<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 2000
REGISTRATION NO. 333-43411
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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W-H ENERGY SERVICES, INC.
(Name of Registrant as specified in its charter)
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<S> <C> <C>
TEXAS 3550 76-0281502
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
10370 RICHMOND AVENUE
SUITE 990
HOUSTON, TEXAS 77042
(713) 974-9071
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
KENNETH T. WHITE, JR.
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
W-H ENERGY SERVICES, INC.
10370 RICHMOND AVENUE
SUITE 990
HOUSTON, TEXAS 77042
(713) 974-9071
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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T. MARK KELLY WILLIAM N. FINNEGAN, IV
VINSON & ELKINS L.L.P. DAVID P. OELMAN
2300 FIRST CITY TOWER ANDREWS & KURTH L.L.P.
1001 FANNIN 4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002 600 TRAVIS
(713) 758-2222 HOUSTON, TEXAS 77002
(713) 220-4200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $.0001 par value.......................... $214,666,667 $56,673
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(1) Estimated solely for the purpose of determining the amount of the
registration fee pursuant to Rule 457(o).
(2) We have previously paid $23,748 in connection with our initial filing on
December 27, 1997.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell nor does it seek an offer to buy these securities in
any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION -- MAY 11, 2000
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PROSPECTUS
, 2000
W-H ENERGY SERVICES, INC.
11,666,667 SHARES OF COMMON STOCK
W-H ENERGY SERVICES, INC.:
- - We are a diversified oilfield service company with operations that provide our
customers with:
- drilling related products and services;
- completion and workover related products and services; and
- maintenance and safety related products and services.
- - W-H Energy Services, Inc.
10370 Richmond Avenue, Suite 990
Houston, Texas 77042
(713) 974-9071
PROPOSED SYMBOL AND MARKET:
- - "WHES"/Nasdaq National Market
THE OFFERING:
- - We are offering 11,666,667 shares of our common stock.
- - The selling shareholders have granted the underwriters an option to purchase
an additional 1,750,000 shares of our common stock to cover over-allotments.
We will not receive any proceeds of the sale of common stock by the selling
shareholders.
- - This is our initial public offering, and no public market currently exists for
our common stock.
- - We anticipate that the initial public offering price for our common stock will
be between $14.00 and $16.00 per share.
- - We plan to use the proceeds from this offering to repay a portion of our
outstanding debt and for general corporate purposes.
- - Closing: , 2000.
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to W-H Energy:
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THIS INVESTMENT INVOLVES RISK. PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 6.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE MORGAN STANLEY DEAN WITTER
UBS WARBURG LLC
SIMMONS & COMPANY
INTERNATIONAL
DLJDIRECT INC.
<PAGE> 3
[MAP OF GULF COAST AND NORTH SEA REGIONS SHOWING OPERATING LOCATIONS]
[PICTURES OF CERTAIN FACILITIES AND EQUIPMENT]
(ii)
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary...................... 1
Risk Factors............................ 6
Special Note Regarding Forward-Looking
Statements............................ 13
Use of Proceeds......................... 14
Dividend Policy......................... 14
Dilution................................ 15
Capitalization.......................... 16
Selected Consolidated Financial Data.... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 20
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PAGE
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Business................................ 28
Management.............................. 42
Relationships and Related
Transactions.......................... 48
Principal and Selling Shareholders...... 52
Description of Capital Stock............ 55
Shares Eligible for Future Sale......... 56
Underwriting............................ 58
Legal Matters........................... 61
Experts................................. 61
Available Information................... 61
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
Unless otherwise indicated, all information in this prospectus:
- gives effect to a 33-for-1 split of our common stock prior to this
offering;
- assumes the issuance to DLJ Merchant Banking Partners II, L.P. and its
affiliated investment funds of 2,974,488 shares of our common stock in
connection with this offering in respect of warrants held by those
entities and that the balance of their warrants are retired through the
prepayment of our 13% senior subordinated notes with a portion of the
proceeds of this offering;
- assumes the exercise by one of our directors of warrants to purchase
49,500 shares of our common stock prior to the completion of this
offering; and
- assumes no exercise by the underwriters of their option to purchase an
additional 1,750,000 shares of our common stock from the selling
shareholders to cover over-allotments.
(iii)
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus but does
not contain all of the information that may be important to you. This prospectus
includes specific terms of this offering, information about our business and our
financial information. You should read this prospectus in its entirety before
making an investment decision.
OUR COMPANY
OUR BUSINESS
We are a diversified oilfield service company that provides products and
services used primarily for the drilling, completion and production of oil and
natural gas wells. Our operations currently are focused offshore in the Gulf of
Mexico and in the North Sea and onshore along the Gulf Coast. We expect to
expand our international operations into Brazil, the Caspian Sea, Italy and the
Middle East in 2000. Since our formation in 1989, we have entered the following
three primary lines of business through acquisitions and have expanded our
product and service offerings through a combination of acquisitions, internal
growth and research and development:
- drilling related products and services, which include
logging-while-drilling, measurement-while-drilling, rental tools
(including drill pipe), downhole drilling motors and drilling fluids;
- completion and workover related products and services, which include
cased-hole wireline logging and perforating, polymers and specialty
chemicals and tubing; and
- maintenance and safety related products and services, which include
integrated on-site cleaning and waste management and safety equipment.
Our customers include major and independent oil and natural gas companies,
refining and petrochemical companies and other oilfield service companies,
including independent directional drilling companies. We reported revenues of
$137.1 million and EBITDA, as adjusted, of $23.0 million in 1999, giving pro
forma effect to our March 1999 acquisition of the PathFinder business described
below. We reported revenues of $47.2 million and EBITDA, as adjusted, of $10.2
million in the quarter ended March 31, 2000.
We focus on discrete products and services that provide our customers with
alternatives to the integrated services packages typically marketed by the major
integrated oilfield service companies. We believe our business approach enables
us to compete successfully against these larger oilfield service companies by:
- offering technologically advanced products and services;
- focusing on niche markets in which leading market positions can be
maintained;
- operating our business lines autonomously and marketing our product
offerings independently;
- capitalizing on our reputation for superior customer service,
responsiveness and reliability; and
- providing equity-incentives to key management and operating personnel.
OUR STRATEGY
Our business strategy is to grow revenue and earnings by providing our
customers with an alternative to the major integrated oilfield service companies
while preserving our entrepreneurial culture. Our business strategy consists of
the following key components:
- Provide leading technology solutions for our customers. Our technological
capability gives us a competitive advantage because of the substantial
barriers to entry in the high-tech segments of the oilfield service
industry in which we compete.
1
<PAGE> 6
- Capitalize on the growth of offshore and directional drilling. A
substantial portion of our products and services are designed for use in
offshore and directional drilling, which represent an increasing
percentage of overall drilling activity.
- Expand the breadth and scope of our international operations. As of
December 31, 1999, we only provided logging-while-drilling (LWD) and
measurement-while-drilling (MWD) products and services in one
international region -- the North Sea. Since January 1, 2000, we have
been selected to provide LWD and MWD products and services, downhole
drilling motors and directional drilling services for customers in the
Caspian Sea and in Italy. In addition, we are in negotiations to provide
LWD and MWD products and services to customers in the Middle East and
Brazil.
- Leverage our market positions to deploy our under-utilized equipment. We
intend to capitalize on the increase in oilfield activity and our
opportunities for international expansion by deploying under-utilized
equipment, including the significant inventory of LWD and MWD tools,
downhole drilling motors and other equipment we acquired as part of the
PathFinder acquisition.
- Selectively acquire complementary businesses and technologies. We will
continue to pursue acquisitions which increase the technological base and
expand the market reach of our product and service offerings.
OUR ACQUISITION OF THE PATHFINDER ASSETS
In March 1999, we acquired the LWD and related MWD business of Halliburton
Company located in the United States and the North Sea, as well as Halliburton's
remaining LWD and related MWD assets worldwide. Halliburton was required to
divest its LWD and related MWD business, which it marketed under the PathFinder
name, by the United States Department of Justice as a condition of its
acquisition of Dresser Industries, Inc. In this acquisition, we also acquired a
significant inventory of additional MWD tools and the Dyna Drill line of
downhole drilling motors and manufacturing equipment. In this prospectus, we
refer to the assets we acquired from Halliburton as the PathFinder assets, and
we refer to this acquisition transaction as the PathFinder acquisition.
We are one of only four companies worldwide with the technological
capability to provide a full complement of LWD services. LWD technology allows
oil and natural gas companies to gather well formation data while drilling,
eliminating the need to halt drilling, remove the drill string and use wireline
to lower evaluation tools into the well. Many offshore wells now utilize LWD
technology because of the substantial time and cost savings which
logging-while-drilling provides. Furthermore, we believe that many oil and
natural gas companies now rely exclusively on LWD technology to provide well
formation data for open-hole wells and no longer perform subsequent evaluations
with traditional wireline logging tools.
With the PathFinder acquisition, we acquired a mature LWD business with a
variety of available tools for evaluating well formation data which has
benefitted from Halliburton's substantial historical research and development
and capital investment. Since the acquisition, we have continued to improve the
existing PathFinder technologies and to develop complementary tools through our
own research and development efforts. Since the date we acquired the PathFinder
assets, we have tripled the number of active LWD jobs on which our PathFinder
tools are working in the Gulf of Mexico. Our LWD customers include the following
major and independent oil and natural gas companies: BP Amoco, Burlington
Resources, Chevron, Coastal Oil & Gas, Conoco, ExxonMobil, Shell, Spinnaker
Exploration and Texaco.
2
<PAGE> 7
THE OFFERING
Common stock offered by
us......................... 11,666,667 shares
Common stock to be
outstanding after this
offering................. 23,775,555 shares(1)
Use of proceeds............ We intend to use the net proceeds of this offering:
- to repay approximately $96.7 million of principal
and accrued and unpaid interest on borrowings
under our credit facility;
- to repay in full, for a cash payment of
approximately $37.3 million, our 13% senior
subordinated notes and the related
payment-in-kind notes, plus accrued and unpaid
interest;
- to repay in full, for a cash payment of
approximately $25.5 million, our 12 1/2% senior
subordinated notes and the related
payment-in-kind notes, plus accrued and unpaid
interest; and
- for general corporate purposes.
The selling shareholders will sell shares of common
stock to the underwriters if the underwriters
exercise their over-allotment option. We will not
receive any proceeds from the sale of common stock
by the selling shareholders.
Proposed Nasdaq National
Market symbol............ "WHES"
- ------------------------------
(1) The number of shares of our common stock outstanding after this offering is
based on the number of shares outstanding as of March 31, 2000, adjusted to
include:
- 2,974,488 shares of our common stock to be issued to DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds in connection with
this offering in respect of warrants held by those entities; and
- 49,500 shares of our common stock to be issued to one of our directors
upon the exercise of warrants prior to completion of this offering.
This number does not include:
- up to 170,000 shares of our common stock subject to options to be granted
to certain of our employees concurrently with this offering at an
exercise price equal to the initial public offering price;
- an aggregate of 2,229,150 shares of our common stock issuable upon the
exercise of options outstanding as of March 31, 2000 at a weighted
average exercise price of $3.96 per share; or
- an aggregate of 3,076,194 shares of our common stock issuable upon the
exercise of warrants outstanding as of March 31, 2000 at a weighted
average exercise price of $2.45 per share.
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
Our summary consolidated financial information set forth below is derived
from our Consolidated Financial Statements and should be read in conjunction
with our Consolidated Financial Statements and the accompanying notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The as adjusted consolidated
statements of operations data, for the year ended December 31, 1999 and for the
three months ended March 31, 2000, set forth below are derived from the
Unaudited Pro Forma Financial Information that appears elsewhere in this
prospectus.
The unaudited as adjusted consolidated statement of operations data for the
year ended December 31, 1999 give effect to:
- the acquisition of the PathFinder business located in the United States
and the North Sea and the related issuance of our 13% senior subordinated
notes as if these events had occurred on January 1, 1999; and
- the receipt of $159.5 million of estimated net proceeds from the sale of
11,666,667 shares of our common stock in this offering at an assumed
price of $15.00 per share after deducting the estimated underwriting fees
and estimated expenses of this offering and the application of these net
proceeds as described under "Use of Proceeds."
The as adjusted financial information does not purport to represent what our
results of operations actually would have been had these events, in fact,
occurred on January 1, 1999, nor are they intended to project our results of
operations for any future period or date.
The unaudited as adjusted consolidated statement of operations data for the
quarter ended March 31, 2000 and the unaudited as adjusted consolidated balance
sheet data as of March 31, 2000 give effect to the receipt and application of
the estimated net proceeds from this offering as described above.
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HISTORICAL
AS ADJUSTED ----------------- AS ADJUSTED
HISTORICAL ------------ THREE MONTHS ---------------
------------------------------ YEAR ENDED ENDED THREE MONTHS
YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ENDED MARCH 31,
------------------------------ ------------ ----------------- ---------------
1997 1998 1999 1999 1999 2000 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues.................. 59,833 90,293 127,641 137,142 21,724 47,237 47,237
Cost of revenues.......... 25,889 43,431 68,399 74,157 10,295 25,853 25,853
Selling, general and
administrative.......... 30,732(1) 23,788 36,118 39,361 7,189 11,225 11,225
Depreciation and
amortization............ 5,870 10,748 15,521 16,351 3,251 4,429 4,429
------- ------- -------- -------- ------- ------- -------
Income (loss) from
operations.............. (2,658) 12,326 7,603 7,273 989 5,730 5,730
Interest expense.......... 4,733 13,418 21,989 4,451 3,655 6,510 1,684
Other expense (income),
net..................... (8) 142 595 595 142 134 134
------- ------- -------- -------- ------- ------- -------
Income (loss) before
income taxes............ (7,383) (1,234) (14,981) 2,227 (2,808) (914) 3,912
Provision (benefit) for
income taxes............ (1,714) 152 239 239 (93) 292 292
------- ------- -------- -------- ------- ------- -------
Net income (loss)......... $(5,669) $(1,386) $(15,220) $ 1,988(2)(3) $(2,715) $(1,206) $ 3,620(2)(3)
======= ======= ======== ======== ======= ======= =======
Net income (loss) per
share
Basic................... $ (0.32) $ (0.15) $ (1.35) $ 0.08 $ (0.30) $ (0.10) $ 0.15
======= ======= ======== ======== ======= ======= =======
Diluted................. $ (0.32) $ (0.15) $ (1.35) $ 0.07 $ (0.30) (0.10) $ 0.13
======= ======= ======== ======== ======= ======= =======
Number of shares used in
computing income (loss)
per share
Basic................... 17,448 9,075 11,306 23,766 9,108 12,059 23,776
======= ======= ======== ======== ======= ======= =======
Diluted................. 17,448 9,075 11,306 27,499 9,108 12,059 27,608
======= ======= ======== ======== ======= ======= =======
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4
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HISTORICAL
AS ADJUSTED ----------------- AS ADJUSTED
HISTORICAL ------------ THREE MONTHS ---------------
------------------------------ YEAR ENDED ENDED THREE MONTHS
YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ENDED MARCH 31,
------------------------------ ------------ ----------------- ---------------
1997 1998 1999 1999 1999 2000 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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OTHER FINANCIAL DATA:
EBITDA, as adjusted(4).... $16,673 $22,932 $ 22,546 $ 23,046 $ 4,098 $10,179 $10,179
Net cash provided by (used
in) operating
activities.............. 3,472 1,103 (7,230) 7,272 (5,146) (1,166) 2,675
Net cash provided by (used
in) in investing
activities.............. (34,760) (52,289) (46,352) (46,352) (34,299) (3,731) (3,731)
Net cash provided by (used
in) financing
activities.............. 32,340 50,982 54,649 54,754 39,250 5,963 8,431
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MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital............................................. $ 31,020 $ 33,405
Total assets................................................ 197,489 195,521
Total debt.................................................. 206,335 56,837
Total shareholders' equity (deficit)........................ (37,773) 112,032
</TABLE>
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(1) Includes $13.5 million of non-recurring compensation expense resulting from
the redemption of options in connection with our recapitalization in 1997.
(2) Does not include the write-off for deferred financing costs and unamortized
discount associated with the debt to be retired with the proceeds from this
offering in the amount of $9.9 million for the year ended December 31, 1999
and $9.2 million for the three months ended March 31, 2000. The write-off
will be recorded in our historical statement of operations in the period the
debt is repaid.
