LESSEE'S business and occupancy of the leased property for
any one occurrence or claim of not less than One Million Dollars
($1,000,000) or such other amount as LESSOR may reasonably require in
writing from time to time.
(b) Insurance against such other perils and in such amounts as LESSORS
may from time to time reasonably require in writing. Such request shall be
made on the basis that the insurance coverage requested is customary at the
time for prudent tenants.
(c) All policies of insurance maintained by LESSEE shall be in a form
acceptable to LESSORS, issued by an insurer licensed to do business in the
state of province in which the leased property is situated and require at
least 15 days written notice to LESSORS of termination or material
alteration. If requested by LESSORS, LESSEE shall promptly deliver to
LESSORS certified copies or other evidence of such policies and evidence
satisfactory to LESSORS that all premiums have been paid and policies are
in effect. The policies shall provide that the interests of LESSORS and its
mortgagee, if any, shall not be invalidated because of any breach or
violation of any warranties, representations, declarations or conditions
contained in the policies.
(d) If LESSEE fails to secure or maintain any insurance coverage
required by LESSORS or should insurance secured not be approved by LESSORS
and such failure or approval not be corrected within forty eight (48) hours
after written notice from LESSORS, LESSORS may, without obligation to,
purchase such insurance coverage required at LESSEE'S expense. LESSEE shall
promptly reimburse LESSORS for any Monies expended.
12.
LESSEE agrees and covenants that the LESSORS or their agents at all
reasonable times and during all reasonable hours shall have free access to
said leased property, and through any building or structure that may at any
time be thereon, or any part thereof, for the purpose of examining or
inspecting the conditions of the same or of exercising any right or power
reserved to the LESSORS under the terms of this lease. LESSORS, their
agents and employees shall have the right to enter the leased property at
reasonable hours to make inspections, alterations, or repairs to the leased
property. In event of emergency LESSORS, their agents or employees shall
have the right of entry at any time and may perform any acts related to
safety, protection, preservation or improvement of the leased property.
Except for repair of casualty damage, LESSEE shall not be entitled to any
abatement or reduction of rent because of work performed within the leased
property by LESSORS.
13.
LESSEE shall permit an inspection of the leased property by or on
behalf of prospective purchasers during business hours at any time during
the lease term. During the six months preceding the expiration of this
lease, LESSEE shall permit inspection of the leased property during such
hours by or on behalf of prospective tenants.
14.
LESSEE agrees to use the leased property for Sale and service of
wellhead equipment, and that the leased premises shall be used for no other
purpose without the written consent of the LESSORS. LESSEE shall not (a)
overload, damage or obstruct any utility lines providing services to the
leased property, (b) install any fixture or equipment which will overload
the floors in the leased property or in any way affect the structural
capacity or design of the leased property, or install or affix any window
coverings, window shades, draperies or material between the glass on the
exterior walls of the leased property except standard window covers, window
shades or draperies.
3
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15.
LESSEE agrees that all fuel, cleaning solvents, and flammable material
stored on the leased property shall be maintained in a reasonably safe
condition and LESSEE shall comply with all applicable federal, state, and
local statutes and regulations concerning the storage and use of such
material. In the event that LESSEE's storage or use of such material,
and/or any other usage by LESSEE of the leased property, results in an
increase in the insurance rate owed by LESSOR on the leased property, or on
adjoining property owned by LESSORS, LESSEE shall pay to LESSORS annually
an amount equal to the increased insurance rate caused by LESSEE's use of
the leased property.
16.
LESSEE, at its expense, may make changes, additions and improvements
to the leased property provided any change, addition, or improvement shall:
(a) be made only with prior written consent of LESSORS and;
(b) comply with all governmental requirements and;
(c) equal or exceed the current construction standard for the leased
property, and;
(d) be performed by a licensed contractor first approved by and in
accordance with regulations set forth by LESSORS and, who, if requested,
will prior to commencing work, deliver to LESSOR evidence of insurance
coverage in amount and form satisfactory to LESSORS.
All work performed shall be done in such a manner as to not disturb or
disrupt the operation of the leased property or of any other tenants
situated in the leased property. Following completion of any changes or
additions or improvements, LESSEE shall furnish LESSORS with current
"as-built" drawings and specifications for the leased property reflecting
such changes, additions or improvements made to the leased property. Any
increase in real estate taxes or insurance premiums on the leased property
attributable to such change, addition or improvement shall be paid by
LESSEE.
17.
LESSEE shall not cause liens of any kind to be filed or placed against
any part of the leased property. If any liens are filed, with or without
LESSEE'S knowledge, and such liens are the result of any act, directive or
action of LESSEE, its agent or employees, LESSEE shall immediately, at
LESSEE'S sole cost and expense, take whatever action necessary to cause
such lien to be satisfied and discharged.
18.
LESSEE shall not display, inscribe, paint or affix any sign, picture,
advertisement or notice visible from anywhere outside the leased property
without Landlord's prior written consent. If consented to by LESSOR any
such sign shall be painted by a sign painter approved by LESSORS and shall
be maintained by LESSEE during LESSEE'S occupancy of the leased property.
All costs for production, installation, maintenance and removal shall be
LESSEE'S responsibility. All such approved signs shall be removed by LESSEE
upon vacating the leased property and any damage caused by such removal
shall be immediately repaired.
19.
Upon default or upon expiration of this lease term, LESSEE agrees to
surrender and deliver up the leased property in as good order and condition
as when the lease term began, reasonable use and natural wear and tear
excepted. All keys which LESSEE has been furnished for any locks within the
leased property shall be delivered to LESSORS. Upon surrender, all right,
title and interest of LESSEE in the leased property shall cease.
4
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20.
If the leased property shall be deserted or vacated, or if proceedings
are commenced against the LESSEE in any court under a bankruptcy act or for
the appointment of a trustee or receiver of the LESSEE'S property either
before or after the commencement of the lease term, or if there shall be a
default in the payment of rent or any part thereof for more than five days
after written notice of such default by the LESSORS or if there shall be
default in the performance of any other covenant, agreement, condition,
rule or regulation herein contained or hereafter established on the part of
the LESSEE for more than five (5) days after written notice of such default
by the LESSORS this lease (if the LESSORS so elects) shall thereupon become
null and void, and the LESSORS shall have the right to reenter or repossess
the leased property, either by force, summary proceedings, surrender, or
otherwise, and dispossess and remove therefrom the LESSEE, or other
occupants thereof, and their effects, without being liable to any
prosecution therefor. In such case, the LESSORS may, at its option, relet
the leased property or any part thereof, as the agent of the LESSEE, and
the LESSEE shall pay the LESSORS the difference between the rent received
from such reletting and the rent due hereunder. The LESSEE hereby expressly
waives the service of notice of intention to reenter or of instituting
legal proceedings to that end. The LESSEE shall pay and indemnify the
LESSORS against all legal costs and charges, including counsel fees
lawfully and reasonably incurred, in obtaining possession of the leased
property after a default of the LESSEE or after the LESSEE'S default in
surrendering possession upon the expiration or earlier termination of the
term of the lease or enforcing any covenant of the LESSEE herein contained.
21.
THIS LEASE shall be binding on and shall inure to the benefit of all
of the parties hereto and their successors, heirs, assignees and legal
representatives to each and all of the provisions hereto, but shall not be
assigned or sublet by LESSEE without the written consent of the LESSORS.
Any transfer of the LESSEE by merger, consolidation or liquidation, or any
change in the ownership of or power to vote the majority of its outstanding
voting stock, shall constitute an assignment. Unless LESSEE'S is listed on
a recognized security exchange or if less than eighty percent (80%) of its
stock is owned by a corporation whose stock is listed on a recognized
security exchange, an assignment forbidden under this lease shall include
one or more sales or transfers, by operation of law or otherwise, or
creation of new stock, by which an aggregate of more than fifty percent
(50%) of LESSEE'S stock shall be vested in a party or parties who are
non-stockholders as of the commencement date of the lease.
22.
In the event LESSORS transfer their interest in the Building, LESSORS
shall thereby be released from any further obligation hereunder, and LESSEE
agrees to look solely to the successor in interest of the LESSORS for the
performance of such obligations.
23.
The failure of the LESSORS to insist upon a strict performance of any
term or condition of this lease shall not be deemed a waiver of any right
or remedy that the LESSORS may have, and shall not be deemed a waiver of
any subsequent breach of such term or condition.
24.
Any notices required under this agreement shall be sent to the following
addresses until notification of a new address is provided in writing to the
other party:
LESSOR: BRUCE GRAHAM ROBERTS, JENNIFER ANNE ROBERTS BEASON, ROBERT G.
PUGH, as Testamentary Executor of the Estate of Elizabeth Joyce
Graham Roberts and ROBERT G. PUGH, Trustee of the J.I. Roberts
Trust for the Children of Bruce Graham Roberts Tax I.D. Number
72-6120595, ROBERT G. PUGH, Trustee of the J.I. Roberts Trust for
the Children of Barbara Joyce Roberts Carlton Tax I.D. Number
72-6120591,
5
<PAGE>
ROBERT G. PUGH, Trustee of the J.I. Roberts Trust for the Children
of Jennifer Anne Roberts Beason Tax I.D. Number 72-6120592, and
BARBARA JOYCE ROBERTS CARLTON, P.O. Box 7125 Shreveport, LA
71137-7125
LESSEE: United Wellhead Services, Incorporated
Alvin H. Dueitt, President
639 County Road 48
Robstown, Texas 78380
25.
It is understood and agreed between the parties hereto that in the event ad
valorem and/or property taxes on the leased premises are increased above the ad
valorem and/or property taxes on the said property on the calendar year of 1995,
such increase in the amount of ad valorem and/or property taxes will be assumed
by the LESSEE as additional rent and shall be paid by the LESSEE within 60 days
following the furnishings of proper documentation attesting said increase to the
LESSEE by the LESSORS.
26.
Tenant has deposited with Landlord the sum of $1,100.00 as security for the
faithful performance and observance by Tenant of the terms, provisions, and
conditions of this lease. It is agreed that in the event Tenant defaults in
respect of any of the terms, provisions, and conditions of this lease,
including, but not limited to, the payment of rent and additional rent, Landlord
may use, apply, or retain the whole or any part of the security so deposited to
the extent required for the payment of any rent and additional rent or any other
sum as to which Tenant is in default or for any sum which Landlord may expend or
may be required to expend by reason of Tenant's default in respect of any of the
terms, covenants, and conditions of this lease, including but not limited to,
any damages or deficiency in the reletting of the premises, whether such damages
or deficiency accrued before or after summary proceedings or other reentry by
Landlord.
In the event that Tenant shall fully and faithfully comply with all of the
terms, provisions, covenants, and conditions of this lease, the security shall
be returned to Tenant after the date fixed as the end of the lease and after
delivery of entire possession of the demised premises to Landlord.
In the event of a sale of the land and building or leasing of the building
of which the demised premises form a part, Landlord shall have the right to
transfer the security to the vendee or lessee and Landlord shall thereupon be
released by Tenant from all liability for the return of such security; and
Tenant agrees to look to the new Landlord solely for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord.
6
<PAGE>
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber the moneys desposited herein as security, and that neither
Landlord or its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
27.
LESSORS and LESSEE agree that either party to this may, by giving written
notice to the other at the addresses mentioned herein, terminate this lease on
date herein set as end of term, but in the event that either party does not give
such required notice to the other in time, then this lease shall be as a
month-to-month tenant. During such month-to-month tenancy, rent shall be payable
at a monthly rental equal to 150% of the rent due for the last full month of the
term of this lease unless otherwise agreed to in writing. During such
month-to-month tenancy the party desiring to put an end to it must give notice
in writing to the other at least thirty (30) days before the end of the month
which has begun to run. Otherwise, rent shall by due for the next month.
28.
This lease shall be deemed effective as of the 1st day of January, 1997.
WITNESS WHEREOF the parties hereto have executed this agreement on this the 12th
day of December, 1996.
WITNESSES:
/s/ ILLEGIBLE By: /s/ BRUCE GRAHAM ROBERTS 12/12/96
/s/ ILLEGIBLE Bruce Graham Roberts Date
/s/ ILLEGIBLE By: /s/ JENNIFER A. ROBERTS BEASON 12/12/96
/s/ ILLEGIBLE Jennifer A. Roberts Beason Date
/s/ ILLEGIBLE By: /s/ BARBARA JOYCE ROBERTS CARLTON 12/12/96
/s/ ILLEGIBLE Barbara Joyce Roberts Carlton Date
/s/ ILLEGIBLE By: /s/ ROBERT G. PUGH 12/12/96
/s/ ILLEGIBLE Robert G. Pugh, Testamentary Executor of the Date
Estate of Elizabeth Joyce Graham Roberts
/s/ ILLEGIBLE By: /s/ ROBERT G. PUGH 12/12/96
/s/ ILLEGIBLE Robert G. Pugh, Trustee of the J. I. Roberts Date
Trust for the Children of Bruce Graham Roberts
Tax I.D. Number 72-6120595
<PAGE>
/s/ ILLEGIBLE By: /s/ ROBERT G. PUGH 12/12/96
/s/ ILLEGIBLE Robert G. Pugh, Trustee of the J. I. Roberts Date
Trust for the Children of Barbara Joyce Roberts
Carlton Tax I.D. Number 72-6120591
/s/ ILLEGIBLE By: /s/ ROBERT G. PUGH 12/12/96
/s/ ILLEGIBLE Robert G. Pugh, Trustee of the J. I. Roberts Date
Trust for the Children of Jennifer Anne Roberts
Beason Tax I.D. Number 72-6120592
"LESSEE"
United Wellhead Services, Inc.
/s/ ILLEGIBLE By: /s/ AL DUEITT 11-18-96
/s/ ILLEGIBLE Al Dueitt, President, Date
United Wellhead Services, Inc.
EXHIBIT 10.11
TAR TEXAS ASSOCIATION OF REALTORS(R)
COMMERCIAL LEASE
This lease agreement is made and entered into by and between Tom Jackson
(Landlord) and Hi-Tech Compressor Company, L.C. (Tenant). Landlord hereby
Leases to Tenant and Tenant hereby leases from Landlord that certain property
with the improvements thereon, containing approximately 24,645 square feet,
hereinafter called the "leased premises", known as County Road 1260 South LEGAL:
a 3.00 acre tract of land located in Section 10, Block 40, T&P RR Co. Survey
Addition, City of N/A, Midland County, Texas; or as more particularly described
below or on attached exhibit:
The primary term of this lease shall be 36 months commencing on the 1st day
of April, 1994, and ending on the 31st day of March, 1997, upon the following
terms, conditions, and covenants: see attached Exhibit "B".
1. TAXES. Each year during the term of this lease, Landlord shall pay real
estate taxes assessed against the leased premises.
2. UTILITIES. Tenant shall pay all charges for utility services to the leased
premises except for N/A which shall be paid by the Landlord.
4. RENT. Tenant agrees to and shall pay Landlord at 4504 Greentree Blvd.,
Midland, TX 79707, County of Midland, Texas, or at such other place
Landlord shall designate from time to time in writing, as rent for the
leased premises, the total sum of $135,000.00, payable without demand in
equal monthly payments of $3,750.00 each in advance on or before the 1st
day of each month, commencing on April, 1994, and continuing thereafter
until the total sum shall be paid. Adjustment to the rent, if any, for
rent escalators, for percentage of net rent, or for increases in building
operation costs (including but not limited to insurance, custodial
services, maintenance and utilities) shall be as set forth in an attached
addendum. Rent received after the first day of the month shall be deemed
delinquent. If rent is not received by Landlord by the 5th of each month,
Tenant shall pay a late charge of $25.00 plus a penalty of $10.00 per day
until rent is received in full. Tenant shall pay $35.00 for each returned
check.
5. USE. Tenant shall use the leased premises for the following purpose and no
other: manufacturing.
6. SECURITY DEPOSIT. Tenant shall pay to Landlord a security deposit in the
sum of $ N/A, payable on or before the commencement of this lease for
Tenant's faithful performance hereunder. Refund thereof shall be made upon
performance of this lease agreement by Tenant, minus any assessments or
damages unless Landlord and Tenant provide otherwise in Special Provisions.
7. INSURANCE. Landlord shall pay for fire and extended coverage insurance on
the buildings and other improvements on the leased premises in an amount
not less than $250,000.00, which amount shall be increased yearly in
proportion to the increase in market value of the premises. If Landlord
provides any insurance herein, Tenant shall pay to Landlord, during the
term hereof, the amount of any increase in premiums for the insurance
required over and above such premiums paid during the first year of this
lease. Tenant shall provide public liability and property damage insurance
for its business operations on the leased premises in the amount of
$500,000/300,000 which policy shall cover the Landlord as well as the
Tenant. Said insurance policies required to be provided by Tenant herein
shall name Landlord as an insured and shall be issued by an insurance
company approved by Landlord. Tenant shall provide Landlord with
certificates of insurance evidencing the coverage required herein. Tenant
shall be solely responsible for fire and casualty insurance on Tenant's
property on or about the leased premises. If Tenant does not maintain such
insurance in full force and effect, Landlord may notify Tenant of such
failure and if Tenant does not deliver to Landlord within 15 days after
such notice certification showing all such insurance to be in full force
and effect, Landlord may at his option, take out the necessary insurance to
comply with the provision hereof and pay the premiums on the items
specified in such notice, and Tenant covenants thereupon on demand to
reimburse and pay Landlord any amount so paid or expended in the payment of
the insurance premiums required hereby and specified in the notice, with
interest thereon at the rate of 13 percent per annum from the date of such
payment by Landlord until repaid by Tenant.
8. CONDITION OF PREMISES. Tenant has examined and accepts the leased premises
in its present as is condition as suitable for the purposes for which the
same are leased, and does hereby accept the leased premises regardless of
reasonable deterioration between the date of this lease and the date Tenant
begins occupying the leased premises unless Landlord and Tenant agree to
repairs or refurbishment as noted in Special Provisions. See Exhibit "B".
9. MAINTENANCE AND REPAIRS. Landlord shall keep the foundation, the exterior
walls (except glass; windows; doors; HVAC, door closure devices; window and
door frames, molding, locks, and hardware; and interior painting or other
treatment of exterior walls), and the roof of the leased premises in good
repair except that Landlord shall not be required to make any repairs
occasioned by the act or negligence of Tenant, its employees, subtenants,
licensees and concessionaires. Tenant is responsible for maintenance of
the common area and common area equipment. If Landlord is responsible for
any such repair and maintenance, Tenant agrees to give Landlord written
notice of needed repairs. Landlord shall make such repairs within a
reasonable time. Tenant shall notify Landlord immediately of any emergency
repairs. Tenant shall keep the leased premises in good, clean condition
and shall at its sole cost and expense, make all needed repairs and
replacements, including replacement of cracked or broken glass, except for
repairs and replacements required to be made by Landlord under this
section. If any repairs required to be made by Tenant hereunder are not
made within ten (10) days after written notice delivered to Tenant by
Landlord, Landlord may at its option make
<PAGE>
such repairs without liability to Tenant for any loss or damage which may
result by reason of such repairs, and Tenant shall pay to Landlord upon
demand as additional rent hereunder the cost of such repairs plus interest.
At the termination of this lease, Tenant shall deliver the leased premises
in good order and condition, reasonable wear and tear excepted.
10. ALTERATIONS. All alterations, additions and improvements, except trade
fixtures, installed at expense of Tenant, shall become the property of
Landlord and shall remain upon and be surrendered with the leased premises
as a part thereof on the termination of this lease. Such alterations,
additions, and improvements may only be made with the prior written consent
of Landlord, which consent shall not be unreasonably withheld. If consent
is granted for the making of improvements or alterations to the leased
premises, such improvements and alterations shall not commence until Tenant
has furnished to Landlord a certificate of insurance showing coverage in an
amount satisfactory to Landlord protecting Landlord from liability for
injury to any person and damage to any personal property, on or off the
leased premises, in connection with the making of such improvements or
alterations. No cooling tower, equipment, or structure of any kind shall be
placed on the roof or elsewhere on the leased premises by Tenant without
prior written permission of Landlord. If such permission is granted, such
work or installation shall be done at Tenant's expense and in such a manner
that the roof shall not be damaged thereby. If it becomes necessary to
remove such cooling tower, equipment or structure temporarily, so that
repairs to the roof can be made. Tenant shall promptly remove and reinstall
the cooling tower, equipment or structure at Tenant's expense and repair at
Tenant's expense any damage resulting from such removal or reinstallation.
Upon termination of this lease, Tenant shall remove or cause to be removed
from the roof any such cooling tower, equipment or structure if directed to
do so by Landlord. Tenant shall promptly repair at its expense any damages
resulting from such removal. At the termination of this lease, Tenant shall
deliver the leased premises in good order and condition, natural
deterioration only excepted. Any damage caused by the installation or
removal of trade fixtures shall be repaired at Tenant's expense prior to
the expiration of the lease term. All alterations, improvements, additions,
and repairs made by Tenant shall be made in good and workmanlike manner.
11. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant shall, at its own expense,
comply with all laws, orders, and requirements of all governmental entities
with reference to the use and occupancy of the leased premises. Tenant and
Tenant's agents, employees and invitees shall fully comply with any rules
and regulations governing the use of the buildings or other improvements to
the leased premises as required by Landlord. Landlord may make reasonable
changes in such rules and regulations from time to time as deemed advisable
for the safety, care and cleanliness of the leased premises, provided same
are in writing and are not in conflict with this lease.
12. SEE EXHIBIT "B" paragraph 4.
13. DESTRUCTION. In the event the leased premises is partially damaged or
destroyed or rendered partially unfit for occupancy by fire or other
casualty, Tenant shall give immediate notice to Landlord. Landlord may
repair the damage and restore the leased premises to substantially the same
condition as immediately prior to the occurrence of the casualty. Such
repairs shall be made at Landlord's expense unless due to Tenant's
negligence. Landlord shall allow Tenant a fair reduction of rent during the
time the leased premises are partially unfit for occupancy. If the leased
premises are totally destroyed or deemed by the Landlord to be rendered
unfit for occupancy by fire or other casualty, or if Landlord shall decide
not to repair or rebuild, this lease shall terminate and the rent shall be
paid to the time of such casualty.
14. TENANT DEFAULT. If Tenant abandons the premises or otherwise defaults in
the performance of any obligations or covenants herein, Landlord may
enforce the performance of this lease in any manner provided by law. This
lease may be terminated at Landlord's discretion if such abandonment or
default continues for a period of 10 days after Landlord notifies Tenant of
such abandonment or default and of Landlord's intention to declare this
lease terminated. Such notice shall be sent by Landlord to Tenant at the
leased premises by certified mail or otherwise. If Tenant has not
completely removed or cured default within the 10 day period, this lease
shall terminate. Thereafter, Landlord or its agents shall have the right,
without further notice or demand, to enter the leased premises and remove
all persons and property without being deemed guilty of trespass and
without waiving any other remedies for arrears of rent or breach of
covenant. Upon abandonment or default by the Tenant, the remaining unpaid
portion of the rental from paragraph 4 herein, shall become due and
payable.
15.
16. SUBORDINATION. Landlord is hereby irrevocably vested with full power and
authority to subordinate this lease to any mortgage, deed of Trust, or
other lien hereafter placed on the demised premised and Tenant agrees on
demand to execute such further instruments subordinating this lease as
Landlord may request, provided such subordination shall be on the express
condition that this lease shall be recognized by the mortgagee, and the
rights of Tenant shall remain in full force and effect during the term of
this lease so long as Tenant shall continue to perform all of the covenants
and conditions of this lease.