(3) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
We expensed $600,000 and $150,000, for the year ended December 31, 1999 and
the three-months ended March 31, 2000, respectively, related to this
agreement. The charge will be recorded in our historical statement of
operations in the period the fee is paid.
(4) We calculate EBITDA, as adjusted, as earnings before interest expense,
income taxes, depreciation and amortization, non-cash stock-based
compensation expense, and a non-recurring compensation expense of $13.5
million in 1997 resulting from the redemption of options in connection with
our recapitalization. EBITDA, as adjusted, should not be considered as an
alternative to net income or any other measure of operating performance
calculated in accordance with generally accepted accounting principles.
EBITDA is widely used by financial analysts as a measure of financial
performance. Our calculation of EBITDA, as adjusted, may not be comparable
to similarly titled measures reported by other companies.
5
<PAGE> 10
RISK FACTORS
In addition to the other information in this prospectus, the following
factors should be considered carefully in evaluating us and our business before
purchasing shares of our common stock.
RISKS RELATED TO OUR BUSINESS
DEMAND FOR OUR PRODUCTS AND SERVICES DEPENDS ON OIL AND NATURAL GAS INDUSTRY
ACTIVITY AND EXPENDITURE LEVELS THAT ARE DIRECTLY AFFECTED BY TRENDS IN OIL AND
NATURAL GAS PRICES.
A prolonged downturn in oil and natural gas prices could have a material
adverse effect on our results of operations and financial condition,
particularly with respect to our drilling related products and services. Demand
for our drilling related products and services is particularly sensitive to the
level of exploration, development and production activity of, and the
corresponding capital spending by, oil and natural gas companies. Prices for oil
and natural gas are subject to large fluctuations in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of other factors that are beyond our control. Any
prolonged reduction in oil and natural gas prices will depress the level of
exploration, development and production activity. Lower levels of activity
result in a corresponding decline in the demand for our drilling related
products and services which could have a material adverse effect on our revenues
and profitability.
Factors affecting the prices of oil and natural gas include:
- the level of demand for oil and natural gas;
- worldwide political, military and economic conditions, including the
ability of the Organization of Petroleum Exporting Countries (OPEC) to
set and maintain production levels and prices for oil;
- the level of oil and natural gas production;
- the policies of governments regarding the exploration for and production
and development of their oil and natural gas reserves; and
- global weather conditions.
The markets for oil and natural gas historically have been volatile and are
likely to continue to be so in the future.
Although the production sector of the oil and natural gas industry, which
utilizes our completion and workover related products and services, is less
immediately affected by changing oil and natural gas prices and, thus, is less
volatile than the exploration sector, which utilizes our drilling related
products and services, producers likely would react to declining oil and natural
gas prices by reducing expenditures. This reduction in expenditures could
adversely affect our business in this segment. We are unable to accurately
predict the future price of oil and natural gas or the level of oil and natural
gas industry activity.
OUR BUSINESS IS SUBJECT TO VARIOUS OPERATING RISKS THAT COULD ADVERSELY AFFECT
OUR FINANCIAL CONDITION OR RESULTS OF OPERATION.
Many of our products and services are used in potentially hazardous
drilling, completion and production applications, as well as cleaning,
maintenance and safety operations. These activities can cause:
- personal injury;
- loss of life;
- damage or destruction of property, equipment or the environment; and
- suspension of operations.
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<PAGE> 11
Litigation arising from a catastrophic occurrence at a location where our
equipment or services are used may result, in the future, in our being named as
a defendant in lawsuits asserting potentially large claims.
In addition, many of our employees who perform services on offshore
platforms and vessels are covered by provisions of the Jones Act, the Death on
the High Seas Act and general maritime law. These laws have the effect of making
the liability limits established by state workers' compensation laws
inapplicable to these employees and, instead, permit them or their
representatives to pursue actions against us for damages from job-related
injuries, with generally no limitations on our potential liability.
The frequency and severity of these incidents affect our operating costs,
insurability and relationships with customers, employees and regulators. Any
increase in the frequency or severity of these incidents, or the general level
of compensation awards resulting from these incidents, could affect our ability
to obtain projects from oil and natural gas companies or insurance covering
these incidents.
Although we believe that we maintain insurance coverage that is adequate in
amount and type for the risks associated with our business, there is always a
risk that our insurance may not be sufficient to cover any particular loss. In
addition, our insurance does not provide coverage for all liabilities, including
liability for some events involving pollution. Our insurance coverage may not
otherwise be adequate to cover claims that may arise, and we may not be able to
maintain adequate insurance at rates we consider commercially reasonable. The
occurrence of an event not fully covered by insurance could have a material
adverse effect on our financial condition.
OUR OPERATIONS DEPEND ON OUR ABILITY TO ATTRACT SKILLED WORKERS.
Our ability to maintain our current level of profitability largely will be
dependent on retaining the skilled workers we presently employ. In addition, our
future growth prospects depend substantially on our ability to attract
additional skilled workers. The demand for skilled workers in the markets that
we serve is high and the supply is limited. A significant increase in the wages
paid by competing employers could result in reductions in our skilled labor
force, increases in our wage rates, or both. If either of these events occurred,
our capacity and profitability could be diminished and our growth potential
could be impaired.
OUR OPERATIONS DEPEND ON OUR KEY MANAGEMENT PERSONNEL.
We depend to a large extent on the abilities and continued active
participation of our Chairman, President and Chief Executive Officer, Kenneth T.
White, Jr., our other executive officers and the management and key employees of
our operating subsidiaries. The loss of the services of any of these persons
could have a material adverse effect on our business and operations.
INTENSE COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
We compete in highly competitive areas of the oilfield products and
services markets. The depressed oil and natural gas prices and the consequent
decline in the oil and natural gas industry in the 1980s, 1998 and early 1999
has led to a consolidation of the number of companies providing products and
services similar to those we provide. As a result of these consolidations, many
of our competitors are much larger and have greater marketing, distribution,
financial and other resources than we do.
We may not be able to continue operating at current levels or prices if our
current competitors or new market entrants introduce new products or services
with better features, performance, prices or other characteristics. Competitive
pressures or other factors also may result in significant price competition with
respect to existing products and services that could have a material adverse
effect on our results of operations and financial condition. Competition among
oilfield product and service providers is also based on a provider's reputation
for safety and quality service. Although we believe that our reputation for
safety and quality service is good, we may not be able to maintain this
reputation and, thus, our competitive position.
In the future, we also may face the threat of competition from companies
providing products similar to ours over the Internet. These companies may have
greater technical capabilities and access to greater
7
<PAGE> 12
financial resources than we have. This may place us at a disadvantage in
responding to the Internet offerings of these competitors or to changes in the
way our customers procure products and services.
ADVERSE WEATHER CONDITIONS COULD RESULT IN FLUCTUATIONS IN OUR OPERATING
RESULTS.
Demand for our products and services in the Gulf of Mexico may be adversely
affected by the hurricanes and other storms prevalent in the Gulf of Mexico and
along the Gulf Coast during the summer and fall months. The threat of a
hurricane or tropical storm in the vicinity of a drilling rig where we have
personnel and equipment deployed often requires us to evacuate our personnel and
equipment. An evacuation and the amount of time required to redeploy personnel
and equipment after the threat of a storm has passed may result in significant
downtime and lost revenues, especially in the case of a large storm. In
addition, equipment that we are unable to remove from the path of a storm may be
damaged, lost or destroyed.
In the North Sea, demand for our products and services is also affected by
periods of adverse weather, although the storms experienced in the North Sea
typically do not require the evacuation of personnel and equipment.
As a result, our operating results may vary from quarter to quarter,
depending upon factors outside of our control. Thus, full year results are not
likely to be a direct multiple of any particular quarter or combination of
quarters.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS COULD ADVERSELY
AFFECT OUR BUSINESS.
Our business is significantly affected by:
- foreign, federal, state and local laws and other regulations relating to
-- the oil and natural gas industry,
-- the refining and petrochemical industry, and
-- worker safety and environmental protection;
- changes in these laws and regulations; and
- the level of enforcement of these laws and regulations.
We depend on the demand for our products and services from oil and natural
gas companies, oilfield service companies and refining and petrochemical
companies. This demand is affected by changing taxes, price controls and other
laws and regulations relating to the oil and natural gas industry and the
refining and petrochemical industry, generally. For example, the adoption of
laws and regulations curtailing exploration and development drilling for oil and
natural gas in our areas of operation for economic, environmental or other
policy reasons could adversely affect our operations by limiting demand for our
products and services.
In addition, our maintenance and safety related products and services are
substantially dependent on the cleaning and maintenance operations of our
customers. Numerous foreign, federal, state and local laws and regulations
affect the necessity, timing and frequency of the cleaning and maintenance
operations of refining and petrochemical companies and thus affect the demand
for our products and services. We cannot determine the extent to which our
future operations and earnings may be affected by new legislation, new
regulations or changes in existing laws and regulations or enforcement.
The technical requirements of the foreign, federal, state and local laws
and regulations affecting our business are becoming increasingly complex and
stringent. These laws may provide for "strict liability" for damages to natural
resources or threats to public health and safety, rendering a party liable for
8
<PAGE> 13
environmental damage without regard to negligence or fault on the part of the
party. Sanctions for noncompliance may include:
- revocation of permits;
- corrective action orders;
- administrative or civil penalties; and
- criminal prosecution.
Some environmental laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In addition, we may
be subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances, as well as damage to natural
resources. These laws and regulations also may expose us to liability for the
conduct of, or conditions caused by, others, or for our acts that were in
compliance with applicable laws at the time the acts were performed.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY NEW TECHNOLOGIES.
Many of our operations, primarily LWD and MWD products and services and
specialty chemical sales, are based substantially on technologies for which we
hold licenses or patents. Our success in these areas depends to a significant
extent on the development and implementation of new product designs and
formulations. Whether we can continue to develop products and technologies to
meet evolving industry requirements and at prices acceptable to our customers
will be a significant factor in determining our ability to compete in these
areas. Many of our competitors have greater resources devoted to research and
development of new products and technologies than we do. While we have licenses
or patents on some of our technologies and products and have applied for patents
on others, the licenses or patents we have secured may still be successfully
challenged by others. Moreover, these licenses or patents may not protect us
from the development of similar products by others.
WE DO NOT OWN ALL OF THE TECHNOLOGIES ASSOCIATED WITH OUR PATHFINDER ASSETS.
Our LWD business is substantially dependent upon technologies that we
acquired in the PathFinder acquisition. We possess the right to use these
technologies through non-exclusive, worldwide licenses granted to us by
Halliburton and other third-party licensors. Our rights under these licenses are
subject to the licensors' abiding by the terms of these licenses and not
terminating them.
In addition, because these licenses are non-exclusive, these technologies
may be licensed by Halliburton and other licensors to third parties, including
our current competitors in the LWD business and others who are seeking to enter
the LWD business. We believe, however, that even if a competitor were able to
obtain licenses to use all of these technologies, other substantial economic
barriers to entry exist in the LWD business.
Halliburton has agreed to defend and indemnify us with respect to any claim
of infringement or misappropriation by third parties with regard to the
intellectual property, such as patents, copyrights, trade secrets, and
trademarks, that were conveyed to us in the PathFinder acquisition.
Halliburton's obligation only applies to claims made on or before March 29,
2001. We have received notice of an infringement claim from a competitor
asserting that certain components of a PathFinder tool infringe upon one or more
of its patents. Halliburton has agreed to undertake the defense of this claim.
In addition, we have received an inquiry from an educational institution as to
whether a PathFinder tool infringes upon one or more patents held by it. We have
notified Halliburton of this inquiry. Although we believe that this indemnity
will protect us against claims of this nature, we cannot be certain that we will
be protected against all risks related to claims in connection with these
technologies.
9
<PAGE> 14
THE CONCENTRATION OF OUR CUSTOMERS IN THE ENERGY INDUSTRY COULD MATERIALLY AND
ADVERSELY AFFECT OUR EARNINGS.
Substantially all of our customers are in the energy industry. This
concentration of customers may impact our overall exposure to credit risk,
either positively or negatively, in that customers may be similarly affected by
changes in economic and industry conditions. Many of our customers were slow in
paying their accounts in late 1998 and 1999 in light of adverse industry
conditions. We perform ongoing credit evaluations of our customers and do not
generally require collateral in support of our trade receivables. We maintain
reserves for potential credit losses, and actual losses have historically been
within expectations.
FUTURE ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND
ADVERSELY AFFECT OUR OPERATING RESULTS.
We may acquire other companies, assets and product lines that complement or
expand our existing business. Each acquisition, however, involves a number of
risks. These risks include:
- the diversion of our management's attention from our existing businesses
to integrating the operations and personnel of the acquired business;
- possible adverse effects on our operating results during the integration
process; and
- our possible inability to achieve the intended objectives of the
combination.
We may seek to finance an acquisition through borrowings under our credit
facility or through the issuance of new debt or equity securities. If we should
proceed with a relatively large cash acquisition, we could deplete a substantial
portion of our financial resources to the possible detriment of our other
operations. Any future acquisitions could also dilute the equity interests of
our shareholders, require us to write off assets for accounting purposes or
create other undesirable accounting issues, such as significant expenses for
amortization of goodwill or other intangible assets.
OUR INTERNATIONAL OPERATIONS MAY EXPERIENCE INTERRUPTIONS DUE TO POLITICAL AND
ECONOMIC RISKS.
We operate our business and market our products and services in oil and
natural gas producing areas outside the United States. We are, therefore,
subject to the risks common in international operations and investments in
foreign countries. These risks include:
- nationalization and expropriation;
- war and civil disturbances;
- restrictive actions by local governments;
- limitations on repatriation of earnings;
- changes in foreign tax laws; and
- changes in currency exchange rates.
The occurrence of any of these events could have an adverse effect on
regional demand for our products and services or our ability to provide our
products and services in a particular region. Although we currently only operate
internationally in the North Sea, we are in the process of expanding our
business into other international locations. An interruption of our
international operations could have a material adverse effect on our results of
operations and financial condition.
A CHANGE IN THE ESTIMATED LIFE OF GOODWILL COULD REDUCE OUR EARNINGS.
Our balance sheet as of March 31, 2000, included "goodwill" which
represented 19% of our assets. Goodwill is recorded when we pay more for a
business than the fair market value of the tangible and separately measurable
intangible net assets. Generally accepted accounting principles require us to
amortize this and all other intangible assets over the periods we benefit from
those assets. The amortization periods for our acquisitions to date are between
20 years and 40 years. We evaluate the useful
10
<PAGE> 15
life of all our assets on an ongoing basis. If we were to assign a shorter life
to a material portion of this goodwill, earnings reported in prospective periods
would be reduced. If we were to determine that the remaining balance of goodwill
was impaired, we would be required to take an immediate charge to earnings with
a correlative effect on stockholders' equity (deficit).
AS A HOLDING COMPANY, WE ARE TOTALLY DEPENDENT ON DIVIDENDS FROM OUR OPERATING
SUBSIDIARIES TO PAY DIVIDENDS AND OUR OTHER OBLIGATIONS.
We are a holding company with no business operations. Our only significant
asset is the outstanding capital stock of our subsidiaries. As a result, we must
rely on payments from our subsidiaries to meet our obligations. We currently
expect that the earnings and cash flow of our subsidiaries will be retained and
used by them in their operations, including to service any debt obligations they
may now or in the future have. Even if we decided to pay a dividend on or make a
distribution in respect of our common stock, our subsidiaries may not be able to
generate sufficient cash flow to pay a dividend or distribute funds to us. At
present, we and our subsidiaries are restricted from paying dividends under our
credit facility. Future credit facilities and other future debt obligations, as
well as statutory provisions, may also limit our ability to pay dividends.
RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK
THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK BY EXISTING SHAREHOLDERS WILL
LIMIT THE INFLUENCE OF PUBLIC SHAREHOLDERS.
Upon completion of this offering, our principal shareholders, investment
funds affiliated with The Jordan Company, a private merchant banking firm, and
DLJ Merchant Banking Partners II, L.P. and its affiliated investment funds,
together with our officers, directors and other affiliates, will beneficially
own approximately 50.0% of the outstanding shares of our common stock.