17. INDEMNITY. Landlord and its employees and agents shall not be liable to
Tenant or to Tenant's employees, patrons, visitors, invitees, or any other
persons for any injury to any such persons or for any damage to personal
property caused by an act, omission, or neglect of Tenant or Tenant's
agents or of any other tenant of the premises of which the leased premises
is a part. Tenant agrees to indemnify and hold Landlord and its employees
and agents harmless from any and all claims for such injury and damages,
whether the injury occurs on or off the leased premises.
18. SEE EXHIBIT "B" paragraph 5.
19. TENANT BANKRUPTCY. If Tenant becomes bankrupt or makes voluntary
assignment for the benefit of creditors or if a receiver is appointed for
Tenant, Landlord may terminate this lease by giving five (5) days written
notice to Tenant of Landlord's intention to do so.
20. CONDEMNATION. If the whole or any substantial part of the leased premises
is taken for any public or quasi-public use under any governmental law,
ordinance or regulation or by right of eminent domain or should the leased
premises be sold to a condemning authority under threat of condemnation,
this lease shall terminate and the rent shall be abated during the
unexpired portion of the lease effective from the date of the physical
taking of the leased premises.
21. BROKER'S FEE. Commercial Properties of Texas, as Real Estate Broker
(the Broker), has negotiated this lease and Landlord agrees to pay Broker
in Midland County, Texas, upon commencement of this lease, a negotiated fee
of $______ or 3% of the total rental provided for in this lease to be
divided as follows: N/A. In the event this lease is extended, expanded or
renewed, Landlord agrees to pay Broker an additional negotiated fee of $N/A
or N/A% of the total rental for such extension, expansion or renewal
period, payable at the time of commencement of such extension, expansion or
renewal, said fee to be divided as follows: N/A. Tenant warrants that it
has had no dealings with any real estate broker or agents in connection
with the negotiation of this lease excepting only Commercial Properties TX
and it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease. If Tenant during the term of
this Lease, or any
<PAGE>
extension, expansion or renewal period thereof, or within N/A days of the
expiration of this Lease, or any extension, expansion or renewal period
thereof, purchases the property herein leased, Landlord agrees to pay
Broker, N/A in N/A County, Texas, a negotiated fee of $N/A or N/A% of the
sales price upon closing of the sale of this property.
22. NOTICES. Notices to Tenant shall be by certified mail or other delivery to
the leased premises. Notices to Landlord shall be by certified mail to the
place where rent is payable.
23. DEFAULT BY LANDLORD. In the event of breach by Landlord of any covenant,
warranty, term or obligation of this lease, then Landlord's failure to cure
same or commence a good faith effort to cure same within 10 days after
written notice thereof by Tenant shall be considered a default and shall
entitle Tenant either to terminate this lease or cure the default and make
the necessary repairs and any expense incurred by Tenant shall be
reimbursed by the Landlord after reasonable notice of the repairs and
expenses incurred. If any utility services furnished by Landlord are
interrupted and continue to be interrupted despite the good faith efforts
of Landlord to remedy same, Landlord shall not be liable in any respect for
damages to the person or property of Tenant or Tenant's employees, agents,
or guests, and same shall not be construed as grounds for constructive
eviction or abatement of rent. Landlord shall use reasonable diligence to
repair and remedy such interruption promptly.
24. SIGNS. During the last 30 days of this lease, a "For Sale" sign and/or a
"For Lease" sign may be displayed on the leased premises and the leased
premises may be shown at reasonable times to prospective purchasers or
tenants.
25. RIGHT OF ENTRY. Landlord shall have the right during normal business hours
to enter the demised premises; a) to inspect the general condition and
state of repair thereof, b) to make repairs required or permitted under
this lease, or c) for any other reasonable purpose.
26. WAIVER OF BREACH. The waiver by Landlord of any breach of any provision of
this lease shall not constitute a continuing waiver or a waiver of any
subsequent breach of the same or a different provision of this lease.
27. TIME OF ESSENCE. Time is expressly declared to be of the essence in this
lease.
28. BINDING OF HEIRS AND ASSIGNS. Subject to the provisions of this lease
pertaining to assignment of the Tenant's interest, all provisions of this
lease shall extend to and bind, or inure to the benefit not only of the
parties to this lease but to each and every one of the heirs, executors,
representatives, successors, and assigns of Landlord or Tenant.
29. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies by this lease
agreement are cumulative and the use of any one right or remedy by either
party shall not preclude or waive its right to use any or all other
remedies. Said rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance, or otherwise.
30. TEXAS LAW TO APPLY. This agreement shall be construed under and in
accordance with the laws of the State of Texas.
31. LEGAL CONSTRUCTION. In case any one or more of the provisions contained in
this agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof and this
agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
32. PRIOR AGREEMENTS SUPERCEDED. This agreement constitutes the sole and only
agreement of the parties to this lease and supersedes any prior
understandings or written or oral agreements between the parties respecting
the subject matter of this lease.
33. AMENDMENT. No amendment, modification, or alteration of the terms hereof
shall be binding unless it is in writing, dated subsequent to the date
hereof, and duly executed by the parties.
34. ATTORNEY'S FEES. Any signatory to this lease agreement who is the
prevailing party in any legal proceeding against any other signatory
brought under or with relation to this lease agreement or this transaction
shall be additionally entitled to recover court costs, reasonable attorney
fees, and all other out-of-pocket costs of litigation, including
deposition, travel and witness costs, from the nonprevailing party.
35. SPECIAL PROVISIONS. (This section to include additional factual data not
included above.) Exhibits "A" and "B" are a part of this lease agreement.
EXECUTED this 2nd day of March, 1994.
TENANT or TENANTS LANDLORD
HI-TECH COMPRESSOR COMPANY, L.C. /s/TOM JACKSON
/s/WALLACE SPARKMAN
Wallace Sparkman, Vice President
REAL ESTATE BROKER REAL ESTATE BROKER
Commercial Properties of TX 325147 ________________________
LICENSE NO. LICENSE NO.
By: Jerry Don Daniels By: ___________________
(Note: This form has been prepared by Babb & Hanna, P.C., attorneys for
the Texas Association of REALTORS (TAR). Babb & Hanna, P.C. has approved
this form for use by TAR member brokers and salespersons for the purpose of
leasing improved commercial real property for business purposes. This form
has not been drafted for a specific transaction, therefore, the parties are
advised to consult an attorney of their choice before signing.)
<PAGE>
EXHIBIT "A"
to
Commercial Lease between Hi-Tech Compressor Company, Tenant
and Tom Jackson, Landlord
Tenant will remain in compliance with all state and federal environmental laws
and regulations and Tenant will not place nor permit to be placed, nor generate,
store or dispose of any hazardous waste, toxic substance, asbestos or related
materials ("Hazardous Materials") on the leased premises in violation of
applicable state and federal environmental laws. For the purposes of this lease,
Hazardous Materials shall include, but shall not be limited to, substances
defined as "hazardous substances" or "toxic substances" in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, 424
U.S.C. ss.9601, et seq., Hazardous Materials Transportation Act, 49 U.S.C. ss.
1802, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901, et seq., or as "hazardous substances," "hazardous waste" or "pollutant or
contaminant" in any other applicable federal, state or local environmental law
or regulation. To the knowledge of Landlord, the leased premises have never been
used for the treatment, storage, recycling, or disposal of any Hazardous
Materials, or to the extent that such use has occurred, such past use was not in
violation of any applicable environmental law or regulation then or now in
existence.
In the event Tenant should discover any Hazardous Materials on the leased
premises which could result in a breach of the foregoing covenant, Tenant shall
notify Landlord within three (3) days after such discovery. Tenant shall
dispose of all material amounts of Hazardous Materials generated by the Tenant
only at facilities and/or with carriers that maintain valid governmental permits
under the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901. In the
event of any notice or filing of any complaint or commencement of any
administrative hearing or procedure against the Tenant alleging a violation of
an environmental law or regulation, Tenant shall give notice to Landlord within
five (5) days after Tenant has received notice of such notice or filing.
Breach of this covenant by Tenant shall, at the Landlord's option,
constitute a default hereunder, and shall entitle Landlord to terminate the
lease, to accelerate the rental due hereunder, and collect from Tenant damages
and expenses incurred by Landlord by reason of Tenant's breach of this covenant.
HI-TECH COMPRESSOR COMPANY, L.C. _______________________
/s/WALLACE SPARKMAN, Tenant /s/TOM JACKSON, Landlord
Wallace Sparkman, Vice President
________________________________ ________________________
__________________, Tenant ______________, Landlord
<PAGE>
EXHIBIT "B"
To the lease agreement between Tom Jackson "Landlord"
and Hi-Tech Compressor Company "Tenant".
1. Tenant to pay to landlord upon consummation of lease agreement, first and
lasts months rent.
2. Landlord shall complete offices on the first floor of the north office
building (approximately 2,500 s.f.) and bring utilities i.e. electrical, water
and sewage up to the second floor in order for tenant to complete office build
out. Any changes made to the buildings interior or exterior by tenant must be
approved by Landlord. Landlord to repair overhead doors to working condition,
paint exterior metal trim using paint furnished by tenant and also finish out
offices in the south building and using tile flooring in areas as agreed by both
tenant and landlord.
3. Tenant shall build offices as needed and at their expense on the second floor
of the north office building. Tenant shall also install sodium vapor lighting
in the south shop areas as needed by tenant.
4. Tenant shall have the right to sublet the leased premises, with Landlord
approval, not to be unreasonbly withheld.
5. Tenant shall be able to place signage on or about the leased premises but
shall be responsible for removing such signage and returning the area back to
its original state.
6. Tenant shall have two 3 year lease renewal options at the end of each lease
term with the new lease amount being based upon the combined inflation rate
(Consumer Price Index for all urban consumers, U.S. City Average-All Items, as
indexed by the Bureau of Labor Statistics or any legitimate successor) of the
previous 3 year period. Tenant must give a 30 day written notice to Landlord of
their renewal intentions. Tenant shall also have an option to purchase at the
end of each lease term at a then current market value and not less than
$250,000. Market value to be determined by a local M.A.I. Appraiser.
7. Brokerage Fee of 3 percent of the gross lease amount to be paid in full by
Landlord upon consummation of lease agreement.
8. Tenant shall have access to property rent free, beginning March 1, 1994 to
move in and install equipment and make building ready for occupancy.
INITIALS W.S. / T.J.
<PAGE>
LEASE EXTENSION AGREEMENT
FOR THE LEASE DATED
MARCH 2, 1994
BETWEEN
TOM JACKSON (LANDLORD)
AND
HI-TECH COMPRESSOR COMPANY, L.C. (TENANT)
FOR THE PROPERTY LOCATED AT
COUNTY RD. 1260 SOUTH
MIDLAND, TEXAS
Pursuant to Item #6 on Exhibit "B" of the lease dated March 2, 1994,
Tenant desires to exercise Tenant's option to renew the above lease, and
Landlord agrees to lease to Tenant for a period of three (3) years, beginning
April 1, 1997 and ending on March 31, 2000. In accordance with this option to
renew, the base rental shall be adjusted according to changes in the Consumer
Price Index resulting in a base monthly rental of $4,053.00 per month for the
three year extension period. All other terms and conditions (except those
provisions that pertain to the initial construction of the Property) of the
lease shall remain the same.
/s/ TOM JACKSON /s/ HI-TECH COMPRESSOR COMPANY, L.C.
Landlord Tenant
Tom Jackson Hi-Tech Compressor Company, L.C.