Accordingly, these shareholders, if they were to vote in the same manner, would
have the ability to significantly influence the election of our directors and
the outcome of other matters submitted to a vote of our shareholders, which may
have the effect of delaying or preventing a change in control of us.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline.
Upon completion of this offering, a total of 23,775,555 shares of our
common stock will be outstanding. Of these shares, all of the 11,666,667 shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the Securities Act),
unless these shares are purchased by our affiliates. The remaining 12,108,888
shares of common stock held by existing shareholders are restricted securities.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under the Securities Act.
Under "lock-up" agreements, our executive officers, directors and certain
shareholders, including the selling shareholders, have agreed that, with limited
exceptions, they will not sell any shares of our common stock for a period of
180 days from the date of this prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, subject to the following:
- 25% of the shares of common stock subject to the lock-up restrictions
described in the preceding paragraph will be released from these
restrictions if the reported last sale price of the common stock on the
Nasdaq National Market is at least twice the initial public offering
price for 20 of the 30 consecutive trading days ending on the last
trading day of the 90-day period after the date of this prospectus. These
shares will be released on the later to occur of the 90th day after the
date of this prospectus and the second trading day after the first public
release of our quarterly results; and
11
<PAGE> 16
- an additional 25% of the shares of common stock subject to the
restrictions described above will be released from these restrictions if
the reported last sale price of the common stock on the Nasdaq National
Market is at least twice the initial public offering price for 20 of the
30 consecutive trading days ending on the last trading day of the 135-day
period after the date of this prospectus.
As a result of these "lock-up" agreements and the rules under the
Securities Act, the restricted shares will be available for sale in the public
market, subject in most cases to volume and other restrictions, as follows:
<TABLE>
<CAPTION>
DAYS AFTER NUMBER OF SHARES
THE EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT
<S> <C> <C>
Upon effectiveness................... Shares not locked up and eligible for
sale under Rule 144
90 days.............................. Shares not locked up and eligible for
sale under Rules 144 and 701
180 days............................. Lock-up released; shares eligible for
sale under Rules 144 and 701
</TABLE>
Of the shares set forth in the above table as eligible for resale after 180
days, shares will be eligible for resale after 90 days and an additional
shares will be eligible for resale after 135 days in the event that shareholders
subject to lock-up agreements are released from their lock-up restrictions under
the staggered lock-up provisions described above.
In addition, no earlier than days following the consummation of this
offering, we intend to register the issuance of up to shares of our
common stock purchased by the exercise of options granted under our option plan.
All of these shares issued upon exercise of these options will be freely
tradeable without restrictions or registration under the Securities Act, by
persons other than our affiliates. Our affiliates will be able to sell these
shares under Rule 144.
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL
YOUR SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE.
Prior to this offering, there has been no public market for our common
stock. An active trading market may not develop following completion of this
offering and, if it develops, may not be maintained. The public offering price
will be determined by negotiation between us, the selling shareholders and the
underwriters and may not be indicative of the price at which our common stock
will trade following the completion of this offering. Thus, you may not be able
to resell your shares at or above the initial public offering price. The market
price of our common stock may be influenced by many factors, including:
- variations in our quarterly or annual results of operations;
- variations in oil and natural gas prices;
- investor perceptions of us and other oilfield service companies, in
general;
- general economic and other conditions; and
- the liquidity of the market for our common stock.
These factors may cause the price of our common stock to fluctuate
significantly or decline.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price will be substantially higher than the
book value per share of our common stock. New investors in our common stock in
this offering will experience immediate dilution of $12.32 in the net tangible
book value per share of common stock, based on an assumed initial public
offering price of $15.00 per share.
12
<PAGE> 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. All projections
contained in this prospectus, including those contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Forward-looking statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "anticipates," "believes," "continue," "estimates,"
"expects," "may," "plans," "potential," "predicts," "projected," "should" or
"will" or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risk Factors." These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results and do not
intend to do so.
13
<PAGE> 18
USE OF PROCEEDS
We expect to receive net proceeds of approximately $159.5 million from the
sale of the 11,666,667 shares of common stock offered by this prospectus, after
deducting underwriting fees and estimated offering expenses payable by us. This
amount is based on an assumed public offering price of $15.00 per share, the
midpoint of the range set forth on the cover page of this prospectus.
We intend to use the net proceeds of this offering:
- to repay approximately $96.7 million of principal and accrued and unpaid
interest on borrowings under our credit facility;
- to repay in full, for a cash payment of approximately $37.3 million, our
13% senior subordinated notes and the related payment-in-kind notes, plus
accrued and unpaid interest;
- to repay in full, for a cash payment of approximately $25.5 million, our
12 1/2% senior subordinated notes and the related payment-in-kind notes,
plus accrued and unpaid interest; and
- for general corporate purposes.
Pending such uses, the net proceeds of this offering will be invested in
short-term, investment grade, interest-bearing securities.
The selling shareholders will sell shares of common stock to the
underwriters if the underwriters exercise their over-allotment option. We will
not receive any proceeds from the sale of common stock by the selling
shareholders. See "Principal and Selling Shareholders."
The borrowings outstanding under our credit facility bear interest at
floating rates equal to the London Interbank Offered Rate (LIBOR) plus a margin
that depends on our debt coverage ratio. These borrowings mature between August
2002 and March 2005. For the three months ended March 31, 2000, the weighted
average applicable interest rate under our credit facility was 10.04%. Amounts
borrowed under our credit facility were used to fund our recapitalization in
1997, our acquisitions of Integrity Industries, Inc., Diamond Wireline Services,
Inc., Grinding and Sizing Company, Inc. and Agri-Empresa, Inc. and for general
corporate purposes.
Our 13% senior subordinated notes bear interest at 13% per annum and are
due in April 2006. The proceeds from the sale of our 13% senior subordinated
notes were used to fund the PathFinder acquisition. Our 13% senior subordinated
notes and the related payment-in-kind notes, which bear interest at 14% per
annum and mature April 1, 2006, were issued to and are held by DLJ Merchant
Banking Partners II, L.P., and its affiliated investment funds. Please read
"Relationships and Related Transactions."
Our 12 1/2% senior subordinated notes bear interest at 12 1/2% per annum.
One-half of our 12 1/2% senior subordinated notes are due September 2006, and
one-half of these notes are due September 2007. The proceeds from the sale of
our 12 1/2% senior subordinated notes and the related payment-in-kind notes,
which bear interest at 14 1/2% per annum and mature September 15, 2007, were
used to fund our recapitalization in 1997. Our 12 1/2% senior subordinated notes
were issued to and are held by JZ Equity Partners PLC. Please read
"Relationships and Related Transactions."
Upon completion of this offering and the application of the net proceeds as
described above, we will have $20.0 million of available borrowing capacity
under our revolving line of credit, which may be used for capital expansion
projects, acquisitions, working capital and general corporate purposes. We
expect that after completion of this offering, we will attempt to renegotiate
our credit facility to obtain additional borrowing capacity under the revolving
line of credit.
DIVIDEND POLICY
We do not intend to pay cash dividends on our common stock in the
foreseeable future. We currently intend to retain our cash for the continued
development of our business. In addition, our credit facility currently
restricts our ability to pay dividends.
14
<PAGE> 19
DILUTION
Our net tangible book value (deficit) as of March 31, 2000, was
approximately $(88.0) million or $(7.27) per share. Net tangible book value per
share represents our tangible net worth (tangible assets less total liabilities)
divided by the total number of outstanding shares of our common stock. Dilution
in net tangible book value per share represents the difference between the
amount per share that investors will pay in this offering and the net tangible
book value per share immediately afterwards.
After giving effect to the receipt of $159.5 million of estimated net
proceeds from the sale of 11,666,667 shares of our common stock in this offering
at an assumed price of $15.00 per share after deducting the estimated
underwriting fees and estimated expenses of this offering, our adjusted net
tangible book value as of March 31, 2000 would have been $63.8 million or $2.68
per share. This represents an immediate increase in our net tangible book value
of $9.95 per share to existing shareholders and an immediate dilution of $12.32
per share to new investors purchasing our common stock in this offering. The
following table illustrates this per share dilution to new investors purchasing
our common stock in this offering:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $15.00
Net tangible book value (deficit) per share as of March
31, 2000............................................... $(7.27)
------
Increase per share attributable to new investors.......... 9.95
------
Adjusted net tangible book value per share after this
offering.................................................. 2.68
------
Dilution per share to new investors......................... $12.32
======
</TABLE>
The table above assumes no issuance of shares in respect of any of our
outstanding options or warrants, other than those shares issued to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment funds in respect of
warrants held by those funds and 49,500 shares of our common stock to be issued
to one of our directors in respect of warrants prior to completion of this
offering. Upon completion of this offering, we also will have outstanding
options covering 2,229,150 shares of our common stock exercisable at a weighted
average price of $3.96 per share and warrants to purchase a total of 3,076,194
shares of our common stock exercisable at a weighted average price of $2.45 per
share. Please read "Management -- Option Grants, Exercises and Holdings" and
"Principal and Selling Shareholders" for a description of outstanding options
and warrants to purchase our common stock. In the event the 5,305,344 shares
currently subject to these additional options and warrants were included in the
above calculations, the dilution per share to new investors would be $12.24.
The following table illustrates on an as adjusted basis as of March 31,
2000, the difference between the number of shares of common stock purchased from
us, the total consideration paid to us and the average price paid by existing
shareholders and by the new investors purchasing shares of common stock in this
offering, before deduction of estimated underwriting fees and estimated expenses
of this offering payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION AVERAGE
-------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 12,108,888 50.9% $ 12,775,000 6.8% $ 1.06
New investors.................... 11,666,667 49.1 175,000,000 93.2 15.00
---------- ----- ------------ -----
Total.................. 23,775,555 100.0% $187,775,000 100.0%
========== ===== ============ =====
</TABLE>
15
<PAGE> 20
CAPITALIZATION
The following table sets forth our actual, pro forma and as adjusted
capitalization as of March 31, 2000. The pro forma information gives effect to
the issuance to DLJ Merchant Banking Partners II, L.P. and its affiliated
investment funds of notes in an aggregate principal amount of $2.275 million as
a payment-in-kind of the interest due on our 13% senior subordinated notes on
April 1, 2000.
The as adjusted information gives effect to the pro forma adjustments and
to the receipt of $159.5 million of estimated net proceeds from the sale of
11,666,667 shares of our common stock in this offering at an assumed price of
$15.00 per share after deducting the estimated underwriting fees and estimated
expenses of this offering and the application of these net proceeds as described
under "Use of Proceeds."
This table should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our Consolidated Financial Statements, and our Unaudited Pro Forma
Consolidated Financial Information and the accompanying notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturities:
Credit facility:
Revolving line of credit........................... $ 5,000 $ 5,000 $ --
Term facilities.................................... 146,800 146,800 55,075
13% senior subordinated notes......................... 35,000(1) 37,275(1)(2) --
12 1/2% senior subordinated notes..................... 25,500(3) 25,500(3) --
Other long-term debt.................................. 1,762 1,762 1,762
-------- -------- --------
Total long-term debt, including current
maturities.................................. 214,062 216,337 56,837
-------- -------- --------
Shareholders' equity (deficit):
Preferred stock; 10,000,000 shares authorized; no
shares outstanding................................. -- -- --
Common stock; 100,000,000 shares authorized; 9,084,900
shares issued and outstanding, actual and pro
forma; 23,775,555 shares issued and outstanding, as
adjusted........................................... 91 91 238
Additional paid-in capital............................ 12,425 12,425 171,251
Deferred compensation................................. (1,528) (1,528) (1,528)
Cumulative translation adjustment..................... (349) (349) (349)
Note receivable from shareholder...................... (45) (45) (45)
Retained earnings (deficit)........................... (48,367) (48,367) (57,535)(4)
-------- -------- --------
Total shareholders' equity (deficit).......... (37,773) (37,773) 112,032
-------- -------- --------
Total capitalization.......................... $176,289 $178,564 $168,869
======== ======== ========
</TABLE>
- ------------------------------
(1) Excludes $7.7 million in unamortized discount associated with the sale of
our 13% senior subordinated notes and the related issuance of warrants.
(2) Includes $2.275 million in aggregate principal amount of 14% notes issued in
April 2000 in lieu of making the interest payment on our 13% senior
subordinated notes due April 1, 2000. Please read "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
(3) Includes $1.5 million in aggregate principal amount of 14 1/2% notes issued
in March 2000 in lieu of making the interest payment on our 12 1/2% senior
subordinated notes due March 15, 2000. Please read "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
(4) Includes the write-off for deferred financing costs and unamortized discount
associated with the debt to be retired with the proceeds from this offering
in the amount of $9.2 million.
16
<PAGE> 21
The table above does not include:
- up to 170,000 shares of our common stock subject to options to be
granted to certain of our employees concurrently with this offering at
an exercise price equal to the initial public offering price;
- an aggregate of 2,229,150 shares of our common stock issuable upon the
exercise of options outstanding as of March 31, 2000 at a weighted
average exercise price of $3.96 per share; or
- an aggregate of 3,076,194 shares of our common stock issuable upon the
exercise of warrants outstanding as of March 31, 2000 at a weighted
average exercise price of $2.45 per share.
17
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
Our selected consolidated financial information contained below is derived
from our Consolidated Financial Statements and should be read in conjunction
with our Consolidated Financial Statements and the accompanying notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The as adjusted consolidated
statements of operations data, for the year ended December 31, 1999 and for the
three months ended March 31, 2000, contained below are derived from the
Unaudited Pro Forma Financial Information that appears elsewhere in this
prospectus.
The unaudited as adjusted consolidated statement of operations data for the
year ended December 31, 1999 give effect to:
- the acquisition of the PathFinder business located in the United States
and the North Sea and the related issuance of our 13% senior subordinated
notes as if these events had occurred on January 1, 1999; and
- the receipt of $159.5 million of estimated net proceeds from the sale of
11,666,667 shares of our common stock in this offering at an assumed
price of $15.00 per share after deducting the estimated underwriting fees
and estimated expenses of this offering and the application of these net
proceeds as described under "Use of Proceeds."
The as adjusted financial information does not purport to represent what our
results of operations actually would have been had these events occurred on
January 1, 1999, nor are they intended to project our results of operations for
any future period or date.