By: /s/ WALLACE SPARKMAN
4/10/97 6/5/97
Date Date
<PAGE>
CALCULATION OF RENT
FOR THE EXTENSION PERIOD
Consumer Price Index - March 1994 147.2
Consumer Price Index - January 1997 159.1
Increase in CPI 11.9
-----
PERCENTAGE INCREASE IN CPI 11.9/147.2 = 8.084%
RENT ADJUSTMENT $3,750.00 X 1.08084 = $4,053.00
UNITED OILFIELD SERVICES, INC. EXHIBIT 10.12
INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE OF THIS PLAN
The purposes of the United Oilfield Services, Inc. Incentive Compensation
Plan are to (i) promote the interests of United Oilfield Services, Inc., a Texas
corporation (the "COMPANY") and its shareholders by enabling the Company and
each of its Subsidiaries (as hereinafter defined) to (A) attract, motivate and
retain their respective employees and non-employee Directors (as hereinafter
defined) by offering such employees and non-employee Directors performance-based
stock incentives and other equity interests in the Company and other incentive
awards and (B) compensate Consultants (as hereinafter defined) by offering such
Consultants performance-based stock incentives and other equity interests in the
Company and other incentive awards that recognize the creation of value for the
shareholders of the Company and (ii) promote the Company's long-term growth and
success. To achieve these purposes, eligible Persons may receive Stock Options,
Stock Appreciation Rights, Restricted Stock, Performance Awards, Dividend
Equivalent Rights and any other Awards (as such terms are hereinafter defined),
or any combination thereof.
SECTION 2. DEFINITIONS
As used in this Plan, the following terms shall have the meanings set
forth below unless the context otherwise requires:
2.1 "AWARD" shall mean the grant of a Stock Option, a Stock
Appreciation Right, Restricted Stock, a Performance Award, a Dividend
Equivalent Right or any other grant of incentive compensation pursuant to
this Plan.
2.2 "AWARD PERIOD" shall have the meaning set forth in SUBSECTION
17.2 of this Plan.
2.3 "BOOK VALUE" shall mean the excess of the value of the assets of
an entity over the liabilities of such entity (determined in accordance
with United States generally accepted accounting principles, consistently
applied).
2.4 "BOARD" shall mean the Board of Directors of the Company, as the
same may be constituted from time to time.
2.5 "CAUSE" shall mean termination of a Participant's employment
with the Company or a Subsidiary upon the occurrence of one or more of the
following events:
(a) The Participant's failure to substantially perform such
Participant's duties with the Company or any Subsidiary as
determined by the Committee or the Board following receipt by the
Participant of written notice of such failure and the Participant's
failure to remedy such failure within thirty (30) days after receipt
<PAGE>
of such notice (other than a failure resulting from the
Participant's incapacity during physical or mental illness or
disability);
(b) The Participant's willful failure or refusal to perform
specific directives of the Board, which directives are consistent
with the scope and nature of the Participant's duties and
responsibilities, and which are not remedied by the Participant
within thirty (30) days after being notified in writing of such
Participant's failure by the Board;
(c) The Participant's conviction of a felony; or
(d) A breach of the Participant's fiduciary duty to the
Company or any Subsidiary or willful violation in the course of
performing the Participant's duties for the Company or any
Subsidiary of any law, rule or regulation (other than traffic
violations or other minor offenses). No act or failure to act on the
Participant's part shall be considered willful unless done or
omitted to be done in bad faith and without reasonable belief that
the action or omission was in the best interest of the Company.
2.6 "CHANGE IN CONTROL" shall mean, after the Effective Date, (i)
the occurrence of an event of a nature that would be required to be
reported by the Company in response to Item 1 of a Current Report on Form
8-K (or any successor to such form) promulgated pursuant to the Exchange
Act; provided, without limitation, such a Change in Control shall be
deemed to have occurred if (a) any Person or Group (other than (A) the
Company, (B) a wholly-owned Subsidiary, (C) any employee benefit plan
(including, without limitation, an employee stock ownership plan) adopted
by the Company or any wholly-owned Subsidiary or (D) any trustee or other
fiduciary holding securities under any employee benefit plan adopted by
the Company or any Subsidiary), becomes the "beneficial owner" (as defined
in Rule 13d-3 (or any successor to such rule) promulgated under the
Exchange Act), directly or indirectly, of securities of the Company or any
Material Subsidiary representing fifty percent (50%) or more of the
combined voting power of the Company's or such Material Subsidiary's then
outstanding securities or (b) during any period of twenty-four (24)
months, individuals who at the beginning of such period constitute the
Board cease for any reason to constitute at least a majority thereof,
unless the election by the Board or the nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of such twenty-four (24) month period or whose election or
nomination for election was previously so approved; (ii) a Corporate
Transaction is consummated, other than a Corporate Transaction that would
result in substantially all of the holders of voting securities of the
Company outstanding immediately prior thereto owning (directly or
indirectly and in substantially the same proportions relative to each
other) not less than fifty percent (50%) of the combined voting power of
the voting securities of the issuing/surviving/resulting entity
outstanding immediately after such Corporate Transaction or (iii) an
agreement for the sale or other disposition of all or substantially all of
the Company's assets (evaluated on a consolidated
-2-
<PAGE>
basis, without regard to whether the sale or disposition is effected via a
sale or disposition of assets of the Company, the sale or disposition of
the securities of one or more Subsidiaries or the sale or disposition of
the assets of one or more Subsidiaries) is consummated.
2.7 "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time (or any successor to such legislation).
2.8 "COMMITTEE" shall mean the Compensation Committee of the Board
as such Compensation Committee may be constituted from time to time;
provided, however, membership on the Committee shall be limited to
"Non-Employee Directors" (as that term is defined in Rule 16b-3 (or any
successor to such rule) promulgated under the Exchange Act) who are also
"outside directors," as required pursuant to Section 162(m) of the Code
and such Treasury regulations as may be promulgated thereunder; and
provided further, the Committee will consist of not less than two (2) such
Directors. All members of the Committee will serve at the pleasure of the
Board. Notwithstanding the foregoing, if the composition of the Committee
does not comply with the foregoing provisions of this Subsection, the
entire Board shall constitute the Committee until such time as a proper
Committee is appointed in accordance with the foregoing provisions of this
Subsection.
2.9 "COMMON STOCK" shall mean the Common Stock, par value $.01 per
share, of the Company.
2.10 "COMPANY" shall have the meaning set forth in SECTION 1 of
this Plan.
2.11 "CONSULTANT" shall mean any Person who or which is engaged by
the Company or any Subsidiary to render consulting services.
2.12 "CORPORATE TRANSACTION" shall mean any recapitalization (other
than a transaction contemplated by SUBSECTION 13(A)), merger,
consolidation or conversion involving the Company or any exchange of
securities involving the Common Stock (other than a transaction
contemplated by SUBSECTION 13(A)).
2.13 "DESIGNATED BENEFICIARY" shall mean the beneficiary designated
by a Participant, in a manner authorized by the Committee or the Board, to
exercise the rights of such Participant in the event of such Participant's
death. In the absence of an effective designation by a Participant, the
Designated Beneficiary shall be such Participant's estate.
2.14 "DIRECTOR" shall mean any member of the Board.
2.15 "DISABILITY" shall mean permanent and total inability to engage
in any substantial gainful activity, even with reasonable accommodation,
by reason of any medically determinable physical or mental impairment
which has lasted or can reasonably be expected to last without material
interruption for a period of not less than twelve (12) months, as
determined in the sole discretion of the Committee or the Board.
-3-
<PAGE>
2.16 "DIVIDEND EQUIVALENT RIGHT" shall mean the right of the holder
thereof to receive payments based on the cash or stock dividends or other
distributions that would have been paid on the number of Shares specified
in an Award granting Dividend Equivalent Rights if the number of Shares
subject to such Award were held by such holder on the record date for
determining shareholders to whom dividends are payable.
2.17 "EFFECTIVE DATE" shall mean October ___, 1997.
2.18 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended from time to time (or any successor to such legislation).
2.19 "FAIR MARKET VALUE" shall mean with respect to the Shares, as
of any date, (i) if the Common Stock is listed or admitted to trade on a
national securities exchange, the closing price of the Common Stock on the
composite tape, as published in THE WALL STREET JOURNAL, of the principal
national securities exchange on which the Common Stock is so listed or
admitted to trade, on such date or, if there is no trading in Shares on
such date, then the closing price of the Common Stock as quoted on such
composite tape on the next preceding date on which there was trading in
such Shares; (ii) if the Common Stock is not listed or admitted to trade
on a national securities exchange, then the closing price of the Common
Stock as quoted on the National Market System of the NASD; (iii) if the
Common Stock is not listed or admitted to trade on a national securities
exchange or the National Market System of the NASD, the mean between the
bid and asked price for the Common Stock on such date, as furnished by the
NASD through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information; or (iv) if the Common Stock is not listed or
admitted to trade on a national securities exchange or the National Market
System of the NASD and if bid and asked prices for the Common Stock are
not so furnished by the NASD or a similar organization, the value
established by the Board. Fair market value shall be determined without
regard to any restriction other than a restriction which, by its terms,
will never lapse.
2.20 "GROUP" shall have the meaning ascribed to such term in Section
13(d) of the Exchange Act.
2.21 "INCENTIVE STOCK OPTION" shall mean any option to purchase
Shares awarded pursuant to this Plan which qualifies as an "Incentive
Stock Option" pursuant to Section 422 of the Code.
2.22 "LIMITED STOCK APPRECIATION RIGHTS" shall have the meaning set
forth in SUBSECTION 7.4 of this Plan.
2.23 "MATERIAL SUBSIDIARY" shall mean any Subsidiary of which the
Book Value or fair market value (whichever is greater) constitutes fifty
percent (50%) or more of the Book Value of the Company. The fair market
value of a Subsidiary will be determined in good faith by the Board.
-4-
<PAGE>
2.24 "NAMED EXECUTIVE OFFICER" shall have the meaning set forth in
SUBSECTION 17.1 of this Plan.
2.25 "NASD" shall mean the National Association of Securities
Dealers, Inc.
2.26 "NON-QUALIFIED STOCK OPTION" shall mean any option to purchase
Shares awarded pursuant to this Plan that does not qualify as an Incentive
Stock Option (including, without limitation, any option to purchase Shares
originally designated as or intended to qualify as an Incentive Stock
Option but which does not (for whatever reason) qualify as an Incentive
Stock Option).
2.27 "NON-SHARE METHOD" shall have the meaning set forth in
SUBSECTION 6.6(C) of this Plan.
2.28 "NON-TANDEM STOCK APPRECIATION RIGHT" shall mean any Stock
Appreciation Right granted alone and not in connection with an Award which
is a Stock Option.
2.29 "OPTIONEE" shall mean any Participant who has been granted and
holds a Stock Option awarded pursuant to this Plan.
2.30 "PARTICIPANT" shall mean any Person who has been granted and
holds an Award granted pursuant to this Plan.
2.31 "PERFORMANCE AWARD" shall mean any Award granted pursuant to
this Plan of Shares, rights based upon, payable in or otherwise related to
Shares (including Restricted Stock) or cash, as the Committee or Board may
determine, at the end of a specified performance period established by the
Committee or Board and may include, without limitation, Performance Shares
or Performance Units.
2.32 "PERFORMANCE SHARES" shall have the meaning set forth in
SUBSECTION 9.1 of this Plan.
2.33 "PERFORMANCE UNITS" shall have the meaning set forth in
SUBSECTION 9.1 of this Plan.
2.34 "PERMITTED MODIFICATION" shall be deemed to be any modification
of an Award which is made in connection with a Corporate Transaction and
which provides (i) in connection with a Stock Option, that subsequent to
the consummation of the Corporate Transaction (A) the exercise price of
such Stock Option will be proportionately adjusted to reflect the exchange
ratio applicable to the particular Corporate Transaction and/or (B) the
nature and amount of consideration to be received upon exercise of the
Stock Option will be the same (on a per share basis) as was received by
Persons who were holders of shares of Common Stock immediately prior to
the consummation of the Corporate Transaction, (ii) in connection with a
Stock Appreciation Right, that subsequent to the consummation of the
Corporate Transaction (A) the base price of such Stock
-5-
<PAGE>
Appreciation Right will be proportionately adjusted to reflect the
exchange ratio applicable to the particular Corporate Transaction and/or
(B) the benefits to be received by the holder of such Stock Appreciation
Right will be measured based upon the nature and amount of consideration
received (on a per share basis) by Persons who were holders of shares of
Common Stock immediately prior to the consummation of the Corporate
Transaction, and (iii) in connection with a Dividend Equivalent Right,
that subsequent to the consummation of the Corporate Transaction the
benefits to be received by the holder of such Dividend Equivalent Right
will be measured based upon the nature and amount of consideration
received (on a per share basis) by Persons who were holders of shares of
Common Stock immediately prior to the consummation of the Corporate
Transaction.