The unaudited as adjusted consolidated statement of operations data for the
quarter ended March 31, 2000 and the unaudited as adjusted consolidated balance
sheet data as of March 31, 2000 give effect to the receipt and application of
the estimated net proceeds from this offering as described above.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------
THREE
MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------ ------------ ------------------------------
1995 1996 1996 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Drilling related products and
services....................... $ 5,795 $ 13,503 $ 4,376 $ 29,149 $ 46,368 $ 80,643
Completion and workover related
products and services.......... 10,128 11,225 2,688 14,966 23,789 27,436
Maintenance and safety related
products and services.......... 11,437 11,487 3,024 15,718 20,136 19,562
------- -------- ------- -------- -------- --------
Total revenues............... 27,360 36,215 10,088 59,833 90,293 127,641
Cost of revenues................... 11,931 15,447 4,401 25,889 43,431 68,399
Selling, general and administrative
expense.......................... 9,078 10,955 3,071 30,732(1) 23,788 36,118
Depreciation and amortization...... 2,489 3,395 1,017 5,870 10,748 15,521
------- -------- ------- -------- -------- --------
Income (loss) from operations...... 3,862 6,418 1,599 (2,658) 12,326 7,603
Interest expense................... 1,003 1,301 340 4,733 13,418 21,989
Other expense (income), net........ 5 18 48 (8) 142 595
------- -------- ------- -------- -------- --------
Income (loss) before income
taxes............................ 2,854 5,099 1,211 (7,383) (1,234) (14,981)
Provision (benefit)for income
taxes............................ 1,258 1,985 472 (1,714) 152 239
------- -------- ------- -------- -------- --------
Net income (loss).................. $ 1,596 $ 3,114 $ 739 $ (5,669) $ (1,386) $(15,220)
======= ======== ======= ======== ======== ========
Net income (loss) per share
Basic............................ $ 0.07 $ 0.14 $ 0.03 $ (0.32) $ (0.15) $ (1.35)
======= ======== ======= ======== ======== ========
Diluted.......................... $ 0.06 $ 0.10 $ 0.02 $ (0.32) $ (0.15) $ (1.35)
======= ======== ======= ======== ======== ========
Number of shares used in computing
income (loss) per share
Basic............................ 22,374 22,800 22,800 17,448 9,075 11,306
======= ======== ======= ======== ======== ========
Diluted.......................... 26,072 30,850 30,850 17,448 9,075 11,306
======= ======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS ADJUSTED
-----------
AS ADJUSTED HISTORICAL THREE
------------ ---------------------- MONTHS
YEAR ENDED THREE MONTHS ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
------------ ---------------------- -----------
1999 1999 2000 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Drilling related products and
services....................... $ 90,144 $ 10,316 $32,591 $32,591
Completion and workover related
products and services.......... 27,436 5,772 8,887 8,887
Maintenance and safety related
products and services.......... 19,562 5,636 5,759 5,759
-------- -------- ------- -------
Total revenues............... 137,142 21,724 47,237 47,237
Cost of revenues................... 74,157 10,295 25,853 25,853
Selling, general and administrative
expense.......................... 39,361 7,189 11,225 11,225
Depreciation and amortization...... 16,351 3,251 4,429 4,429
-------- -------- ------- -------
Income (loss) from operations...... 7,273 989 5,730 5,730
Interest expense................... 4,451 3,655 6,510 1,684
Other expense (income), net........ 595 142 134 134
-------- -------- ------- -------
Income (loss) before income
taxes............................ 2,227 (2,808) (914) 3,912
Provision (benefit)for income
taxes............................ 239 (93) 292 292
-------- -------- ------- -------
Net income (loss).................. $ 1,988(2)(3) $ (2,715) $(1,206) $ 3,620(2)(3)
======== ======== ======= =======
Net income (loss) per share
Basic............................ $ 0.08 $ (0.30) $ (0.10) $ 0.15
======== ======== ======= =======
Diluted.......................... $ 0.07 $ (0.30) $ (0.10) $ 0.13
======== ======== ======= =======
Number of shares used in computing
income (loss) per share
Basic............................ 23,766 9,108 12,059 23,776
======== ======== ======= =======
Diluted.......................... 27,499 9,108 12,059 27,608
======== ======== ======= =======
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------
THREE
MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------ ------------ ------------------------------
1995 1996 1996 1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as adjusted(4)............. $ 6,346 $ 9,795 $ 2,568 $ 16,673 $ 22,932 $ 22,546
Net cash provided by (used in)
operating activities............. 4,824 5,314 2,053 3,472 1,103 (7,230)
Net cash provided by (used in)
investing activities............. (3,622) (10,991) (2,870) (34,760) (52,289) (46,352)
Net cash provided by (used in)
financing activities............. (1,255) 5,656 512 32,340 50,982 54,649
<CAPTION>
AS ADJUSTED
-----------
AS ADJUSTED HISTORICAL THREE
------------ ---------------------- MONTHS
YEAR ENDED THREE MONTHS ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
------------ ---------------------- -----------
1999 1999 2000 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA, as adjusted(4)............. $ 23,046 $ 4,098 $10,179 $10,179
Net cash provided by (used in)
operating activities............. 7,272 (5,146) (1,166) 2,675
Net cash provided by (used in)
investing activities............. (46,352) (34,299) (3,731) (3,731)
Net cash provided by (used in)
financing activities............. 54,754 39,250 5,963 8,431
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, 2000
---------------- ----------------------------- ----------------------
1995 1996 1997 1998 1999 ACTUAL AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $3,888 $5,855 $12,682 $19,365 $28,422 $31,020 $33,405
Total assets....................................... 23,137 33,796 82,981 132,599 191,604 197,489 195,521
Total debt......................................... 9,732 15,066 101,668 153,450 199,775 206,335 56,837
Total shareholders' equity (deficit)............... 8,644 12,285 (30,280) (31,391) (36,415) (37,773) 112,032
</TABLE>
- ------------------------------
(1) Includes $13.5 million of non-recurring compensation expense resulting from
the redemption of options in connection with our recapitalization in 1997.
(2) Does not include the write-off for deferred financing costs and unamortized
discount associated with the debt to be retired with the proceeds from this
offering in the amount of $9.9 million for the year ended December 31, 1999
and $9.2 million for the three months ended March 31, 2000. The write-off
will be recorded in our historical statement of operations in the period the
debt is repaid.
(3) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
We expensed $600,000 and $150,000, for the year ended December 31, 1999 and
the three-months ended March 31, 2000, respectively, related to this
agreement. The charge will be recorded in our historical statement of
operations in the period the fee is paid.
(4) We calculate EBITDA, as adjusted, as earnings before interest expense,
income taxes, depreciation and amortization, non-cash stock-based
compensation expense, and a non-recurring compensation expense of $13.5
million in 1997 resulting from the redemption of options in connection with
our recapitalization. EBITDA, as adjusted, should not be considered as an
alternative to net income or any other measure of operating performance
calculated in accordance with generally accepted accounting principles.
EBITDA is widely used by financial analysts as a measure of financial
performance. Our calculation of EBITDA, as adjusted, may not be comparable
to similarly titled measures reported by other companies.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our Consolidated Financial Statements and related notes
appearing elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results could differ significantly from the results discussed in the
forward-looking statements as a result of factors set forth under "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW OF THE MARKETS FOR OUR PRODUCTS AND SERVICES
We are a diversified oilfield service company that provides drilling
related products and services, completion and workover related products and
services and maintenance and safety related products and services. Our customers
include major and independent oil and natural gas companies, other oilfield
service companies and refining and petrochemical companies.
Prices for oil and natural gas are subject to large fluctuations in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of other factors. Any prolonged
increase or decrease in oil and natural gas prices affects the levels of
exploration, development and production activity as well as the entire health of
the oil and natural gas industry. Demand for our drilling related products and
services is directly affected by the level of exploration, development and
production activity of, and the corresponding capital spending by, oil and
natural gas companies. Demand for our completion and workover related products
and services depends more on oil and natural gas production activity, which is
less immediately affected by changes in oil and natural gas prices. Demand for
our maintenance and safety related products and services is affected by the rate
of plant overhauls and maintenance turnarounds as well as the overall health of
the refining and petrochemical industries.
Over the past several years, the oil and natural gas industry has
experienced volatility as a result of significant changes in oil and natural gas
prices. In 1997 and early 1998, we experienced strong demand for our products
and services as a result of an increase in exploration, development and
production activities. However, after remaining fairly stable in the second and
third quarters of 1997, the price of oil began to decline in late 1997 and
continued declining until early 1999. The decline in oil prices caused a decline
in exploration, development and production activity. The following table sets
forth the weekly average oil and natural gas prices from January 1, 1997 through
April 28, 2000:
<TABLE>
<CAPTION>
OIL (WEST TEXAS INTERMEDIATE -
CUSHING) NATURAL GAS (HENRY HUB, LA)
------------------------------ ---------------------------
<S> <C> <C>
1/3/97 25.59 2.61
1/10/97 26.09 3.88
1/17/97 25.41 3.78
1/24/97 24.10 2.82
1/31/97 24.15 2.88
2/7/97 22.23 2.39
2/14/97 22.41 2.13
2/21/97 21.64 1.90
2/28/97 20.30 1.79
3/7/97 21.28 1.88
3/14/97 21.29 1.96
3/21/97 21.69 1.90
3/28/97 20.70 1.85
4/4/97 19.12 1.90
4/11/97 19.61 1.98
4/18/97 19.91 2.07
4/25/97 19.82 2.11
5/2/97 19.60 2.20
5/9/97 20.43 2.30
5/16/97 22.12 2.19
5/23/97 21.23 2.02
5/30/97 20.88 2.20
6/6/97 18.79 2.18
6/13/97 18.83 2.15
6/20/97 18.55 2.23
6/27/97 19.46 2.17
7/4/97 19.56 2.10
7/11/97 19.33 2.15
7/18/97 19.27 2.21
7/25/97 19.69 2.22
8/1/97 20.28 2.24
8/8/97 19.54 2.38
8/15/97 20.07 2.53
8/22/97 19.52 2.44
8/29/97 19.61 2.70
9/5/97 19.63 2.72
9/12/97 19.32 2.82
9/19/97 19.35 2.93
9/26/97 20.87 3.20
10/3/97 22.76 2.96
10/10/97 22.10 2.78
10/17/97 20.59 2.98
10/24/97 20.79 3.24
10/31/97 21.08 3.27
11/7/97 20.77 3.05
11/14/97 21.00 3.20
11/21/97 19.41 2.56
11/28/97 19.15 2.40
12/5/97 18.71 2.38
12/12/97 18.21 2.28
12/19/97 18.39 2.38
12/26/97 18.20 2.20
1/2/98 17.43 2.16
1/9/98 16.63 2.07
1/16/98 16.51 2.10
1/23/98 15.59 2.12
1/30/98 17.21 2.07
2/6/98 16.70 2.34
2/13/98 16.02 2.20
2/20/98 16.15 2.20
2/27/98 15.50 2.20
3/6/98 15.03 2.08
3/13/98 13.76 2.18
3/20/98 14.35 2.27
3/27/98 16.84 2.25
4/3/98 15.83 2.51
4/10/98 15.64 2.59
4/17/98 15.53 2.38
4/24/98 13.27 2.29
5/1/98 16.23 2.06
5/8/98 15.20 2.11
5/15/98 14.52 2.17
5/22/98 14.58 2.01
5/29/98 15.23 2.11
6/5/98 15.12 2.00
6/12/98 12.64 2.01
6/19/98 11.89 2.21
6/26/98 14.20 2.43
7/3/98 14.57 2.36
7/10/98 13.91 2.32
7/17/98 14.01 2.16
7/24/98 13.79 1.97
7/31/98 14.26 1.85
8/7/98 13.84 1.80
8/14/98 13.40 1.83
8/21/98 13.26 1.92
8/28/98 13.54 1.65
9/4/98 14.62 1.72
9/11/98 14.37 1.86
9/18/98 15.55 2.24
9/25/98 15.58 2.37
10/2/98 15.67 2.14
10/9/98 14.62 1.79
10/16/98 14.19 1.62
10/23/98 13.84 1.85
10/30/98 14.45 1.83
11/6/98 13.90 2.24
11/13/98 13.61 2.21
11/20/98 12.19 2.08
11/27/98 11.00 1.82
12/4/98 11.22 1.03
12/11/98 10.83 1.61
12/18/98 10.99 2.01
12/25/98 10.88 1.88
1/1/99 12.09 1.94
1/8/99 13.10 1.88
1/15/99 12.13 1.80
1/22/99 12.60 1.80
1/29/99 12.76 1.82
2/5/99 11.81 1.80
2/12/99 11.89 1.81
2/19/99 11.76 1.78
2/26/99 12.28 1.66
3/5/99 13.30 1.73
3/12/99 14.49 1.82
3/19/99 15.24 1.73
3/26/99 16.18 1.82
4/2/99 16.64 1.94
4/9/99 16.57 2.11
4/16/99 17.33 2.15
4/23/99 18.24 2.23
4/30/99 18.66 2.25
5/7/99 18.23 2.25
5/14/99 18.04 2.26
5/21/99 17.23 2.21
5/28/99 16.84 2.29
6/4/99 17.33 2.35
6/11/99 18.44 2.29
6/18/99 17.99 2.23
6/25/99 18.09 2.27
7/2/99 19.69 2.27
7/9/99 19.94 2.16
7/16/99 20.62 2.17
7/23/99 20.49 2.43
7/30/99 20.53 2.55
8/6/99 20.88 2.69
8/13/99 21.67 2.71
8/20/99 21.65 2.97
8/27/99 21.27 2.86
9/3/99 22.00 2.46
9/10/99 23.55 2.80
9/17/99 24.73 2.46
9/24/99 25.36 2.58
10/1/99 24.54 2.40
10/8/99 20.90 2.37
10/15/99 22.82 2.67
10/22/99 23.19 3.01
10/29/99 21.75 2.75
11/5/99 23.00 2.65
11/12/99 24.91 2.13
11/19/99 26.56 2.14
11/26/99 27.37 1.93
12/3/99 25.81 2.15
12/10/99 25.23 2.27
12/17/99 26.74 2.56
12/24/99 25.72 2.44
12/31/99 25.60 2.30
1/7/00 24.22 2.20
1/14/00 28.02 2.29
1/21/00 29.80 2.54
1/28/00 27.22 2.88
2/4/00 28.82 2.79
2/11/00 29.44 2.63
2/18/00 29.51 2.67
2/25/00 30.23 2.53
3/3/00 31.51 2.73
3/10/00 31.76 2.77
3/17/00 30.91 2.82
3/24/00 27.97 2.81
3/31/00 26.90 2.88
4/7/00 25.09 2.97
4/14/00 25.62 3.06
4/21/00 27.28 3.08
4/28/00 25.74 3.11
</TABLE>
20
<PAGE> 25
The downturn in the oil and natural gas industry that began in 1998 led our
customers to substantially curtail their exploration and development activity
during the second half of 1998 and most of 1999. This reduction in activity
resulted in substantially lower purchases of products and services from our
drilling related products and services segment. The following table sets forth
the average monthly rotary rig count from January 1, 1997 through March 31,
2000:
<TABLE>
<CAPTION>
U.S. ONSHORE RIGS U.S. OFFSHORE RIGS NORTH SEA RIGS
----------------- ------------------ --------------
<S> <C> <C> <C>
Jan-97 723 110 64
736 107 62
759 126 60
765 126 67
790 120 55
6/1/97 874 121 59
863 125 59
859 125 56
863 128 51
854 121 57
11/1/97 867 127 55
907 129 57
879 133 56
850 139 61
808 136 58
4/1/98 759 137 61
734 133 54
740 127 55
707 121 45
684 118 49
9/1/98 664 118 50
624 112 48
583 109 45
550 102 41
488 103 47
2/1/99 442 100 43
421 106 46
399 98 40
417 102 38
463 100 48
7/1/99 487 100 38
532 105 35
587 109 38
630 111 28
648 119 35
Dec-99 674 122 36
649 126 31
641 122 35
647 123 45
</TABLE>
Our completion and workover related products and services segment also was
impacted by a decrease in production and workover activities by these same
customers. The following table sets forth the average monthly workover rig count
from January 1, 1997 through March 31, 2000:
<TABLE>
<CAPTION>
U.S. WORKOVER
-------------
<S> <C>
Jan-97 1422
2/1/97 1466
3/1/97 1395
4/1/97 1399
5/1/97 1442
6/1/97 1426
7/1/97 1402
8/1/97 1424
9/1/97 1407
10/1/97 1406
11/1/97 1417
12/1/97 1459
1/1/98 1386
2/1/98 1365
3/1/98 1143
4/1/98 1185
5/1/98 1123
6/1/98 1058
7/1/98 1019
8/1/98 983
9/1/98 997
10/1/98 1003
11/1/98 976
12/1/98 816
1/1/99 766
2/1/99 697
3/1/99 692
4/1/99 786
5/1/99 775
6/1/99 795
7/1/99 797
8/1/99 860
9/1/99 889
10/1/99 931
11/1/99 1002
Dec-99 1030
1/1/00 971
2/1/00 1037
3/1/00 992
</TABLE>
Both of these segments were further impacted by an unprecedented wave of
mergers and consolidations among our customers, which slowed capital spending.
The downturn also affected our maintenance and safety related services segment,
though not as severely.
21
<PAGE> 26
STRATEGIC TRANSACTIONS
Although market conditions materially and adversely affected our businesses
in 1998 and 1999, we made the strategic decision during the industry downturn to
take advantage of opportunities to acquire desirable businesses and
technologies. This decision was based on our belief that the downturn would
create unique opportunities for us to acquire, on desirable terms, businesses
that could serve as platforms for future growth. We also believed that because
of the consolidating nature of our industry, many of these opportunities might
not be available again.
On April 24, 1998, we acquired Grinding and Sizing Company, Inc. and its
affiliated companies, which are in the business of size reduction, or grinding,
of products primarily used in the drilling and specialty chemical fluids
industry. We paid $10.2 million, including acquisition costs, which was funded
with borrowings under our credit facility in a purchase accounting transaction.
On July 27, 1998, we acquired Agri-Empresa, Inc. and its affiliated
companies, which manufacture, package, distribute and transport drilling fluids.
We paid $21.3 million, including acquisition costs, which was funded with
borrowings under our credit facility in a purchase accounting transaction.
On March 29, 1999, we completed the PathFinder acquisition. We paid cash
consideration of $33.3 million, including acquisition costs, which was funded
through the issuance of our 13% senior subordinated notes in a purchase
accounting transaction.
While we believe the steps taken in 1998 and 1999 should benefit our
results of operations as our industry improves, the downturn in our industry has
materially and adversely impacted our results of operations over the last two
years through lower sales and margins.
MARKET OUTLOOK
Demand for our products and services began to increase during the fourth
quarter of 1999 and further increased in the first quarter of 2000, primarily as
a result of higher oil and natural gas prices. We expect that demand for our
products and services will continue to improve in 2000. The level of market
improvement for our businesses in 2000 will be heavily dependent on whether oil
and natural gas prices can remain at levels that will allow oil and natural gas
companies to economically pursue exploration and development activities.
However, the extent of the recovery is difficult to predict in light of the
volatile nature of our business. In this regard, the strength of the recovery
will be dependent on many external factors such as compliance with OPEC quotas,
world economic conditions and weather conditions.
RESULTS OF OPERATIONS
The following information should be read in conjunction with our
Consolidated Financial Statements and the accompanying notes presented elsewhere
in this prospectus.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
Revenues. Revenues increased by $25.5 million, or approximately 118%, to
$47.2 million for the three months ended March 31, 2000 from $21.7 million for
the three months ended March 31, 1999. Approximately $15.7 million of our
increase in revenues was attributable to the PathFinder acquisition in March
1999, and the remaining $9.8 million increase in revenues was attributable to an
increase in drilling and workover rig activity.
Revenues from our drilling related products and services increased by $22.3
million, or approximately 217%, to $32.6 million for the three months ended
March 31, 2000 from $10.3 million for the three months ended March 31, 1999.
Approximately $15.7 million of this increase was attributable to the PathFinder
acquisition, and the remaining $6.6 million of this increase was primarily
attributable to an increase in drilling activity.
Revenues from our completion and workover related products and services
increased by $3.1 million, or approximately 53%, to $8.9 million for the three
months ended March 31, 2000 from $5.8 million for
22
<PAGE> 27
the three months ended March 31, 1999. Our revenue increased as a result of an
increase in workover rig activity.
Revenues from our maintenance and safety related products and services
increased by $0.2 million, or approximately 4%, to $5.8 million for the three
months ended March 31, 2000 from $5.6 million for the three months ended March
31, 1999. This increase was primarily the result of increased plant overhauls
and turnarounds in the first quarter of 2000.
Cost of Revenues. As a percentage of revenues, cost of revenues increased
to 55% for the three months ended March 31, 2000 from 47% for the three months
ended March 31, 1999. This increase was primarily attributable to lower pricing
for our products and services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.0 million, or approximately 56%, to
$11.2 million for the three months ended March 31, 2000 from $7.2 million for
the three months ended March 31, 1999. Our selling, general and administrative
expenses increased by $3.6 million as a result of the PathFinder acquisition, of
which $1.5 million was related to research and development expenses. The
remaining increase is attributable to our expansion of sales and marketing
personnel in 2000. As a percentage of revenues, selling, general and
administrative expenses decreased to 23.8% for the three months ended March 31,
2000 from 33.1% for the three months ended March 31, 1999.
Depreciation and Amortization. Depreciation and amortization increased by
$1.1 million, or approximately 33%, to $4.4 million for the three months ended
March 31, 2000 from $3.3 million for the three months ended March 31, 1999. This
increase was the result of depreciation associated with our capital expenditures
in 2000 and the PathFinder acquisition.
Interest Expense. Interest expense for the three months ended March 31,
2000 was $6.5 million, an increase of $2.8 million, or approximately 76%, from
$3.7 million for the three months ended March 31, 1999. The increase was
primarily due to increased borrowing related to our capital expenditures and the
PathFinder acquisition and $0.6 million of non-cash interest expense resulting
from the amortization of a discount associated with our 13% senior subordinated
notes.
Net Loss. Net loss decreased by $1.5 million to $1.2 million for the three
months ended March 31, 2000 from $2.7 million for the three months ended March
31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues increased by $37.3 million, or approximately 41%, to
$127.6 million for the year ended December 31, 1999 from $90.3 million for the
year ended December 31, 1998. Our revenues increased by approximately $44.5
million as a result of the PathFinder acquisition in March 1999, the
Agri-Empresa acquisition in July 1998 and the Grinding and Sizing acquisition in
April 1998. However, this revenue increase was offset by a decrease in revenues
of approximately $7.0 million as a result of a general decline in drilling and
workover rig activity.
Revenues from our drilling related products and services increased by $34.2
million, or approximately 74%, to $80.6 million for the year ended December 31,
1999 from $46.4 million for the year ended December 31, 1998. Our revenues
increased by approximately $40.5 million as a result of our acquisitions.
However, this revenue increase was offset by a decrease in revenues of
approximately $6.3 million as a result of a general decline in drilling
activity.
Revenues from our completion and workover related products and services
increased by $3.6 million, or approximately 15%, to $27.4 million for the year
ended December 31, 1999 from $23.8 million for the year ended December 31, 1998.
Our revenues increased by approximately $4.0 million as a result of our
acquisition of Agri-Empresa. However, this revenue increase was offset by a
decrease in revenues of approximately $0.4 million as a result of a general
decline in workover rig activity.
Revenues from our maintenance and safety related products and services
decreased by $0.5 million, or approximately 2.5%, to $19.6 million for the year
ended December 31, 1999 from $20.1 million for the
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year ended December 31, 1998. This decrease was primarily the result of reduced
plant overhauls and turnarounds in 1999.
Cost of Revenues. As a percentage of revenues, cost of revenues increased
to 54% for the year ended December 31, 1999 from 48% for the year ended December
31, 1998. This increase was primarily attributable to lower pricing for our
products and services and lower utilization of our manufacturing facilities and
our service organization during a period of low drilling and workover activity
levels, as well as the incremental effect of our acquisitions in 1998, which
have lower gross margins than our existing businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $12.3 million, or approximately 52%, to
$36.1 million for the year ended December 31, 1999 from $23.8 million for the
year ended December 31, 1998. Approximately $10.4 million of this increase was
attributable to the PathFinder acquisition, of which $3.8 million related to
research and development expenses. The remaining $1.9 million of this increase
was attributable to our expansion of sales and marketing personnel in 1999. As a
percentage of revenues, selling, general and administrative expenses increased
to 28.3% for the three year ended December 31, 1999 from 26.4% for the year
ended December 31, 1998.
Depreciation and Amortization. Depreciation and amortization increased by
$4.8 million, or approximately 45%, to $15.5 million for the year ended December
31, 1999 from $10.7 million for the year ended December 31, 1998. This increase
was the result of depreciation associated with our capital expenditures in 1999
and the incremental effect of our acquisitions.
Interest Expense. Interest expense for the year ended December 31, 1999 was
$22.0 million, an increase of $8.6 million, or approximately 64%, from $13.4
million for the year ended December 31, 1998. The increase was primarily due to
increased borrowing related to our capital expenditures and acquisitions and
$1.9 million of non-cash interest expense resulting from the amortization of a
discount associated with our 13% senior subordinated notes.
Net Loss. Net loss increased by $13.8 million to $15.2 million for the year
ended December 31, 1999 from $1.4 million for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased by $30.5 million, or approximately 51%, to
$90.3 million for the year ended December 31, 1998 from $59.8 million for the
year ended December 31, 1997. Approximately $20.0 million of our increase in
revenues was attributable to our acquisition of Integrity Industries in
September 1997, Diamond Wireline in October 1997, Grinding and Sizing in April
1998 and Agri-Empresa in July 1998. The remaining $10.5 of this increase in
revenues was attributable to an increase in drilling rig activity and the
benefit of additional equipment which was added to our rental fleet in 1998.
Revenues from our drilling related products and services increased by $17.3
million, or approximately 59%, to $46.4 million for the year ended December 31,
1998 from $29.1 million for the year ended December 31, 1997. Approximately
$15.5 million of this increase was attributable to our acquisitions, and the
remaining $1.8 million of this increase was attributable to the benefit of
additional equipment which was added to our rental fleet in 1998.
Revenues from our completion and workover related products and services
increased by $8.8 million, or approximately 59%, to $23.8 million for the year
ended December 31, 1998 from $15.0 million for the year ended December 31, 1997.
Approximately $4.5 million of this increase was attributable to our
acquisitions, and the remaining $4.3 million of this increase was attributable
to the benefit of additional equipment which was added to our rental fleet in
1998 and our expansion into additional geographic markets.
Revenues from our maintenance and safety related products and services
increased by $4.4 million, or approximately 28%, to $20.1 million for the year
ended December 31, 1998 from $15.7 million for the year
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<PAGE> 29
ended December 31, 1997. This increase was the result of additional equipment
which was added to our rental fleet in 1998 and our expansion into additional
geographic markets.
Costs of Revenues. As a percentage of revenues, costs of revenues increased
to 48% for the year ended December 31, 1998 from 43% for the year ended December
31, 1997. This increase was primarily the result of our acquisitions in late
1997 and 1998 of businesses which had lower gross margins than our existing
businesses at the time.
Selling, General and Administrative Expenses. Excluding the $13.5 million
charge for the redemption of options in connection with our 1997
recapitalization, selling, general and administrative expenses increased by $6.5
million, or approximately 38%, to $23.8 million for the year ended December 31,
1998 from $17.3 million for the year ended December 31, 1997. Approximately $2.0
million of this increase was attributable to our acquisitions, and the remaining
$4.5 million of this increase was attributable to our expansion of sales and
marketing personnel in 1998. Excluding the charge discussed above, as a
percentage of revenues, selling, general and administrative expenses decreased
to 26.4% for the year ended December 31, 1998 from 28.9% for the year ended
December 31, 1997.
Depreciation and Amortization. Depreciation and amortization increased by
$4.8 million, or approximately 81%, to $10.7 million for the year ended December
31, 1998 from $5.9 million for the year ended December 31, 1997. This increase
was the result of depreciation associated with our capital expenditures in 1998
and the effect of our acquisitions.
Interest Expense. Interest expense for the year ended December 31, 1998 was
$13.4 million, an increase of $8.7 million, or approximately 185%, from $4.7
million for the year ended December 31, 1997. The increase was primarily due to
increased borrowing related to our capital expenditures and acquisitions.
Net Income. Excluding the $13.5 million charge for the redemption of
options in connection with our 1997 recapitalization, net income decreased by
$9.2 million, or approximately 118%, to a net loss of $1.4 million for the year
ended December 31, 1998 from net income of $7.8 million for the year ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses for cash are working capital, capital expenditures,
acquisitions and principal and interest payments on indebtedness. Our principal
sources of cash have been cash flow from operations, borrowings for acquisitions
and our recapitalization. To the extent our cash requirements for working
capital, capital expenditures, acquisitions and principal and interest payments
on indebtedness exceed cash flow from operations, we must finance our cash
requirements primarily through debt and equity financing activities.
In August 1997, we issued $24.0 million of our 12 1/2% senior subordinated
notes, the proceeds of which were used to fund our recapitalization. One-half of
our 12 1/2% senior subordinated notes are due September 2006, and one-half of
these notes are due September 2007. As of December 31, 1999, there were $24.0
million in principal amount of our 12 1/2% senior subordinated notes
outstanding. In March 2000, in lieu of making the interest payment on our
12 1/2% senior subordinated notes due on March 15, 2000, we issued to the
holders of these notes additional notes in an aggregate principal amount of $1.5
million, bearing interest initially at the rate of 14 1/2% per annum, and
maturing on September 15, 2007. Our 12 1/2% senior subordinated notes and the
related payment-in-kind notes issued in March 2000 are guaranteed by our
subsidiaries, but are unsecured and are subordinated in right of payment to our
credit facility. We intend to use a portion of the net proceeds of this offering
to repay in full, for a cash payment of $25.5 million, our 12 1/2% senior
subordinated notes and the related payment-in-kind notes issued in March 2000,
plus accrued and unpaid interest.
In March 1999, our wholly-owned subsidiary, Perf-O-Log, Inc., issued $40.0
million of 13% senior subordinated notes. Our 13% senior subordinated notes are
due on April 1, 2006. The proceeds of these notes were used to fund the
PathFinder acquisition. In May 1999, we redeemed $5.0 million of these notes. As
of December 31, 1999, there were $35.0 million in aggregate principal amount of
our 13% senior
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subordinated notes outstanding. In April 2000, in lieu of making the interest
payment on our 13% senior subordinated notes due on April 1, 2000, we issued to
the holders of these notes additional notes in an aggregate principal amount of
$2.275 million, bearing interest at the rate of 14% per annum, and maturing on
April 1, 2006. Our 13% senior subordinated notes and the related payment-in-kind
notes issued in April 2000 are guaranteed by W-H Energy Services, Inc. and the
subsidiaries of W-H Energy Services, Inc. and Perf-O-Log, Inc., but are
unsecured and are subordinated in right of payment to our credit facility. We
intend to use a portion of the net proceeds of this offering to repay, in full,
for a cash payment of approximately $37.3 million our 13% senior subordinated
notes and the related payment-in-kind notes issued in April 2000, plus accrued
and unpaid interest.
Net cash provided by (used in) operating activities was $1.1 million in
fiscal year 1998 and $(7.2) million in fiscal year 1999. Decreases in cash flow
from operating activities are principally the result of working capital
requirements attributable to increases in accounts receivable and inventory. As
of March 31, 2000, we had working capital of approximately $31.0 million. As of
March 31, 2000, after giving effect to this offering and the application of the
net proceeds as described under "Use of Proceeds," we would have had net working
capital of $33.4 million.
In March 2000, we amended our credit facility to permit total term loan
borrowings of up to $153.5 million. As of March 31, 2000, $146.8 million in
principal amount of term loan borrowings under our credit facility were
outstanding. Term loan borrowings under our credit facility mature commencing
August 2002 through March 2005 and bear interest at an annual rate of LIBOR plus
a margin that depends on our debt coverage ratio. In addition, we are required
to make quarterly principal payments on our term loan borrowings that reduce the
outstanding principal balance of these borrowings.
Our credit facility also provides for a revolving line of credit of up to
$20.0 million that will mature in August 2002 and bears interest at an annual
rate of LIBOR plus a margin that depends on our debt coverage ratio. As of March
31, 2000, we had $5.0 million in principal amount of borrowings outstanding
under the revolving line of credit. Borrowings under the revolving line of
credit are available for letters of credit, working capital, general corporate
purposes and certain acquisitions.
Our wholly-owned subsidiary Perf-O-Log, Inc. is the borrower under our
credit facility. Indebtedness under our credit facility is guaranteed by W-H
Energy Services, Inc. and the subsidiaries of W-H Energy Services, Inc. and
Perf-O-Log, Inc. and collateralized by accounts receivable, equipment, inventory
and contract rights of W-H Energy Services, Inc., Perf-O-Log, Inc. and these
subsidiaries. Pursuant to our credit facility, we have agreed to maintain
certain financial ratios, including our interest coverage ratio and leverage
ratio. In addition, our credit facility contains restrictions on the amount of
capital expenditures that we can make. Our credit facility also imposes certain
limitations on our ability to pay dividends or other distributions to our
shareholders, make acquisitions or incur indebtedness outside of our credit
facility. Our credit facility requires that, as long as we have any amount
drawn, we use one-half of the net proceeds from any equity or debt offering to
prepay amounts outstanding under our credit facility. We intend to use a portion
of the net proceeds of this offering to repay $96.7 million of principal and
accrued interest on borrowings under our credit facility. Upon completion of
this offering and the application of the net proceeds from this offering as
described under "Use of Proceeds," we will have approximately $55.1 million
outstanding under our credit facility and will have $20.0 million of borrowing
capacity under the revolving line of credit of our credit facility. We expect
that after completion of this offering, we will attempt to renegotiate our
credit facility to obtain additional borrowing capacity under the revolving line
of credit.
During fiscal year 1999, we made capital expenditures of approximately
$23.8 million, primarily for expansion of our rental tool inventory. Management
currently projects capital expenditures of approximately $23.0 million during
fiscal year 2000, primarily for additional rental tool inventory, additional LWD
and MWD tools and wireline equipment. In addition, management expects research
and development expenses of $6.5 million during fiscal year 2000, which we
expense as incurred. We believe that cash generated from operations and amounts
available under our revolving line of credit will provide sufficient funds for
our identified capital projects, debt service and working capital requirements.