2.35 "PERSON" shall mean an individual, partnership, limited
liability company, corporation, joint stock company, trust, estate, joint
venture, association or unincorporated organization or any other form of
business organization.
2.36 "PLAN" shall mean this United Oilfield Services, Inc. Incentive
Compensation Plan as it may be amended from time to time.
2.37 "RELOAD OPTION" shall mean a Stock Option as defined in
SUBSECTION 6.6(B) of this Plan.
2.38 "REORGANIZATION" shall mean any stock split, stock dividend,
reverse stock split, combination of Shares or any other similar increase
or decrease in the number of Shares issued and outstanding.
2.39 "RESTRICTED STOCK" shall mean any Shares granted pursuant to
this Plan that are subject to restrictions or substantial risk of
forfeiture.
2.40 "RETIREMENT" shall mean termination of employment of an
employee of the Company or any Subsidiary, other than discharge for Cause,
after age 65 or on or before age 65 if pursuant to the terms of any
retirement plan maintained by the Company or any Subsidiary in which such
employee participates.
2.41 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time (or any successor to such legislation).
2.42 "SHARE RETENTION METHOD" shall have the meaning set forth in
SUBSECTION 6.6(C) of this Plan.
2.43 "SHARES" shall mean shares of the Common Stock and any shares
of capital stock or other securities hereafter issued or issuable upon, in
respect of or in substitution or exchange for shares of Common Stock.
2.44 "STOCK APPRECIATION RIGHT" shall mean the right of the holder
thereof to receive property or Shares with a Fair Market Value equal to or
cash in an amount equal
-6-
<PAGE>
to the excess of the Fair Market Value of the aggregate number of Shares
subject to such Stock Appreciation Right on the date of exercise over the
Fair Market Value of the aggregate number of Shares subject to such Stock
Appreciation Right on the date of the grant of such Stock Appreciation
Right (or such other value as may be specified in the agreement granting
such Stock Appreciation Right). A Stock Appreciation Right may be a Tandem
Stock Appreciation Right, Non-Tandem Stock Appreciation Right or Limited
Stock Appreciation Right.
2.45 "STOCK OPTION" shall mean any Incentive Stock Option or
Non-Qualified Stock Option.
2.46 "SUBSIDIARY" shall mean a subsidiary corporation of the
Company, as defined in Section 424(f) of the Code.
2.47 "TANDEM STOCK APPRECIATION RIGHT" shall mean a Stock
Appreciation Right granted in connection with an Award which is a Stock
Option.
2.48 "TRANSACTIONAL CONSIDERATION" shall have the meaning set forth
in SUBSECTION 13(B) of this Plan.
SECTION 3. ADMINISTRATION OF THIS PLAN
3.1 COMMITTEE. This Plan shall be administered and interpreted by
the Committee.
3.2 AWARDS. (a) Subject to the provisions of this Plan and
directions from the Board, the Committee is authorized to:
(i) determine the Persons to whom Awards are to be granted;
(ii) determine the types and combinations of Awards to be
granted; the number of Shares to be covered by an Award; the
exercise price of an Award; the time or times when an Award shall be
granted and may be exercised; the terms, performance criteria or
other conditions, vesting periods or any restrictions for an Award;
any restrictions on Shares acquired pursuant to the exercise of an
Award; and any other terms and conditions of an Award;
(iii) interpret the provisions of this Plan;
(iv) prescribe, amend and rescind rules and regulations
relating to this Plan;
(v) determine whether, to what extent and under what
circumstances to provide loans from the Company to Participants to
exercise Awards granted pursuant to this Plan, and the terms and
conditions of such loans;
-7-
<PAGE>
(vi) rely upon employees of the Company for such clerical and
recordkeeping duties as may be necessary in connection with the
administration of this Plan;
(vii) accelerate or defer (with the consent of the
Participant) the vesting of any rights pursuant to an Award; and
(viii) make all other determinations and take all other
actions necessary or advisable for the administration of this Plan.
(b) Without limiting the Board's right to amend this Plan pursuant
to SECTION 14, the Board may take all actions authorized by SUBSECTION
3.2(A) of this Plan, including, without limitation, granting such Awards
pursuant to this Plan as the Board may deem necessary or appropriate.
3.3 PROCEDURES. (a) Proceedings by the Board with respect to this
Plan will be conducted in accordance with the articles of incorporation
and bylaws of the Company.
(b) A majority of the Committee members shall constitute a quorum
for action by the Committee. All determinations of the Committee shall be
made by not less than a majority of its members.
(c) All questions of interpretation and application of this Plan or
pertaining to any question of fact or Award granted hereunder will be
decided by the Committee or the Board, whose decision will be final,
conclusive and binding upon the Company and each other affected party.
SECTION 4. SHARES SUBJECT TO PLAN
4.1 LIMITATIONS. The maximum number of Shares that may be issued
with respect to Awards granted pursuant to this Plan shall not exceed
411,000 unless increased or decreased by reason of changes in the
capitalization of the Company as hereinafter provided or by amendment of
this Plan. The Shares issued pursuant to this Plan may be authorized but
unissued Shares, or may be issued Shares which have been reacquired by the
Company.
4.2 CHANGES. To the extent that any Award granted pursuant to this
Plan shall be forfeited, shall expire or shall be cancelled, in whole or
in part, then the number of Shares covered by the Award so forfeited,
expired or cancelled may again be awarded pursuant to the provisions of
this Plan. In the event that Shares are delivered to the Company in full
or partial payment of the exercise price for the exercise of a Stock
Option, the number of Shares available for future Awards granted pursuant
to this Plan shall be reduced only by the net number of Shares issued upon
the exercise of the Stock Option. Awards that may be satisfied either by
the issuance of Shares or by cash or other
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consideration shall, until the form of consideration to be paid is finally
determined, be counted against the maximum number of Shares that may be
issued pursuant to this Plan. If the Award is ultimately satisfied by the
payment of consideration other than Shares, as, for example, a Stock
Option granted in tandem with a Stock Appreciation Right that is settled
by a cash payment, such Shares may again be made the subject of an Award
granted pursuant to this Plan. Awards will not reduce the number of Shares
that may be issued pursuant to this Plan if the settlement of the Award
will not require the issuance of Shares, as, for example, a Stock
Appreciation Right that can be satisfied only by the payment of cash.
SECTION 5. ELIGIBILITY
Eligibility for participation in this Plan shall be confined to those
individuals who are employed by the Company or a Subsidiary and such Consultants
and non-employee Directors as may be designated by the Committee or the Board.
In making any determination as to Persons to whom Awards shall be granted, the
type of Award and/or the number of Shares to be covered by the Award, the
Committee or the Board shall consider the position and responsibilities of the
Person, the importance of the Person to the Company, the duties of the Person,
the past, present and potential contributions of the Person to the growth and
success of the Company and such other factors as the Committee or the Board may
deem relevant in connection with accomplishing the purposes of this Plan.
SECTION 6. STOCK OPTIONS
6.1 GRANTS. The Committee or the Board may grant Stock Options alone
or in addition to other Awards granted pursuant to this Plan to any
eligible Person. Each Person so selected shall be offered a Stock Option
to purchase the number of Shares determined by the Committee or the Board.
The Committee or the Board shall specify whether such Stock Option is an
Incentive Stock Option or Non-Qualified Stock Option and any other terms
or conditions relating to such Award; provided, however only employees of
the Company or a Subsidiary may be granted Incentive Stock Options. To the
extent that any Stock Option designated as an Incentive Stock Option does
not qualify as an Incentive Stock Option (whether because of its
provisions, the failure of the shareholders of the Company to authorize
the issuance of Incentive Stock Options, the time or manner of its
exercise or otherwise), such Stock Option or the portion thereof which
does not qualify shall be deemed to constitute a Non-Qualified Stock
Option. Each Person to be granted a Stock Option shall enter into a
written agreement with the Company, in such form as the Committee or the
Board may prescribe, setting forth the terms and conditions (including,
without limitation, the exercise price and vesting schedule) of the Stock
Option. At any time and from time to time, the Optionee and the Committee
or the Board may agree to modify an option agreement in such respects as
they may deem appropriate, including, without limitation, the conversion
of an Incentive Stock Option into a Non-Qualified Stock Option. The
Committee or the Board may require that an Optionee meet certain
conditions before the Stock Option or a portion
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thereof may vest or be exercised, as, for example, that the Optionee
remain in the employ of the Company or a Subsidiary for a stated period or
periods of time.
6.2 INCENTIVE STOCK OPTIONS LIMITATIONS.
(a) In no event shall any individual be granted Incentive
Stock Options to the extent that the Shares covered by any Incentive
Stock Options (and any incentive stock options granted pursuant to
any other plans of the Company or its Subsidiaries) that may be
exercised for the first time by such individual in any calendar year
have an aggregate Fair Market Value in excess of $100,000. For this
purpose, the Fair Market Value of the Shares shall be determined as
of the date(s) on which the Incentive Stock Options are granted. It
is intended that the limitation on Incentive Stock Options provided
in this SUBSECTION 6.2(A) be the maximum limitation on Stock Options
which may be considered Incentive Stock Options pursuant to the
Code.
(b) The option exercise price of an Incentive Stock Option
shall not be less than one hundred percent (100%) of the Fair Market
Value of the Shares subject to such Incentive Stock Option on the
date of the grant of such Incentive Stock Option.
(c) Notwithstanding anything herein to the contrary, in no
event shall any employee owning more than ten percent (10%) of the
total combined voting power of the Company or any Subsidiary be
granted an Incentive Stock Option unless the option exercise price
of such Incentive Stock Option shall be at least one hundred ten
percent (110%) of the Fair Market Value of the Shares subject to
such Incentive Stock Option on the date of the grant of such
Incentive Stock Option.
(d) In no event shall any individual be granted an Incentive
Stock Option after the expiration of ten (10) years from the date
this Plan is adopted or is approved by the shareholders of the
Company (if shareholder approval is required by Section 422 of the
Code).
(e) To the extent shareholder approval of this Plan is
required by Section 422 of the Code, no individual shall be granted
an Incentive Stock Option unless this Plan is approved by the
shareholders of the Company within twelve (12) months before or
after the date this Plan is initially adopted. In the event this
Plan is amended to increase the number of Shares subject to issuance
upon the exercise of Incentive Stock Options or to change the class
of employees eligible to receive Incentive Stock Options, no
individual shall be granted an Incentive Stock Option unless such
amendment is approved by the shareholders of the Company within
twelve (12) months before or after such amendment.
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(f) No Incentive Stock Option shall be granted to any employee
owning more than ten percent (10%) of the total combined voting
power of the Company or any Subsidiary unless the term of such
Incentive Stock Option is equal to or less than five (5) years
measured from the date on which such Incentive Stock Option is
granted.
6.3 OPTION TERM. The term of a Stock Option shall be for such period
of time from the date of its grant as may be determined by the Committee
or the Board; provided, however, that no Incentive Stock Option shall be
exercisable later than ten (10) years from the date of its grant.