However, part of
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our strategy involves the acquisition of companies that have products and
services complementary to our existing strategic base of operations. Depending
on the size of any future acquisitions, we may require additional debt
financing, possibly in excess of the limits of our credit facility, or
additional equity financing. Although we are continually evaluating potential
acquisitions, currently we do not have any contracts, understandings or
arrangements with respect to any material acquisitions.
As of December 31, 1999, we had net operating loss carryforwards of
approximately $39.5 million available through 2019 to offset future taxable
income. Utilization of the net operating losses may be limited due to U.S. tax
laws. Please read note 7 to our Consolidated Financial Statements included
elsewhere in this prospectus.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks. Market risk is the potential loss arising
from adverse changes in market prices and rates. We do not enter into derivative
or other financial instruments for trading or speculative purposes. Our market
risk could arise from changes in interest rates and foreign currency exchange
rates.
Interest Rate Risk. We are subject to market risk exposure related to
changes in interest rates. Assuming our current level of borrowings, a 100 basis
point increase in interest rates under these borrowings would increase our 1999
as adjusted interest expense by approximately $550,000.
Foreign Currency Exchange Risk. Our earnings and financial position are
affected by foreign exchange rate fluctuations. We currently do not hedge
against foreign currency translation risks, and we believe that foreign currency
exchange risk is not significant to our operations.
YEAR 2000
We have not experienced any significant Year 2000 software failures. The
amount charged to expense during the twelve months ended December 31, 1999 and
the three months ended March 31, 2000, as well as the amounts anticipated to be
charged to expense related to the Year 2000 computer compliance modifications,
have been negligible and are not expected to be material to our financial
position, results of operations or cash flows.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which we are required to adopt effective
January 1, 2001. SFAS No. 133 will require us to record all derivatives as
assets or liabilities at fair value. Changes in derivative fair values will
either be recognized in earnings, offset against changes in the fair value of
the related hedged assets, liabilities and firm commitments or, for forecasted
transactions, recorded as a component of other comprehensive income in
shareholders' equity until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a hedging derivative's change in fair value
will be recognized in earnings immediately. We have not engaged in activities or
entered into arrangements associated with derivative instruments.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements"
which provides guidance related to revenue recognition based on interpretations
and practices followed by the Securities and Exchange Commission. SAB 101 is
effective by the second fiscal quarter of fiscal years beginning after December
15, 1999 and requires companies to report any changes in revenue recognition as
a cumulative change in accounting principle at the time of implementation. We
believe that our revenue recognition policy is in accordance with SAB 101 and do
not believe that this SAB will have a material impact on our financial position
or results of operations.
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BUSINESS
OVERVIEW
We are a diversified oilfield service company that provides products and
services used primarily for the drilling, completion and production of oil and
natural gas wells. Our operations currently are focused offshore in the Gulf of
Mexico and in the North Sea and onshore along the Gulf Coast. We expect to
expand our international operations into Brazil, the Caspian Sea, Italy and the
Middle East in 2000. Since our formation in 1989, we have entered the following
three primary lines of business through acquisitions and have expanded our
product and service offerings through a combination of acquisitions, internal
growth and research and development:
- drilling related products and services, which include LWD, MWD, rental
tools (including drill pipe), downhole drilling motors and drilling
fluids;
- completion and workover related products and services, which include
cased-hole wireline logging and perforating, polymers and specialty
chemicals and tubing; and
- maintenance and safety related products and services, which include
integrated on-site cleaning and waste management and safety equipment.
We focus on discrete products and services that provide our customers with
alternatives to the integrated services packages typically marketed by the major
integrated oilfield service companies. We believe our business approach enables
us to compete successfully against these larger oilfield service companies while
achieving growth and profitability by:
- offering technologically advanced products and services;
- focusing on niche markets in which leading market positions can be
maintained;
- operating our business lines autonomously and marketing our product
offerings independently;
- capitalizing on our reputation for superior customer service,
responsiveness and reliability; and
- providing equity-incentives to key management and operating personnel.
Our customers include major and independent oil and natural gas companies,
refining and petrochemical companies and other oilfield service companies,
including independent directional drilling companies.
OUR STRATEGY
Our strategy is to grow revenue and earnings by providing our customers
with an alternative to the major oilfield service companies while preserving our
entrepreneurial culture. Our strategy consists of the following key components:
Provide Leading Technology Solutions for Our Customers. We believe our
technological capability gives us a competitive advantage because of the
substantial economic barriers to entry in the high-tech segments of the oilfield
service industry in which we compete. The PathFinder acquisition significantly
increased our technological base by providing us with LWD capabilities. We are
one of just four companies worldwide that currently have the technological
capability to offer a full complement of LWD products and services. In addition,
we have achieved technological advancements through our internal research and
development efforts. Prior to the PathFinder acquisition, we developed and
commercialized a patented retrievable MWD system that has gained market
acceptance, and we have introduced several innovative drilling fluid products to
the market. We are in the process of developing for commercial use the following
three technologically advanced downhole products:
- the drilling formation tester, which is capable of measuring formation
pressure while drilling, eliminating the need for wireline pressure
testing;
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- the super sonic tool, which is a high accuracy acoustic tool that can
deliver rig site logs more quickly than existing technologies; and
- the payzone inclination gamma ray tool, which accurately measures well
bore inclination, enabling the driller to perform high precision downhole
steering.
We plan to use research and development expenditures to continue developing the
technologies acquired in the PathFinder acquisition and to develop new
technology-based products in our other segments.
Capitalize on the Growth of Offshore and Directional Drilling. A
substantial portion of our drilling related products and services are designed
for use in directional drilling onshore and directional and vertical drilling
offshore. While the overall level of drilling activity fluctuates based on the
industry environment, we believe the trends in both directional drilling and
offshore drilling are positive. According to statistics published by Baker
Hughes regarding the North American market, rigs drilling directionally as a
percentage of total rigs drilling has increased from 19% in 1991 to 32% in 1999.
Likewise, in the North American market, the number of rigs drilling offshore as
a percentage of total rigs drilling has increased from 9% in 1991 to 17% in 1999
according to statistics published by Baker Hughes. We intend to capitalize on
these trends by aggressively marketing the following products and services:
- LWD products, which are economically attractive in many offshore wells,
whether directional or vertical;
- MWD products, which are necessary when LWD products are used and when
drilling directionally, whether onshore or offshore;
- high torque drill pipe, which is utilized in wells drilled directionally;
- downhole drilling motors, which are required for wells drilled
directionally; and
- specialized drilling fluids, which improve drilling performance while
meeting the rigid environmental standards required in offshore drilling.
Expand the Breadth and Scope of Our International Operations. We intend to
pursue expansion of our operations into additional international markets when we
are able to enter such markets with firm contracts which provide for margin
opportunities consistent with our existing operations. Since January 1, 2000, we
have been selected to provide LWD and MWD services, downhole drilling motors and
directional drilling services for customers in the Caspian Sea and in Italy. In
addition, we are in negotiations to provide these services to a customer in the
Middle East and to provide LWD and MWD services to a customer in Brazil.
Leverage Our Market Positions to Deploy Our Under-Utilized Equipment. We
intend to capitalize on increases in oilfield activity and opportunities for
international expansion by deploying under-utilized equipment. We acquired a
significant inventory of equipment in the March 1999 PathFinder acquisition.
However, much of this equipment was under contract and was not delivered to us
until the end of 1999 and the beginning of 2000. We will seek to introduce this
equipment to our existing markets and to international markets as attractive and
profitable opportunities emerge.
Selectively Acquire Complementary Businesses and Technologies. We will
continue to pursue acquisitions of complementary businesses which increase the
technological base and expand the market reach of our product and service
offerings. We intend to focus on acquisitions that expand our operations with
new products and services, broaden our geographic scope, increase our market
share and improve our ability to compete with the major integrated oilfield
service companies. We will continue to provide management and key personnel of
acquired businesses with stock-based incentives in our company and will continue
to market these companies and technologies under their established names.
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OUR HISTORY
The following table lists the operating subsidiaries that we have formed or
acquired, either through stock or asset acquisitions, since 1989 and the
business segments in which each of these subsidiaries operates. Two of these
subsidiaries, Integrity Industries, Inc. and Agri-Empresa, Inc., operate in more
than one segment.
<TABLE>
<CAPTION>
SEGMENT OPERATING SUBSIDIARY DATE ACQUIRED/FORMED
<S> <C> <C>
Drilling related products and services Thomas Tools, a division of Thomas Energy June 1994
Services, Inc.
Drill Motor Services, Inc. December 1995
Integrity Industries, Inc. September 1997
Grinding and Sizing Company, Inc. April 1998
Agri-Empresa, Inc. July 1998
PathFinder Energy Services, Inc. March 1999
Dyna Drill Technologies, Inc. March 1999
Completion and workover related Perf-O-Log, Inc. December 1990
products and services
Integrity Industries, Inc. September 1997
Diamond Wireline Services, Inc. October 1997
Agri-Empresa, Inc. July 1998
Thomas Tubing Specialists, a division of July 1998
Thomas Energy Services, Inc.
Maintenance and safety related products Charles Holston, Inc. April 1989
and services
Well Safe, Inc. May 1990
</TABLE>
Most of these companies continue to be operated by their former owners and key
managers.
OUR BUSINESSES
DRILLING RELATED PRODUCTS AND SERVICES
Our drilling related products and services segment provides a broad range
of products and services used by oil and natural gas companies, drilling
contractors and other oilfield service companies for the drilling of oil and
natural gas wells. Currently, our drilling related products and services are
used primarily offshore in the Gulf of Mexico and in the North Sea and onshore
in the Gulf Coast region. Our drilling related products and services consist of
five primary business lines:
- LWD;
- MWD;
- rental tools;
- downhole drilling motors; and
- drilling fluids.
We believe technology is an increasingly important aspect of our drilling
related products and services. Improving technology helps us provide our
customers with more efficient and cost-effective tools to find and produce oil
and natural gas. We have invested a substantial amount of our time and resources
in building our technology-based offerings. We believe our new products and
services are among the best in the industry and will provide us with the
opportunity to increase our share of the drilling related products and services
market.
Logging-while-Drilling. We are one of only four companies in the world with
the technological capability to provide a full complement of LWD products and
services. In addition to indicating the
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possible presence of oil and natural gas, LWD tools provide data about formation
pressure, porosity and permeability as well as providing real time drilling
information which improves drilling performance. Also, data can be provided
during the drilling process which can be correlated with previously obtained
seismic information.
Before the introduction of LWD technology, well formation data was
traditionally obtained by lowering evaluation tools into the well with
electro-mechanical cable, or wireline, from a truck on land or a skid unit
offshore. Traditional wireline information can only be obtained after the well
has been drilled or during the drilling process if drilling is halted and the
drill string is removed from the well. An advantage that LWD has over
traditional wireline logging is that costs are reduced as drilling rig downtime
is minimized -- these savings can be substantial for offshore jobs where rates
for drilling currently range from $15,000 per day in shallow waters to $200,000
per day in deep waters. In addition, the real-time information transmitted
during the drilling process can assist in making drilling decisions such as
altering the path of the drill string to a point in the formation which provides
for enhanced recovery of oil and natural gas.
Our LWD business was acquired from Halliburton as part of the PathFinder
acquisition in March 1999, after the Department of Justice required Halliburton
to divest its PathFinder assets. Halliburton entered the LWD market in 1992. Our
LWD business is operated by our wholly-owned subsidiary PathFinder Energy
Services and marketed under the PathFinder brand name, established by
Halliburton. A typical LWD job involves deployment of LWD tools and one to three
skilled LWD field engineers to a customer's drill site. A typical LWD job lasts
five days for onshore jobs and 20 days for offshore jobs. We currently provide
LWD products and services in the United States and the North Sea. In 2000, we
intend to expand our LWD operations into Brazil, the Caspian Sea, Italy and the
Middle East. In the North Sea, we also provide directional drilling services in
conjunction with our LWD services.
We market and sell these services through an internal sales force and
through our relationships with independent directional drilling companies, and
our customers typically utilize these services on a per well basis. We charge
our customers for these services on a per day rental basis. Our LWD business is
currently operated from service facilities in Lafayette, Louisiana; Aberdeen,
Scotland and Stavanger, Norway.
Measurement-while-Drilling. We are a leading provider of MWD products and
services. MWD involves the use of a downhole electronic instrument to locate and
direct the drill bit to the intended target. This capability is utilized when
drilling directional (non-vertical) wells which represent an increasing
percentage of overall drilling activity, particularly offshore. In order to
drill a directional well, the driller must be able to determine the precise
direction the drill bit is moving during the drilling operation. MWD tools
enable the driller to make this determination by transmitting the angle and
direction of the well bore. This data is received at the surface enabling the
driller to adjust the drilling path as necessary.
Our MWD business is operated by our wholly-owned subsidiary PathFinder
Energy Services and marketed under the PathFinder and The Tracker brand names. A
typical MWD job involves deployment of MWD tools and a skilled MWD field
engineer to a customer's drill site. A typical MWD job lasts 15 days for onshore
jobs and 20 days for offshore jobs.
We introduced The Tracker to the market in 1998 following approximately
three years of internal research and development. The Tracker is an MWD system
designed for work in slim hole (down to a 3 1/2 inches diameter drilling
assembly), high temperature and high pressure drilling conditions. Additionally,
The Tracker MWD system is fully retrievable. This means that the system can be
wireline retrieved, or extracted from the hole through the drill pipe, if the
well bore conditions become extremely adverse or if the drill string becomes
stuck. As well bore conditions improve, The Tracker can be re-inserted. This
ability to retrieve and re-insert The Tracker MWD system avoids costs associated
with equipment being lost in the well and creates a significant savings to the
operator in both time and money.
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We acquired our PathFinder MWD kits from Halliburton in connection with the
PathFinder acquisition in March 1999. Halliburton entered the MWD market in
1988. The PathFinder MWD kits are used in conjunction with the PathFinder LWD
tools.
We market and sell our MWD services through an internal sales force, and
our customers typically utilize these services on a per well basis. We charge
our customers on a per day rental basis. Our MWD business is currently operated
from service facilities in Lafayette, Louisiana; Victoria, Texas; Casper,
Wyoming; Aberdeen, Scotland and Stavanger, Norway. This year we intend to pursue
additional international expansion of our MWD products and services.
Rental Tools. We provide a broad range of rental equipment and tools for
the drilling of oil and natural gas wells. Our rental equipment allows our
customers, primarily oil and natural gas companies, the ability to have access
to inventories of tools and other equipment without the cost of maintaining or
storing that equipment in their own inventory. Our rental tool inventory
includes:
- drilling equipment, such as large diameter drill pipe, heavy weight drill
pipe, high torque drill pipe, drill collars and other required
accessories;
- pressure control equipment, such as blowout preventers, high pressure
valves, choke and kill manifolds and test pumps;
- downhole tools, such as milling tools and casing scrapers; and
- pipe handling equipment.
Our rental tool operations are focused onshore in Texas and Louisiana and
offshore in the Gulf of Mexico.
We have an extensive inventory of various sizes of drill pipe and related
handling tools, providing our customers with a full range of drill pipe for
drilling at a variety of well depths and conditions. In response to the growth
in directional drilling, we have expanded our inventory of premium, high torque
drill pipe, which provides operators with the technical characteristics demanded
by deeper wells and wells expected to encounter adverse conditions, including
deviated well bores. We also offer all complementary handling and sub-surface
tools and pressure control equipment that support high torque drill pipe.
Our rental tool business is operated by Thomas Tools, a division of our
wholly owned subsidiary Thomas Energy Services, Inc., which was founded in 1961.
Equipment and tools typically are rented to customers for seven to 45 days. Our
rental customers are responsible for transporting our rental tools to and from
our facilities to their sites.
We market these rental tool services through an internal sales force in
sales offices in Lafayette and New Iberia, Louisiana; Houston, Dallas and Corpus
Christi, Texas; and Denver, Colorado and through operating managers at our
operational locations in Victoria, Texas and New Iberia, Louisiana. The majority
of our equipment and tools is rented to customers on a day rental basis. We
currently do not have international rental tool operations.
Downhole Drilling Motors. We are a leading manufacturer and supplier of
downhole drilling motors. We supply downhole drilling motors onshore in
Louisiana, Oklahoma, Texas and Wyoming and offshore in the Gulf of Mexico and
the North Sea. We provide downhole drilling motors to exploration and production
companies and independent directional drillers. We believe independent
directional drillers will continue to manage a substantial portion of the
directional drilling jobs performed in the Gulf of Mexico, and we will focus on
leveraging our relationships with these customers. Our drilling motors business
is conducted by our two wholly owned subsidiaries, Drill Motor Services and Dyna
Drill Technologies and is also marketed by our wholly owned subsidiary,
PathFinder Energy Services.
Our Drill Motor Services subsidiary began providing downhole drilling
motors in 1991 to capitalize on the growth of directional drilling. Its rental
product line consists of a wide range of sizes of downhole drilling motors
ranging from 3 1/2 inches to 9 5/8 inches in outside diameter for use at various
drilling depths. The components of the drill motor are designed to operate at
various speeds and torque levels and to withstand
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severe environmental conditions such as high temperatures, hard rock and
abrasive muds. Additionally, Drill Motor Services has designed a small diameter
motor for coiled tubing and snubbing applications. We expect this new motor to
be ready for commercial use by the end of the third quarter of 2000.
In connection with the PathFinder acquisition, we acquired a second line of
rental downhole drilling motors and the related manufacturing equipment which
had been operated and marketed by Halliburton under the name Dyna Drill. We also
acquired the non-exclusive right to use the Dyna Drill name. The Dyna Drill
downhole drilling motors are manufactured and repaired by our subsidiary, Dyna
Drill Technologies. In addition to complementing our Drill Motor Services line
of downhole drilling motors, the manufacturing equipment enables us to support
both motor lines and to provide manufacturing and repair services for other
drilling motor companies. Dyna Drill Technologies is one of only four companies
worldwide that manufactures the power section of downhole drilling motors.
Our drilling motor customers include directional drilling companies and
other oilfield service companies. We typically charge our customers for use of
our drilling motors on the basis of hours of usage. We market our downhole
drilling motors and services directly through our sales force and operating
managers at locations in Lafayette, Louisiana; Houston, Texas; Elk City,
Oklahoma; Aberdeen, Scotland; and Stavanger, Norway.
Drilling Fluids. We manufacture, package, transport, warehouse and
wholesale drilling fluids and drilling fluid chemicals and additives. We also
provide size reduction services of environmentally approved solids used in loss
circulation and seepage control, both of which are problems regularly
encountered in drilling oil and natural gas wells. Drilling fluid products are
used to cool and lubricate the drill bit during drilling operations, to contain
formation pressures, to suspend and remove rock cuttings from the hole and to
maintain the stability of the wellbore. Our customers, which include retail
drilling fluid companies, specialty fluid companies and other oilfield service
companies, use our drilling fluid products throughout the world.
Our drilling fluid chemicals and additives are used in the production and
maintenance of:
- water-based drilling fluids;
- oil-based drilling fluids; and
- synthetic-based drilling fluids.
Water-based drilling fluids are the most widely used drilling fluids, having
application in both land and offshore environments. Water-based drilling fluids
typically contain an engineered blend of weighting materials used to contain
formation pressures and a broad range of chemical additives specially designed
to yield the specific drilling performance characteristics required for a given
drilling project. Oil-based drilling fluids, which primarily are used to drill
water-sensitive shales, reduce torque and drag and are widely used in drilling
conditions where stuck pipe is likely to occur. In certain drilling areas,
oil-based systems exhibit higher penetration rates than water-based systems.
These higher penetration rates significantly reduce the time required to drill a
well and overall drilling costs. Synthetic-based drilling fluids are used where
oil-based fluids are prohibited for environmental reasons and are particularly
advantageous in the deepwater environment, because of their high performance and
safety.
We manufacture a large portion of the drilling fluid products we wholesale,
which enables us to manage the cost and maintain the proprietary nature of these
products. Our research and development initiatives are designed to develop new
products specifically for our customer base. One of our recent product
innovations is a high performance lubricant that allows the use of
environmentally friendly water-based drilling fluids in the deep, severe
drilling environments of the North Sea.
We established our drilling fluids and drilling fluid chemicals and
additives business through the acquisitions of Integrity Industries, Inc. in
September 1997, Grinding and Sizing Company, Inc. in April 1998 and
Agri-Empresa, Inc. in July 1998. We market and sell these products through an
internal sales force. Our drilling fluids business provides products and
services throughout Texas and Louisiana and eastern New Mexico.
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COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES
Our completion and workover related products and services segment provides
a broad range of products and services primarily to customers onshore in the
Gulf Coast region and offshore in the Gulf of Mexico. These products and
services include:
- wireline logging and perforating;
- polymers and specialty chemicals; and
- tubing.
Wireline Logging and Perforating. We provide cased-hole wireline logging
and perforating services to oil and natural gas companies onshore in Alabama,
Louisiana, Mississippi and Texas and offshore in the Gulf of Mexico. Our
services include:
- Logging Services. Logging involves the gathering of downhole information
to identify various characteristics about the formation or zone to be
produced. Logging services are performed through armored
electro-mechanical cable, or wireline, which is lowered into a well from
a truck on land or a skid unit offshore. These units contain considerable
instrumentation and computer equipment used to chart and record downhole
information.
- Perforating Services. Perforating is the method used to establish
communication between the oil or natural gas reservoir and production
tubing to enable the production of oil or natural gas. A path for oil and
natural gas to flow from the reservoir through the casing and cement to
the production tubing is created through the use of a shaped explosive
charge from a perforating gun which penetrates the producing zone.
Wireline is used to position and discharge the perforating gun. We also
perform services aimed at improving the production rate of existing oil
and natural gas wells and in perforating new zones in a well once a
deeper zone or formation has been depleted. We provide a patented gravel
pack service referred to as the "Thru-Tubing Wireline Gravel Pack," that
provides operators of oil and natural gas wells with a more precise
method of installing gravel packs. A gravel pack involves the use of a
slurry-like material that is placed in the well to restore or improve
production in wells that have become congested by producing sand.
We supply wireline logging and perforating services primarily to cased-hole
markets. Cased-holes are wells which have been drilled and cased and are either
ready to produce or are already producing. As a result, the majority of our
revenues from this business are generated by repeat business on existing wells.
Consequently, our wireline logging and perforating services provide revenue
stability during periods of reduced drilling activity.
We established our wireline logging and perforating business through the
acquisitions of Perf-O-Log, Inc. in December 1990 and Diamond Wireline Services,
Inc. in October 1997. A wireline job typically involves the use of both a
logging unit and a perforating unit at a customer's well site. These services
require skilled operators and typically last several days for onshore jobs and a
week or more for offshore jobs. We market and sell these services through an
internal sales force, and our customers typically utilize these services on a
per well basis. We charge our customers on a per day basis. Our wireline logging
and perforating business is currently operated out of facilities located in
Lafayette and Houma, Louisiana; Laurel, Mississippi; and Corpus Christi and
Tyler, Texas.
Polymers and Specialty Chemicals. We produce polymers and specialty
chemicals for niche applications related to completion and workover activities.
Our polymers and specialty chemical products are sold to customers for use
around the world.
Completion fluids are generally solids-free solutions with high specific
gravities and are non-damaging to the producing formation. Oil and natural gas
operators use these specially designed fluid systems in combination with a
comprehensive range of specialty chemical products to control bottom-hole
pressures, while meeting the specific corrosion, inhibition, viscosity and fluid
loss requirements during the completion
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and workover phase of a well. These systems are specially designed to maximize
well production by minimizing formation damage that can be caused by
solids-laden systems.
Our three classes of completion and workover related polymer and specialty
chemical products are:
- oilfield products, which include:
-- enhanced recovery chemicals,
-- spotting fluids,
-- well treating chemicals, and
-- liquified polymers;
- industrial products, which include:
-- cleaners,
-- lubricants, and
-- environmentally sensitive solvents; and
- environmental remediation products.
We established our polymers and specialty chemicals business through the
acquisitions of Integrity Industries, Inc. in September 1997, Grinding and
Sizing Company, Inc. in April 1998 and Agri-Empresa, Inc. in July 1998. We
market and sell our polymers and specialty chemical products through an internal
sales force. Our polymers and specialty chemical products are distributed from
strategically located facilities throughout Texas and Louisiana and in eastern
New Mexico.
Tubing. Thomas Tubing Specialists was established with a capital investment
in 1998. This specialized division of Thomas Energy Services, Inc. provides a
variety of quality tubing and high pressure blowout preventers used in
conventional well servicing and workover applications, as well as specialized
snubbing and coiled tubing applications.
Snubbing involves pushing pipe into the well against well bore pressures
that often exceed 10,000 to 12,000 pounds per square inch. Failure during high
pressure applications such as snubbing could result in a blowout. Through Thomas
Tubing, we offer both the proper equipment and the experience to handle the
critical nature of snubbing. Thomas Tubing also provides standard tubing for
less demanding applications.
Thomas Tubing has benefitted from the lack of specific focus by our
competitors on the tubing and snubbing market. We market and sell our equipment
through an internal sales force. Our customers typically utilize equipment on a
per well basis, and we charge our customers for equipment primarily on a day
rental basis. Our tubing business is currently operated out of facilities
located in New Iberia, Louisiana.
MAINTENANCE AND SAFETY RELATED PRODUCTS AND SERVICES
We provide maintenance and safety related products and services primarily
for refinery and petrochemical plant applications and major and independent oil
and natural gas companies, including:
- integrated on-site cleaning and waste management; and
- safety equipment.
Integrated On-Site Cleaning and Waste Management. We provide on-site
cleaning, maintenance and waste storage services to refining and petrochemical
companies and major and independent oil and natural gas companies through our
fleet of high velocity vacuum trucks, storage tanks and boxes and a broad
selection of specialty equipment. Our services include on-site cleaning and
waste management, waste
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transportation, wastewater services, container cleaning and repair, emergency
spill response services and other general plant support services.
We established an integrated cleaning and maintenance business through our
acquisition of Charles Holston, Inc. in April 1989. We market these services
directly through an internal sales force and operating managers at locations in
Jennings, Lake Charles and Eunice, Louisiana.
Safety Equipment. Our safety equipment business provides equipment used in
the detection of and protection from toxic gases encountered by refining and
petrochemical companies and major and independent oil and natural gas companies
onshore in the Gulf Coast region and offshore in the Gulf of Mexico. We rent
electronic detection and monitoring equipment, breathing units and other
personal safety equipment, primarily on a day rate basis. In addition, we
provide comprehensive safety planning services, safety training and safety
supervision.
We acquired our safety equipment business through the acquisition of Well
Safe, Inc. in May 1990. Originally established to service the oil and natural
gas exploration and production market, we expanded our business in 1993 to
include refining and petrochemical companies. This has enabled us to capitalize
on the stringent safety requirements of this market. We market and sell our
safety services and products directly through an internal sales force and
operating managers at locations in Decatur and Mobile, Alabama; Gonzales and
Sulfur, Louisiana; and Corpus Christi, Beaumont and Houston, Texas.
POTENTIAL LIABILITIES AND INSURANCE
Our operations involve a high degree of operational risk, particularly
personal injuries and equipment damage, that are typical of companies operating
in our industry. Failure of our equipment could result in property damages,
personal injury, environmental pollution and damage for which we could be
liable. Litigation arising from a catastrophic occurrence at a location where
our equipment or services are used may result in our being named as a defendant
in lawsuits asserting potentially large claims. We maintain insurance against
risks that are consistent with industry standards and required by our customers.
Although we believe that we maintain insurance coverage that is adequate in
amount and type for the risks associated with our businesses, there is always a
risk that our insurance may not be sufficient to cover any particular loss. In
addition, our insurance does not provide coverage for all liabilities, including
liability for some events involving pollution. Our insurance coverage may not
otherwise be adequate to cover claims that may arise, and we may not be able to
maintain adequate insurance at rates we consider commercially reasonable.
LICENSES, PATENTS AND TRADEMARKS
We possess or have licenses to use various patents covering a variety of
technologies that form components of our products. Although in the aggregate
these patents are of importance to us, we do not consider any single patent to
be of a critical or essential nature. We also enjoy product name brand
recognition, principally through The Tracker(R), Dyna Drill(R) and other
trademarks, and consider such trademarks to be important to our business.
Our LWD business is substantially dependent upon technologies that we
acquired in the PathFinder acquisition. Through non-exclusive, worldwide,
royalty free licenses granted to us by Halliburton, Honeywell, and other
third-party licensors, and a royalty bearing non-exclusive, worldwide license
granted to us by Schlumberger, we possess the right to use, but do not own and
may not sublicense, these technologies.
In connection with the PathFinder acquisition, Halliburton agreed to defend
and indemnify us with respect to any claim of infringement or misappropriation
by third parties with regard to the intellectual property, such as patents,
copyrights, trade secrets and trademarks, that were conveyed to us in the
PathFinder acquisition. This indemnity protects us in the event of a loss
arising out of any suit or settlement resulting from a claim of infringement of
patents, copyrights or trade secrets of third parties by the PathFinder assets.
The indemnity applies to claims made on or before March 29, 2001.
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On January 25, 2000, we notified Halliburton of its indemnity obligations
under this agreement in connection with the assertion by one of our competitors
that certain components of a PathFinder tool infringe upon one or more of its
patents. Halliburton has agreed that this claim is subject to the indemnity
agreement and has commenced its initial investigation of this claim. In
addition, we have received an inquiry from an educational institution regarding
whether a PathFinder tool infringes upon one or more patents held by it. We have
notified Halliburton of this inquiry.
We have employment or royalty agreements with certain of our employees who
have been involved in the development of technologies that are important to our
business. In general, these agreements provide that we must pay royalties to
these employees based upon the amount of revenues that their technologies are
used to produce. In some cases, these agreements provide for acceleration of
these royalty payments upon the occurrence of specified events, such as a change
in control.
GOVERNMENT REGULATION
Our business is significantly affected by foreign, federal, state and local
laws and regulations relating to the oil and natural gas industry, the refining
and petrochemical industry, worker safety and environmental protection. Changes
in these laws, including more stringent administrative regulations and increased
levels of enforcement of these laws and regulations, will affect our business.
We cannot predict the level of enforcement of existing laws and regulations or
how these laws and regulations may be interpreted by enforcement agencies or
court rulings or the effect changes in these laws and regulations may have on us
or our businesses, our results of operations, our cash flows or our financial
condition. We also are not able to predict whether additional laws and
regulations will be adopted.
We depend on the demand for our products and services from oil and natural
gas companies, oilfield service companies and refining and petrochemical
companies. This demand is affected by changing taxes, price controls and other
laws and regulations relating to the oil and natural gas industry and the
refining and petrochemical industry, generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and natural
gas in our areas of operation for economic, environmental or other policy
reasons could also adversely affect our operations by limiting demand for our
products and services. In addition, our maintenance and safety related services
are substantially dependent on the cleaning and maintenance operations of our
customers. Numerous local, state and federal laws and regulations affect the
necessity, timing and frequency of the cleaning and maintenance operations of
refining and petrochemical companies and, consequently affect the demand for our
products and services. We cannot determine the extent to which our future
operations and earnings may be effected by new legislation, new regulations or
changes in existing regulations or enforcement.
Some of our employees who perform services on offshore platforms and
vessels are covered by the provisions of the Jones Act, the Death on the High
Seas Act and general maritime law. These laws operate to make the liability
limits established under state workers' compensation laws inapplicable to these
employees and, instead, permit them or their representatives to pursue actions
against us for damages or job-related injuries, with generally no limitations on
our potential liability.
Our operations are subject to numerous foreign, federal, state and local
laws and regulations governing the manufacture, management and/or disposal of
materials and wastes in the environment and otherwise relating to environmental
protection. Numerous governmental agencies issue regulations to implement and
enforce these laws which are often difficult and costly to comply with, and the
violation of which may result in the revocation of permits, issuance of
corrective action orders, assessment of administrative and civil penalties and
even criminal prosecution. For example, state and federal agencies have issued
regulations implementing environmental laws that regulate environmental and
safety matters, such as restrictions on the types, quantities, and concentration
of various substances that can be released into the environment in connection
with specialty chemical manufacturing and tank vacuum or other field service
operations, remedial measures to prevent pollution arising from current and
former operations, and requirements for worker safety training and equipment
usage. Our management believes that we are in
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compliance in all material respects with applicable environmental laws and
regulations and, further, does not anticipate that compliance with existing laws
and regulations will have a material effect on us.