6.4 TIME OF EXERCISE. No Stock Option may be exercised unless it is
exercised prior to the expiration of its stated term and, in connection
with options granted to employees of the Company or its Subsidiaries, at
the time of such exercise, the Optionee is, and has been continuously
since the date of grant of such Stock Option, employed by the Company or a
Subsidiary, except that:
(a) A Stock Option may, to the extent vested as of the date
the Optionee ceases to be an employee of the Company or a
Subsidiary, be exercised during the three month period immediately
following the date the Optionee ceases (for any reason other than
death, Disability or termination for Cause) to be an employee of the
Company or a Subsidiary (or within such other period as may be
specified in the applicable option agreement), provided that, if the
Stock Option has been designated as an Incentive Stock Option and
the option agreement provides for a longer exercise period, the
exercise of such Stock Option after such three-month period shall be
treated as the exercise of a Non-Qualified Stock Option;
(b) If the Optionee dies while in the employ of the Company or
a Subsidiary, or within three months after the Optionee ceases (for
a reason other than termination for Cause) to be such an employee
(or within such other period as may be specified in the applicable
option agreement), a Stock Option may, to the extent vested as of
the date of the Optionee's death, be exercised by the Optionee's
Designated Beneficiary during the one year period immediately
following the date of the Optionee's death (or within such other
period as may be specified in the applicable option agreement);
(c) If the Optionee ceases to be an employee of the Company or
a Subsidiary by reason of the Optionee's Disability, a Stock Option,
to the extent vested as of the date the Optionee ceases to be an
employee of the Company or a Subsidiary, may be exercised by the
Optionee or the Optionee's legal guardian during the one year period
immediately following such date (or within such other period as may
be specified in the applicable option agreement); provided that, if
the Stock Option has been designated as an Incentive Stock Option
and the option agreement provides for a longer exercise period, the
exercise of such Stock Option
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after such one-year period shall be treated as the exercise of a
Non-Qualified Stock Option; and
(d) If the Optionee's employment is terminated for Cause, all
Stock Options held by such Optionee shall simultaneously terminate
and will no longer be exercisable.
Nothing contained in this SUBSECTION 6.4 will be deemed to extend the term
of a Stock Option or to revive any Stock Option which has previously
lapsed or been cancelled, terminated or surrendered. Stock Options granted
under this Plan to Consultants or non-employee Directors will contain such
terms and conditions with respect to the death or disability of a
Consultant or non-employee Director or termination of a Consultant's or
non-employee Director's relationship with the Company as the Committee or
the Board deems necessary or appropriate. Such terms and conditions will
be set forth in the option agreements evidencing the grant of such Stock
Options.
6.5 VESTING OF STOCK OPTIONS.
(a) Each Stock Option granted pursuant to this Plan may only
be exercised to the extent that the Optionee is vested in such Stock
Option. Each Stock Option shall vest separately in accordance with
the option vesting schedule determined by the Committee or the
Board, which will be incorporated in the option agreement entered
into between the Company and such Optionee. The option vesting
schedule may be accelerated if, in the discretion of the Committee
or the Board, the acceleration of the option vesting schedule would
be in the best interests the Company.
(b) In the event of the dissolution or liquidation of the
Company, each Stock Option granted pursuant to this Plan shall
terminate as of a date to be fixed by the Committee or Board;
provided, however, that not less than thirty (30) days' written
notice of the date so fixed shall be given to each Optionee. During
such period all Stock Options which have not previously been
terminated, exercised or surrendered will (subject to the provisions
of SUBSECTIONS 6.3 AND 6.4) fully vest and become exercisable,
notwithstanding the vesting schedule set forth in the option
agreement evidencing the grant of such Stock Option. Upon the date
fixed by the Committee or the Board, any unexercised Stock Options
shall terminate and be of no further effect.
(c) Upon the occurrence of a Change in Control, all Stock
Options and any associated Stock Appreciation Rights shall become
fully vested and immediately exercisable.
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6.6 MANNER OF EXERCISE OF STOCK OPTIONS.
(a) Except as otherwise provided in this Plan, Stock Options
may be exercised as to Shares only in amounts and at intervals of
time specified in the written option agreement between the Company
and the Optionee. Each exercise of a Stock Option, or any part
thereof, shall be evidenced by a written notice delivered by the
Optionee to the Company. The purchase price of the Shares as to
which a Stock Option shall be exercised shall be paid in full at the
time of exercise, and may be paid to the Company either:
(i) in cash (including check, bank draft or money
order); or
(ii) by other consideration acceptable to the Committee
in its sole discretion.
(b) If an Optionee delivers Shares (including Shares of
Restricted Stock) already owned by the Optionee in full or partial
payment of the exercise price for any Stock Option, or if the
Optionee elects to have the Company retain that number of Shares out
of the Shares being acquired through the exercise of the Stock
Option having a Fair Market Value equal to the exercise price of the
Stock Option being exercised, the Committee or the Board may, in its
sole discretion, authorize the grant of a new Stock Option (a
"RELOAD OPTION") for that number of Shares equal to the number of
already owned Shares surrendered (including Shares of Restricted
Stock) or newly acquired Shares being retained by the Company in
payment of the option exercise price of the underlying Stock Option
being exercised. The grant of a Reload Option will become effective
upon the exercise of the underlying Stock Option. The option
exercise price of the Reload Option shall be the Fair Market Value
of a Share on the effective date of the grant of the Reload Option.
Each Reload Option shall be exercisable no later than the time when
the underlying stock option being exercised could be last exercised.
The Committee or the Board may also specify additional terms,
conditions and restrictions for the Reload Option and the Shares to
be acquired upon the exercise thereof.
(c) The amount, as determined by the Committee or the Board,
of any federal, state or local tax required to be withheld by the
Company due to the exercise of a Stock Option shall, subject to the
authorization of the Committee or the Board, be satisfied, at the
election of the Optionee, either (a) by payment by the Optionee to
the Company of the amount of such withholding obligation in cash or
other consideration acceptable to the Committee or the Board in its
sole discretion (the "NON-SHARE METHOD") or (b) through either the
retention by the Company of a number of Shares out of the Shares
being acquired through the exercise of the Stock Option or the
delivery of already owned Shares having a Fair Market Value equal to
the amount of the withholding obligation (the "SHARE RETENTION
METHOD"). If an Optionee elects to use the Share Retention Method in
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full or partial satisfaction of any tax liability resulting from the
exercise of a Stock Option, the Committee or the Board may authorize
the grant of a Reload Option for that number of Shares as shall
equal the number of Shares used to satisfy the tax liabilities of
the Optionee arising out of the exercise of such Stock Option. Such
Reload Option will be granted at the price and on the terms set
forth in SUBSECTION 6.6 (B). The cash payment or an amount equal to
the Fair Market Value of the Shares so withheld, as the case may be,
shall be remitted by the Company to the appropriate taxing
authorities.
(d) An Optionee shall not have any of the rights of a
shareholder of the Company with respect to the Shares subject to a
Stock Option except to the extent that such Stock Option is
exercised and one or more certificates representing such Shares
shall have been delivered to the Optionee.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 GRANTS. The Committee or the Board may grant to any eligible
Consultant, non-employee Director or employee of the Company or a
Subsidiary either Non-Tandem Stock Appreciation Rights or Tandem Stock
Appreciation Rights. Stock Appreciation Rights shall be subject to such
terms and conditions as the Committee or the Board shall impose. The grant
of the Stock Appreciation Right may provide that the holder will be paid
for the value of the Stock Appreciation Right either in cash or in Shares,
or a combination thereof, at the sole discretion of the Committee or the
Board. In the event of the exercise of a Stock Appreciation Right payable
in Shares, the holder of the Stock Appreciation Right shall receive that
number of whole Shares having an aggregate Fair Market Value on the date
of exercise equal to the value obtained by multiplying (i) either (a) in
the case of a Tandem Stock Appreciation Right, the difference between the
Fair Market Value of a Share on the date of exercise over the per share
exercise price of the related Stock Option, or (b) in the case of a
Non-Tandem Stock Appreciation Right, the difference between the Fair
Market Value of a Share on the date of exercise over the Fair Market Value
on the date of the grant by (ii) the number of Shares as to which the
Stock Appreciation Right is exercised. However, notwithstanding the
foregoing, the Committee or the Board, in its sole discretion, may place a
ceiling on the amount payable upon exercise of a Stock Appreciation Right,
but any such limitation shall be specified at the time that the Stock
Appreciation Right is granted.
7.2 EXERCISABILITY. A Tandem Stock Appreciation Right granted in
connection with an Incentive Stock Option (i) may be exercised at, and
only at, the times and to the extent the related Incentive Stock Option is
exercisable, (ii) will expire upon the termination of the related
Incentive Stock Option, (iii) may not exceed 100% of the difference
between the exercise price of the related Incentive Stock Option and the
Fair Market Value of the Shares subject to the related Incentive Stock
Option at the time the Tandem Stock Appreciation Right is exercised and
(iv) may be exercised at, and only at, such times as the Fair Market Value
of the Shares subject to the related Incentive Stock Option exceeds the
exercise price of the related Incentive Stock Option. A Tandem Stock
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Appreciation Right granted in connection with a Non-Qualified Stock Option
will be exercisable as provided by the Committee or the Board and will
have such other terms and conditions as the Committee or the Board may
determine. A Tandem Stock Appreciation Right may be transferred at, and
only at, the times and to the extent the related Stock Option is
transferable. If a Tandem Stock Appreciation Right is granted, there shall
be surrendered and cancelled from the related Stock Option at the time of
exercise of the Tandem Stock Appreciation Right, in lieu of exercise
pursuant to the related Stock Option, that number of Shares as shall equal
the number of Shares as to which the Tandem Stock Appreciation Right shall
have been exercised.
7.3 CERTAIN LIMITATIONS ON NON-TANDEM STOCK APPRECIATION RIGHTS. A
Non-Tandem Stock Appreciation Right will be exercisable as provided by the
Committee or the Board and will have such other terms and conditions as
the Committee or the Board may determine. A Non-Tandem Stock Appreciation
Right is subject to acceleration of vesting or immediate termination in
certain circumstances in the same manner as Stock Options pursuant to
SUBSECTIONS 6.4 AND 6.5 of this Plan.
7.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee and the Board
may grant "LIMITED STOCK APPRECIATION RIGHTS," either as Tandem Stock
Appreciation Rights or Non-Tandem Stock Appreciation Rights. Limited Stock
Appreciation Rights will become exercisable only upon the occurrence of a
Change in Control or such other event as the Committee or the Board may
designate at the time of grant or thereafter.
SECTION 8. RESTRICTED STOCK
8.1 GRANTS. The Committee or the Board may grant Awards of
Restricted Stock to any Consultant, non-employee Director or employee of
the Company or a Subsidiary for such minimum consideration, if any, as may
be required by applicable law or such greater consideration as may be
determined by the Committee or the Board, in its sole discretion. The
terms and conditions of the Restricted Stock shall be specified by the
grant agreement. The Committee or the Board, in its sole discretion, may
specify any particular rights which the Participant to whom a grant of
Restricted Stock is made shall have in the Restricted Stock during the
restriction period and the restrictions applicable to the particular
Award, the vesting schedule (which may be based on service, performance or
other factors) and rights to acceleration of vesting (including, without
limitation, whether non-vested Shares are forfeited or vested upon
termination of employment). Further, the Committee or the Board may grant
performance-based Awards consisting of Restricted Stock by conditioning
the grant, or vesting or such other factors, such as the release,
expiration or lapse of restrictions upon any such Award (including the
acceleration of any such conditions or terms) of such Restricted Stock
upon the attainment of specified performance goals or such other factors
as the Committee or the Board may determine. The Committee or the Board
shall also determine when the restrictions shall lapse or expire and the
conditions, if any, pursuant to which the Restricted Stock will be
forfeited or sold back to the Company. Each Award of Restricted Stock may
have different restrictions and conditions. Unless otherwise set forth in
the grant agreement, Restricted Stock may not be sold, pledged, encumbered
or otherwise disposed of by the
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recipient until the restrictions specified in the Award expire. Awards of
Restricted Stock are subject to acceleration of vesting, termination of
restrictions and termination in the same manner as Stock Options pursuant
to SUBSECTIONS 6.4 AND 6.5 of this Plan.
8.2 AWARDS AND CERTIFICATES. Any Restricted Stock issued hereunder
may be evidenced in such manner as the Committee or the Board, in its sole
discretion, shall deem appropriate including, without limitation,
book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in respect of
Shares of Restricted Stock, such certificate shall bear an appropriate
legend with respect to the restrictions applicable to such Award. The
Company may retain, at its option, the physical custody of any stock
certificate representing any awards of Restricted Stock during the
restriction period or require that the certificates evidencing Restricted
Stock be placed in escrow or trust, along with a stock power endorsed in
blank, until all restrictions are removed or expire.
SECTION 9. PERFORMANCE AWARDS
9.1 GRANTS. A Performance Award may consist of either or both, as
the Committee or the Board may determine, of (i) the right to receive
Shares or Restricted Stock, or any combination thereof as the Committee or
the Board may determine ("PERFORMANCE SHARES"), or (ii) the right to
receive a fixed dollar amount payable in Shares, Restricted Stock, cash or
any combination thereof, as the Committee or the Board may determine
("PERFORMANCE UNITS"). The Committee or the Board may grant Performance
Awards to any eligible Consultant, non-employee Director or employee of
the Company or a Subsidiary, for such minimum consideration, if any, as
may be required by applicable law or such greater consideration as may be
determined by the Committee or the Board, in its sole discretion. The
terms and conditions of Performance Awards shall be specified at the time
of the grant and may include provisions establishing the performance
period, the performance criteria to be achieved during a performance
period, the criteria used to determine vesting (including the acceleration
thereof), whether Performance Awards are forfeited or vest upon
termination of employment during a performance period and the maximum or
minimum settlement values. Each Performance Award shall have its own terms
and conditions, which shall be determined in the sole discretion of the
Committee or the Board. If the Committee or the Board determines, in its
sole discretion, that the established performance measures or objectives
are no longer suitable because of a change in the Company's business,
operations, corporate structure or for other reasons that the Committee or
the Board deems satisfactory, the Committee or the Board may modify the
performance measures or objectives and/or the performance period. Awards
of Performance Shares and/or Performance Units are subject to acceleration
of vesting, termination of restrictions and termination in the same manner
as Stock Options pursuant to SUBSECTIONS 6.4 AND 6.5 of this Plan.
9.2 TERMS AND CONDITIONS. Performance Awards may be valued by
reference to the Fair Market Value of a Share or according to any other
formula or method deemed appropriate by the Committee or the Board, in its
sole discretion, including, but not limited to, achievement of specific
financial, production, sales, cost or earnings
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performance objectives that the Committee or the Board believes to be
relevant or the Company's performance or the performance of the Common
Stock measured against the performance of the market, the Company's
industry segment or its direct competitors. Performance Awards may also be
conditioned upon the applicable Participant remaining in the employ of the
Company or one of its Subsidiaries for a specified period. Performance
Awards may be paid in cash, Shares (including Restricted Stock) or other
consideration, or any combination thereof. Performance Awards may be
payable in a single payment or in installments and may be payable at a
specified date or dates or upon attaining the performance objective or
objectives, all at the sole discretion of the Committee or the Board. The
extent to which any applicable performance objective has been achieved
shall be conclusively determined by the Committee or the Board in its sole
discretion.
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
The Committee or the Board may grant a Dividend Equivalent Right to any
eligible Consultant, non-employee Director or employee of the Company or a
Subsidiary, either as a component of another Award or as a separate Award, and,
in general, each such Participant awarded a Dividend Equivalent Right that is
outstanding on a dividend record date for the Common Stock shall be credited
with an amount equal to the cash or stock dividends or other distributions that
would have been received had the Shares subject to the Award been issued and
outstanding on the dividend record date. The terms and conditions of the
Dividend Equivalent Right shall be specified in a dividend equivalent right
agreement which evidences such Award. Dividend Equivalent Rights may be settled
in cash or Shares, or a combination thereof, in a single payment or in
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement or payment for or lapse of restrictions on such other
Award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled pursuant to the same conditions as such other Award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other Award.
SECTION 11. OTHER AWARDS
The Committee or the Board may grant to any eligible Consultant,
non-employee Director or employee of the Company or a Subsidiary other forms of
Awards based upon, payable in or otherwise related to, in whole or in part,
Shares, if the Committee or the Board, in its sole discretion, determines that
such other form of Award is consistent with the purposes of this Plan. The terms
and conditions of such other form of Award shall be specified in a written
agreement which sets forth the terms and conditions of such Award, including,
but not limited to, the price, if any, and the vesting schedule, if any, of such
Award. Such Awards may be granted for such minimum consideration, if any, as may
be required by applicable law or for such other greater consideration as may be
determined by the Committee or the Board, in its sole discretion.
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SECTION 12. COMPLIANCE WITH SECURITIES AND OTHER LAWS
As a condition to the issuance or transfer of any Award or any security
issuable in connection with such Award, the Company may require an opinion of
counsel, satisfactory to the Company, to the effect that (i) such issuance
and/or transfer will not be in violation of the Securities Act or any other
applicable securities laws and (ii) such issuance and/or transfer will not be in
violation of the rules and regulations of any securities exchange or automated
quotation system on which the Common Stock is listed or admitted to trading.
Further, the Company may refrain from issuing, delivering or transferring any
Award or any security issuable in connection with such Award until the Committee
or the Board has determined that such issuance, delivery or transfer will not
violate such securities laws or rules and regulations and that the recipient has
tendered to the Company any federal, state or local tax owed as a result of such
issuance, delivery or transfer, when the Company has a legal liability to
satisfy such tax. The Company shall not be liable for damages due to delay in
the issuance, delivery or transfer of any Award or any security issuable in
connection with such Award or any agreement, instrument or certificate
evidencing such Award or security for any reason whatsoever, including, but not
limited to, a delay caused by the listing requirements of any securities
exchange or automated quotation system or any registration requirements under
the Securities Act, the Exchange Act, or under any other state or federal law,
rule or regulation. The Company is under no obligation to take any action or
incur any expense to register or qualify the issuance, delivery or transfer of
any Award or any security issuable in connection with such Award under
applicable securities laws or to perfect any exemption from such registration or
qualification or to list any security on any securities exchange or automated
quotation system. Furthermore, the Company will have no liability to any person
for refusing to issue, deliver or transfer any Award or any security issuable in
connection with such Award if such refusal is based upon the foregoing
provisions of this SECTION 12. As a condition to any issuance, delivery or
transfer of any Award or any security issuable in connection with such Award,
the Company may place legends on any agreement, instrument or certificate
evidencing such Award or security, issue stop transfer orders with respect
thereto and require such agreements or undertakings as the Company may deem
necessary or advisable to assure compliance with applicable laws or regulations,
including, if the Company or its counsel deems it appropriate, representations
from the recipient of such Award or security to the effect that such recipient
is acquiring such Award or security solely for investment and not with a view to
distribution and that no distribution of the Award or the security will be made
unless registered pursuant to applicable federal and state securities laws, or
in the opinion of counsel to the Company, such registration is unnecessary.
SECTION 13. ADJUSTMENTS UPON THE OCCURRENCE OF A
REORGANIZATION OR CORPORATE TRANSACTION
(a) In the event of a Reorganization, the number of Shares subject
to this Plan and to each outstanding Award, and the exercise price of each
Award which is based upon Shares, shall (to the extent deemed appropriate
by the Committee or the Board) be proportionately adjusted (as determined
by the Committee or the Board in its sole discretion) to account for any
increase or decrease in the number of issued and outstanding Shares of the
Company resulting from such Reorganization.
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(b) If a Corporate Transaction is consummated and immediately
following the consummation of such Corporate Transaction the Persons who
were holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction do not receive any securities
or other property (hereinafter collectively referred to as "TRANSACTIONAL
CONSIDERATION") as a result of such Corporate Transaction and
substantially all of such Persons continue to hold the shares of Common
Stock held by them immediately prior to the consummation of such Corporate
Transaction (in substantially the same proportions relative to each
other), the Awards will remain outstanding and will (subject to the
provisions of SUBSECTIONS 6.1, 6.5(C), 7.1, 7.3, 8.1 AND 9.1) continue in
full force and effect in accordance with its terms (without any
modification) following the consummation of the Corporate Transaction.
(c) If a Corporate Transaction is consummated and immediately
following the consummation of such Corporate Transaction the Persons who
were holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction do receive Transactional
Consideration as a result of such Corporate Transaction or substantially
all of such Persons do not continue to hold the shares of Common Stock
held by them immediately prior to the consummation of such Corporate
Transaction (in substantially the same proportions relative to each
other), the terms and conditions of the Awards will be modified as
follows:
(i) If the documentation pursuant to which a Corporate
Transaction will be consummated provides for the assumption (by the
entity issuing Transactional Consideration to the Persons who were
the holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction) of the Awards granted
pursuant to this Plan without any modification or amendment (other
than Permitted Modifications and the modifications contemplated by
SUBSECTIONS 6.1, 6.5(C), 7.1, 7.3, 8.1 AND 9.1 of this Plan), such
Awards will remain outstanding and will continue in full force and
effect in accordance with its terms following the consummation of
such Corporate Transaction (subject to such Permitted Modifications
and the provisions of SUBSECTIONS 6.1, 6.5(C), 7.1, 7.3, 8.1 AND
9.1.
(ii) If the documentation pursuant to which a Corporate
Transaction will be consummated does not provide for the assumption
by the entity issuing Transactional Consideration to the Persons who
were the holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction of the Awards granted
pursuant to this Plan without any modification or amendment (other
than Permitted Modifications), all vesting restrictions (performance
based or otherwise) applicable to Awards which will not be so
assumed will accelerate and the holders of such Awards may (subject
to the expiration of the term of such Awards) exercise/receive the
benefits of such Awards without regard to such vesting restrictions
during the ten (10) day period immediately preceding the
consummation of such Corporate Transaction. For purposes of the
immediately preceding sentence, all performance based goals will be
deemed to have been satisfied in full. The Company will provide each
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<PAGE>
Participant holding Awards which will not be so assumed with
reasonable notice of the termination of such vesting restrictions
and the impending termination of such Awards. Upon the consummation
of such a Corporate Transaction, all unexercised Awards which are
not to be so assumed will automatically terminate and cease to be
outstanding.
Nothing contained in this SECTION 13 will be deemed to extend the term of
an Award or to revive any Award which has previously lapsed or been
cancelled, terminated or surrendered.
SECTION 14. AMENDMENT OR TERMINATION OF THIS PLAN
14.1 AMENDMENT OF THIS PLAN. Notwithstanding anything contained in this
Plan to the contrary, all provisions of this Plan (including, without
limitation, the maximum number of Shares that may be issued with respect to
Awards to be granted pursuant to this Plan) may at any time or from time to time
be modified or amended by the Board; provided, however, that no Award at any
time outstanding pursuant to this Plan may be modified, impaired or cancelled
adversely to the holder of the Award without the consent of such holder.
14.2 TERMINATION OF THIS PLAN. The Board may suspend or terminate this
Plan at any time, and such suspension or termination may be retroactive or
prospective. Termination of this Plan shall not impair or affect any Award
previously granted hereunder and the rights of the holder of the Award shall
remain in effect until the Award has been exercised in its entirety or has
expired or otherwise has been terminated by the terms of such Award.
SECTION 15. AMENDMENTS AND ADJUSTMENTS TO AWARDS
The Committee or the Board may amend, modify or terminate any outstanding
Award with the Participant's consent at any time prior to payment or exercise in
any manner not inconsistent with the terms of this Plan, including, without
limitation, (i) to change the date or dates as of which and/or the terms and
conditions pursuant to which (A) a Stock Option becomes exercisable or (B) a
Performance Award is deemed earned, (ii) to amend the terms of any outstanding
Award to provide an exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Award or (iii) to
cancel an Award and grant a new Award in substitution therefor under such
different terms and conditions as the Committee or the Board determines in its
sole discretion to be appropriate including, but not limited to, having an
exercise price per share which may be higher or lower than the exercise price
per share of the cancelled Award. The Committee or the Board may also make
adjustments in the terms and conditions of, and the criteria included in
agreements evidencing Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in SECTION 13 hereof)
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee or the Board determines that such adjustments
are appropriate to prevent reduction or enlargement of the benefits or potential
benefits intended to be made available pursuant to this Plan. Any provision of
this Plan or any agreement regarding an Award to the contrary notwithstanding,
the Committee or the Board may cause any Award granted to be cancelled in
consideration of a cash
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<PAGE>
payment or alternative Award made to the holder of such cancelled Award equal in
value to the Fair Market Value of such cancelled Award. The determinations of
value pursuant to this SECTION 15 shall be made by the Committee or the Board in
its sole discretion.
SECTION 16. GENERAL PROVISIONS
16.1 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in
this Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, and such arrangements may be either generally
applicable or applicable only in specific cases.
16.2 NO RIGHT TO EMPLOYMENT OR CONTINUATION OF RELATIONSHIP. Nothing in
this Plan or in any Award, nor the grant of any Award, shall confer upon or be
construed as giving any Participant any right to remain in the employ of the
Company or a Subsidiary or to continue as a Consultant or non-employee Director.
Further, the Company or a Subsidiary may at any time dismiss a Participant from
employment or terminate the relationship of any Consultant or non-employee
Director with the Company or any Subsidiary, free from any liability or any
claim pursuant to this Plan, unless otherwise expressly provided in this Plan or
in any agreement evidencing an Award made under this Plan. No Consultant,
non-employee Director or employee of the Company or any Subsidiary shall have
any claim to be granted any Award, and there is no obligation for uniformity of
treatment of any Consultant, non-employee Director or employee of the Company or
any Subsidiary or of any Participants.
16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THIS PLAN AND
ANY RULES AND REGULATIONS RELATING TO THIS PLAN SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
16.4 SEVERABILITY. If any provision of this Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or as to any individual or Award, or would disqualify this Plan or any Award
under any law deemed applicable by the Committee or the Board, such provision
shall be construed or deemed amended to conform to applicable law, or if it
cannot be construed or deemed amended without, in the sole determination of the
Committee or the Board, materially altering the intent of this Plan or the
Award, such provision shall be stricken as to such jurisdiction, individual or
Award and the remainder of this Plan and any such Award shall remain in full
force and effect.
16.5 NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to this Plan or any Award, and the Committee or the Board
shall determine, in its sole discretion, whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be cancelled,
terminated or otherwise eliminated.
16.6 HEADINGS. Headings are given to the Sections and Subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.
-21-
<PAGE>
16.7 EFFECTIVE DATE. The provisions of this Plan that relate to the grant
of Incentive Stock Options shall be effective as of the date of the approval of
this Plan by the shareholders of the Company. All other provisions of this Plan
shall be effective as of the Effective Date.
16.8 TRANSFERABILITY OF AWARDS. Awards shall not be transferable otherwise
than by will or the laws of descent and distribution without the written consent
of the Committee or the Board (which may be granted or withheld at the sole
discretion of the Committee or the Board). Awards may be exercised, during the
lifetime of the holder, only by the holder (or the holder's legal guardian in
the event of the holder's Disability or incompetence). Any attempted assignment,
transfer, pledge, hypothecation or other disposition of an Award contrary to the
provisions hereof, or the levy of any execution, attachment or similar process
upon an Award shall be null and void and without effect.
16.9 RIGHTS OF PARTICIPANTS. Except as hereinbefore expressly provided in
this Plan, any Person to whom an Award is granted shall have no rights by reason
of any subdivision or consolidation of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class or by reason of any dissolution, liquidation, reorganization,
merger or consolidation or spinoff of assets or stock of another corporation,
and any issue by the Company of shares of stock of any class or securities
convertible into shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of Shares subject to an Award.
16.10 NO LIMITATION UPON THE RIGHTS OF THE COMPANY. The grant of an Award
pursuant to this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, or changes of its capital or
business structure; to merge, convert or consolidate; to dissolve or liquidate;
or sell or transfer all or any part of its business or assets.
16.11 DATE OF GRANT OF AN AWARD. Except as noted in this SECTION 16.11,
the granting of an Award shall take place only upon the execution and delivery
by the Company and the Participant of a written agreement and neither any other
action taken by the Committee or the Board nor anything contained in this Plan
or in any resolution adopted or to be adopted by the Committee, the Board or the
shareholders of the Company shall constitute the granting of an Award pursuant
to this Plan. Solely, for purposes of determining the Fair Market Value of the
Shares subject to an Award, such Award will be deemed to have been granted as of
the date specified by the Committee or the Board notwithstanding any delay which
may elapse in executing and delivering the applicable agreement.
SECTION 17. NAMED EXECUTIVE OFFICERS
17.1 APPLICABILITY OF SECTION 17. The provisions of this SECTION 17 shall
apply only to those executive officers (i) whose compensation is required to be
reported in the Company's proxy statement pursuant to Item 402(a)(3)(i) and (ii)
(or any successor thereto) of Regulation S-K (or any successor thereto) under
the general rules and regulations under the Exchange Act and (ii) whose total
compensation, including estimated Awards, is determined by the Committee or the
Board to possibly be subject to the limitations on deductions imposed by Section
162(m) of the Code ("NAMED EXECUTIVE OFFICERS"). In the event of any
inconsistencies
-22-
<PAGE>
between this SECTION 17 and the other Plan provisions as they pertain to Named
Executive Officers, the provisions of this SECTION 17 shall control.
17.2 ESTABLISHMENT OF PERFORMANCE GOALS. Awards for Named Executive
Officers, other than Stock Options and Stock Appreciation Rights, shall be based
on the attainment of certain performance goals. No later than the earlier of (i)
ninety (90) days after the commencement of the applicable fiscal year of the
Company or one of its Subsidiaries or such other award period as may be
established by the Committee or the Board ("AWARD PERIOD") and (ii) the
completion of twenty-five percent (25%) of such Award Period, the Committee or
the Board shall establish, in writing, the performance goals applicable to each
such Award for Named Executive Officers. At the time the performance goals are
established, their outcome must be substantially uncertain. In addition, the
performance goal must state, in terms of an objective formula or standard, the
method for computing the amount of compensation payable to the Named Executive
Officer if the goal is obtained. Such formula or standard shall be sufficiently
objective so that a third party with knowledge of the relevant performance
results could calculate the amount to be paid to the subject Named Executive
Officer. The material terms of the performance goals for Named Executive
Officers and the compensation payable thereunder shall be submitted to the
shareholders of the Company for their review and approval if and to the extent
required for such compensation to be deductible pursuant to Section 162(m) (or
any successor thereto) of the Code, and the Treasury Regulations thereunder.
Shareholder approval, if necessary, shall be obtained for such performance goals
prior to any Award being paid to such Named Executive Officer. If shareholder
approval is required and not received with respect to such performance goals, no
amount shall be paid to such Named Executive Officer for such applicable Award
Period pursuant to this Plan.
17.3 COMPONENTS OF AWARDS. Each Award granted to a Named Executive
Officer, other than Stock Options and Stock Appreciation Rights, shall be based
on performance goals which are sufficiently objective so that a third party
having knowledge of the relevant facts could determine whether the goal was met.
Except as provided in SUBSECTION 17.8 herein, performance measures which may
serve as determinants of Named Executive Officers' Awards shall be limited to
the following measures: earnings per share; return on assets; return on equity;
return on capital; net profit after taxes; net profit before taxes; operating
profits; stock price; and sales or expenses. Within ninety (90) days following
the end of each Award Period, the Committee or the Board shall certify in
writing that the performance goals, and any other material terms were satisfied.
Thereafter, Awards shall be made for each Named Executive Officer as determined
by the Committee or the Board. The Awards may not vary from the pre-established
amount based on the level of achievement.
17.4 NO MID-YEAR CHANGE IN AWARDS. Except as provided in SUBSECTIONS 17.8
AND 17.9 herein, each Named Executive Officer's Awards shall be based
exclusively on the performance measures established by the Committee or the
Board pursuant to SUBSECTIONS 17.2 AND 17.3.
17.5 NO PARTIAL AWARD PERIOD PARTICIPATION. A Named Executive Officer who
becomes eligible to participate in this Plan after performance goals have been
established in an Award Period pursuant to SUBSECTIONS 17.2 AND 17.3 may not
participate in this Plan prior to the next
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<PAGE>
succeeding Award Period, except with respect to Awards which are Stock Options
or Stock Appreciation Rights.
17.6 PERFORMANCE GOALS. Except as provided in SUBSECTION 17.8 herein,
performance goals shall not be changed following their establishment, and Named
Executive Officers shall not receive any payout, except with respect to Awards
which are Stock Options or Stock Appreciation Rights, when the minimum
performance goals are not met or exceeded.
17.7 INDIVIDUAL PERFORMANCE AND DISCRETIONARY ADJUSTMENTS. Except as
provided in SUBSECTION 17.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their Awards,
other than Awards which are Stock Options or Stock Appreciation Rights. The
payment of such Awards shall be entirely dependent upon the attainment of the
preestablished performance goals.
17.8 AMENDMENTS. No amendment of this Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum amount that
can be paid to any one Participant pursuant to this Plan, (ii) change the
specified performance goal for payment of Awards, or (iii) modify the
requirements as to eligibility for participation in this Plan, unless the
Company's shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) (or any successor thereto) of
the Code of such payment in the fiscal year it is paid. The Committee or the
Board shall amend this SECTION 17 and such other provisions as it deems
appropriate, to cause amounts payable to Named Executive Officers to satisfy the
requirements of Section 162(m) (or any successor thereto) and the Treasury
regulations promulgated thereunder.
17.9 STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Notwithstanding any
provision of this Plan (including the provisions of this SECTION 17) to the
contrary, the amount of compensation which a Named Executive Officer may receive
with respect to Stock Options and Stock Appreciation Rights which are granted
hereunder is based solely on an increase in the value of the applicable Shares
after the date of grant of such Award. Thus, no Stock Option may be granted
hereunder to a Named Executive Officer with an exercise price less than the Fair
Market Value of Shares on the date of grant. Furthermore, the maximum number of
Shares (or cash equivalent value) with respect to which Stock Options or Stock
Appreciation Rights may be granted hereunder to any Named Executive Officer
during any calendar year may not exceed 411,000 Shares, subject to adjustment as
provided in SECTION 13 hereunder.
17.10 MAXIMUM AMOUNT OF COMPENSATION. The maximum amount of compensation
payable as an Award (other than an Award which is a Stock Option or Stock
Appreciation Right) to any Named Executive Officer during any calendar year may
not exceed $1,000,000.
-24-
EXHIBIT 21
LIST OF SUBSIDIARIES
United Wellhead Services, Inc.
Flare King, Inc.
Hi-Tech Compessor Company, L.C.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
[LETTERHEAD OF KARLINS FULLER ARNOLD & KLODOSKY, P.C.]
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 3, 1997, on our audits of the financial statements of United
Wellhead Services, Inc., Flare King, Inc., and Hi-Tech Compressor Company, L.C.,
except for Note L on United Wellhead Services, Inc., Note J on Flare King, Inc.
and Note H on Hi-Tech Compressor Company, L.C., as to whcih to the dates are
April 11, 1997 and October 14, 1997. We also consent to the reference to our
firm under the caption "Experts."
/s/ KARLINS FULLER ARNOLD & KLODOSKY, P.C.
KARLINS FULLER ARNOLD & KLODOSKY, P.C.
The Woodlands, Texas
October 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM UNITED WELLHEAD SERVICES, INC. AS THE ACCOUNTING ACQUIROR AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 369
<SECURITIES> 0
<RECEIVABLES> 2099
<ALLOWANCES> (10)
<INVENTORY> 739
<CURRENT-ASSETS> 3,269
<PP&E> 1,387
<DEPRECIATION> (973)
<TOTAL-ASSETS> 3,898
<CURRENT-LIABILITIES> (2,025)
<BONDS> 0
0
(854)
<COMMON> (479)
<OTHER-SE> (230)
<TOTAL-LIABILITY-AND-EQUITY> (1,563)
<SALES> (8,011)
<TOTAL-REVENUES> (8,011)
<CGS> 5,160
<TOTAL-COSTS> 2,198
<OTHER-EXPENSES> 54
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> (563)
<INCOME-TAX> 257
<INCOME-CONTINUING> (306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (306)
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