We generate wastes, including hazardous wastes, that are subject to the
federal Resource Conservation and Recovery Act (RCRA) and comparable state
statutes. The U.S. Environmental Protection Agency (EPA) and state agencies have
limited the approved methods of disposal for some types of hazardous and
nonhazardous wastes. Furthermore, it is possible that certain wastes handled by
us in connection with our tank vacuum or other field service activities that
currently are exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes" under RCRA or other applicable statutes, and
therefore be subject to more rigorous and costly operating and disposal
requirements.
The federal Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), also known as the "Superfund" law, and comparable state
statutes impose liability, without regard to fault or legality of the original
conduct, on classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or the site where the release
occurred and companies that disposed of or arranged for the disposal of the
hazardous substances at the site where the release occurred. Under CERCLA, these
persons may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. We
currently lease a number of properties upon which activities involving the
handling of hazardous substances or wastes may have been conducted by third
parties not under our control. These properties may be subject to CERCLA, RCRA
and analogous state laws in the future. Under these laws and implementing
regulations, we could be required to remove or remediate previously discarded
hazardous substances and wastes or property contamination that was caused by
these third parties. These laws and regulations may also expose us to liability
for our acts that were in compliance with applicable laws at the time the acts
were performed.
Our operations may result in discharges of pollutants into waters. The
Federal Water Pollution Control Act (FWPCA) and analogous state laws impose
restrictions and strict controls regarding the discharge of pollutants into
state waters or waters of the United States. The discharge of pollutants are
prohibited unless permitted by the EPA or applicable state agencies. In
addition, the Oil Pollution Act of 1990 (OPA) as amended by the Coast Guard
Authorization Act of 1996, imposes a variety of requirements on "responsible
parties" related to the prevention of oil spills and liability for damages,
including natural resource damages, resulting from such spills in waters of the
United States. A "responsible party" includes the owner or operator of a
facility or vessel, or the lessee or permittee of the area in which an offshore
facility is located. The FWPCA and analogous state laws provide for
administrative, civil and criminal penalties for unauthorized discharges and,
together with OPA, impose rigorous requirements for spill prevention and
response planning as well as substantial potential liability for the costs of
removal, remediation, and damages in connection with any unauthorized
discharges. Our management believes that we are in substantial compliance with
applicable permitting, planning, and discharge requirements under the FWPCA and
OPA.
The Atomic Energy Act, which provides for the development and regulation of
commercial nuclear power, authorizes the Nuclear Regulatory Commission (NRC) to
regulate radioactive "source material." A "source material" is uranium and
thorium that can be used to produce nuclear fuels, but that has not yet been
"enriched" to be fissionable. Under the Atomic Energy Act, the NRC has entered
into cooperative agreements with the states of Texas, Louisiana, and Mississippi
that authorize those states to regulate and license the use of source material.
Source material is used by several of our companies, including PathFinder,
Perf-O-Log, and Diamond Wireline, in connection with logging exploratory wells
in Louisiana, Mississippi, and Texas. We have obtained licenses from the
Louisiana Department of Environmental Quality, the Texas Department of Health
and Radiological Control, and the Mississippi Department of Health and
Radiological Control that allow us to store and use these source materials in
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connection with our well logging activities in these three states. We believe
that we are in compliance with the terms and conditions of our source material
state licenses.
As part of the oilfield products and services provided by our Charles
Holston company in Louisiana, we have in the past been involved in treating,
removing, and disposing of naturally occurring radioactive material (NORM) which
is generated in connection with oil and gas exploration and production
activities. The Atomic Energy Act does not regulate NORM; rather, NORM is
regulated by the states. Under authority granted by Louisiana law, the Louisiana
Department of Environmental Quality has adopted regulations establishing
radiation, health, and safety requirements for the possession, use, transfer,
treatment, storage, and disposal of NORM, and the recycling of NORM-contaminated
equipment. These regulations authorize the issuance of "specific licenses" to
qualified companies to remove and dispose of regulated NORM that has
contaminated oilfield equipment such as tanks and pipes as well as surficial
soils, including soils comprising oilfield pits. We have in the past held a
specific license for treating, removing, and disposing of NORM in Louisiana.
While we are not currently licensed to treat, remove or dispose of NORM, we are
undertaking efforts to once again obtain a special license in order to handle
regulated NORM waste. We believe that our past NORM activities under our
previous specific license were performed in compliance with applicable Louisiana
Department of Environmental Quality NORM requirements, and do not expect to
experience significant difficulty in obtaining a new specific license with
respect to the future handling of regulated NORM.
CUSTOMERS
Our customers include major and independent oil and natural gas companies
and independent directional drillers operating onshore in North America and
offshore in the Gulf of Mexico and the North Sea. Our customers also include
refinery and petrochemical companies located on the Gulf Coast. Additionally, we
provide drilling fluids to other oilfield services companies on a wholesale
basis. We provide services and equipment to a broad range of customers and,
therefore, we believe that we are not dependent on any single customer or group
of customers. For the year ended December 31, 1999, no single customer or group
of affiliated customers accounted for 10% or more of our revenues. We generally
enter into informal, nonbinding commitments with our customers, which are
customary within our business lines.
SUPPLIERS
We obtain our rental tools, certain parts and components of our drilling
motors and LWD and MWD tools and certain chemicals and additives used in
producing our drilling fluids from various third-party suppliers. We do not
believe that any one supplier of these products is material to us. We have not
experienced and do not foresee experiencing a shortage of any of these products.
COMPETITION
We operate in highly competitive areas of the oilfield services industry.
The depressed oil and natural gas prices and the resulting decline in the oil
and natural gas industry in the 1980s and in 1998 and early 1999 has led to a
consolidation of the number of companies providing services similar to those we
provide. Many of our competitors are larger and have greater marketing,
distribution, financial and other resources than we do.
Drilling Related Products and Services. We experience significant
competition in our drilling related products and services segment. In this
segment, we principally compete on the basis of reputation, technology, quality,
price and availability. Competitors in our LWD and MWD businesses include
divisions of Baker Hughes, Halliburton and Schlumberger. Small and large
independent oilfield service companies also compete with us in our MWD business.
In our rental tool business, our competitors range from small, independent
oilfield service companies to much larger oilfield service companies such as
Weatherford International. In addition, many of our customers own and operate
large inventories of equipment they might otherwise rent and have the ability to
purchase additional equipment, as opposed to renting.
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Competitors in our downhole drilling motors business and our drilling fluids and
specialty chemicals business include both small and large independent oilfield
service companies.
Completion and Workover Related Products and Services. We experience
significant competition in our completion and workover related products and
services segment. In this segment, we principally compete on the basis of price,
quality, reputation, availability and range of services offered. Our competitors
in this segment include the major oilfield service companies and both small and
large independent oilfield service companies.
Maintenance and Safety Related Products and Services. Our maintenance and
safety related products and services segment also experiences significant
competition. In this segment, we compete principally on the basis of quality,
reputation and price. Competition in our safety equipment business is fragmented
and our competitors vary widely. We have a variety of competitors in our
cleaning and waste management business ranging from large public companies to
small independent, single-location operators.
We may not be able to continue operating at current volumes or prices if
our current competitors or new market entrants introduce new products or
services with better features, performance, prices or other characteristics than
our products and services. Competitive pressures or other factors also may
result in significant price competition that could have a material adverse
effect on our results of operations and financial condition. In the future, we
also may face the threat of competition from companies providing products
similar to ours over the Internet. These potential Internet companies may have
greater technical capabilities and access to greater financial resources than we
have. This may place us at a disadvantage in responding to the Internet
offerings of these competitors, technological changes in the Internet or changes
in our customers' requirements. Furthermore, competition among oilfield service
and equipment providers is also based on the provider's reputation for safety
and quality. Although we believe that our reputation for safety and quality
service is good, there can be no assurance that we will be able to maintain this
reputation and, thus, our competitive position.
EMPLOYEES
As of April 30, 2000, we had approximately 910 employees. None of our
employees is represented by a union or covered by a collective bargaining
agreement. We believe that our relations with our employees are good.
LEGAL PROCEEDINGS
We are a party to various routine legal proceedings that primarily involve
commercial claims and workers' compensation claims. We cannot predict the
outcome of these lawsuits, legal proceedings and claims with certainty.
Nevertheless, we believe that the outcome of all of these proceedings, even if
determined adversely, would not have a material adverse effect on our business
or financial condition.
Two separate lawsuits, Keith Vienne, et al. v. Conoco, Inc., et al., No.
74,427, and Larry Mouton, et al. v. Conoco, Inc., et al., No. 75,038, were filed
in 1999 in Louisiana state court against six defendants, including Conoco, Inc.,
the primary operator of the field beginning in the 1950s, and Guillory Tank
Truck Service, Inc., an oilfield waste disposal company. One of our
subsidiaries, Charles Holston, Inc., purchased the assets of Guillory Tank Truck
Service, Inc. in 1989. These cases have several hundred plaintiffs who allege
that they and their property have been exposed to improperly handled oil, gas,
and oilfield waste over a 40-year period in connection with the operation of an
oilfield approximately four miles north of Rayne, Louisiana. The plaintiffs
allege that Guillory Tank Truck Service, Inc. improperly disposed of oilfield
waste from the field at various unspecified times over the years. These cases
are in the initial phase of discovery, and it is too early for us to predict a
range of exposure or a likely outcome. However, we believe that under the terms
of the asset purchase agreement entered into in 1989 to acquire these assets,
Charles Holston, Inc. is not contractually liable for any acts which may result
in liability prior to the acquisition of these assets. We do not expect these
two lawsuits to have a material adverse effect on our financial condition or
results of operations.
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For a discussion of the claims relating to intellectual property rights,
please read "-- Intellectual Property."
PROPERTIES
Our principal executive offices are located at 10370 Richmond Avenue, Suite
990, Houston, Texas 77042, and our telephone number is (713) 974-9071. Our
businesses are conducted out of sales offices and facilities located throughout
the United States and Europe. Set forth below is a chart describing the
locations of these sales offices and facilities:
<TABLE>
<CAPTION>
BUSINESS LOCATION
- -------- --------
<S> <C>
Drilling Related Products and Services
LWD/MWD Lafayette and New Orleans, Louisiana; Houston and
Victoria, Texas; Casper, Wyoming; Stavanger, Norway;
Aberdeen, Scotland
Rental Tools Lafayette and New Iberia, Louisiana; Denver, Colorado;
Houston, Dallas, Corpus Christi and Victoria, Texas
Downhole Drilling Motors Lafayette, Louisiana; Elk City, Oklahoma; Houston,
Texas; Stavanger, Norway; Aberdeen, Scotland
Drilling Fluids Jennings, Louisiana; Carlsbad and Hobbs, New Mexico;
Kingsville, Conroe, Victoria, Lufkin, Zapata, Edenburg,
Midland, Abilene, Jacksboro and Houston, Texas
Completion and Workover Related Products and Services
Wireline Logging and Perforating Lafayette and Houma, Louisiana; Laurel, Mississippi;
Corpus Christi and Tyler, Texas
Polymers and Specialty Chemicals Jennings, Louisiana; Carlsbad and Hobbs, New Mexico;
Kingsville, Conroe, Victoria, Lufkin, Zapata, Edenburg,
Midland, Abilene, Jacksboro and Houston, Texas
Tubing New Iberia, Louisiana
Maintenance and Safety Related Products and Services
Integrated On-site Cleaning and Waste Management Eunice, Jennings and Lake Charles, Louisiana
Safety Equipment Decatur and Mobile, Alabama; Gonzales and Sulfur,
Louisiana; Beaumont, Corpus Christi and Houston, Texas
</TABLE>
With the exception of our Lafayette (LWD/MWD) and Houma, Louisiana and
Tyler, Texas facilities, which are owned, all of these sales offices and
facilities are leased pursuant to operating leases for various terms. Some of
these sales offices and facilities are leased from employees who were the former
owners of our subsidiaries. We believe that all of our leases are at competitive
or market rates and do not anticipate any difficulty in leasing suitable
additional space upon expiration of our current lease terms. Please read
"Relationships and Related Transactions -- Lease Agreements."
41
<PAGE> 46
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their ages and positions are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Kenneth T. White, Jr. ............... 58 Chairman of the Board, President, Chief
Executive Officer and Director
Jeffrey L. Tepera.................... 34 Vice President, Secretary and Chief Financial
Officer
William J. Thomas III................ 48 Vice President
Jonathan F. Boucher.................. 43 Director
John W. Jordan II.................... 52 Director
David W. Zalaznick................... 47 Director
J. Jack Watson....................... 71 Director
Christopher Mills.................... 47 Director
Robert H. Whilden, Jr. .............. 64 Director
</TABLE>
Our board of directors consists of seven members. Each of our directors
will serve until the next annual meeting of the shareholders or until his death,
resignation or removal, whichever is earlier. Directors are elected annually and
executive officers hold office for such terms as may be determined by our board
of directors. Set forth below is a brief description of the business experience
of each of our directors and executive officers.
Mr. White, our founder, has served as a director since our inception and
serves as our Chairman, President and Chief Executive Officer. Prior to founding
our company, Mr. White participated in the acquisition, development and eventual
sale of a number of businesses, including an oil and natural gas products and
services business and a manufacturing and distributing company. Mr. White has
over 25 years of experience in the oil and natural gas industry.
Mr. Tepera, a certified public accountant, joined us in December 1997 and
serves as our Vice President, Secretary and Chief Financial Officer. From 1989
to 1997 Mr. Tepera was employed by Arthur Andersen LLP, independent public
accountants, serving in various positions, most recently as Manager in the
enterprise group, which specializes in emerging high growth companies.
Mr. Thomas serves as our Vice President and has been the Chief Executive
Officer of Thomas Energy Services, Inc. since June 1994. Mr. Thomas has over 25
years of experience in the oil and natural gas industry and has been employed by
Thomas Energy Services since 1974.
Mr. Boucher has served as one of our directors since August 1997. Mr.
Boucher has been a partner of The Jordan Company, a private merchant banking
firm, since 1983. Mr. Boucher is also a director of Jackson Products, Inc.,
Jordan Industries, Inc. and Motors and Gears, Inc., as well as other privately
held companies.
Mr. Jordan has served as one of our directors since August 1997. Mr. Jordan
has been a partner of The Jordan Company, a private merchant banking firm, since
1982. Mr. Jordan is also a director of AmeriKing, Inc., Carmike Cinemas, Inc.,
Jackson Products, Inc., Jordan Industries, Inc., Motors and Gears, Inc. and
Rockshox, Inc., as well as other privately held companies.
Mr. Zalaznick has served as one of our directors since August 1997. Mr.
Zalaznick has been a partner of The Jordan Company, a private merchant banking
firm, since 1982. Mr. Zalaznick is also a director of AmeriKing, Inc., Carmike
Cinemas, Inc., Jackson Products, Inc., Jordan Industries, Inc., Marisa
Christina, Inc. and Motors and Gears, Inc., as well as other privately held
companies.
Mr. Watson has served as one of our directors since August 1997. Mr. Watson
was Chairman, President and Chief Executive Officer of Newflo Corporation from
1987 to 1996. Newflo is a manufacturer
42
<PAGE> 47
of pumps, valves and meters which, at the time of Mr. Watson's departure, had
annual revenues of approximately $250 million.
Mr. Mills has served as one of our directors since 1990. Mr. Mills is a
director of Compass Plastics, Denison Investments PLC, Horace Small PLC, North
Atlantic Smaller Companies Investment Trust, a closed end mutual fund, and Oak
Industries. Mr. Mills has been the Chief Executive Officer of North Atlantic
Smaller Companies Trust since 1984.
Mr. Whilden has served as one of our directors since our inception in 1989.
Mr. Whilden is Senior Vice President and General Counsel of BMC Software, Inc.
and is also a director of Tom Brown, Inc., an independent oil and natural gas
company. Until December 31, 1999, Mr. Whilden had been a partner since 1970 in
the law firm of Vinson & Elkins L.L.P., our counsel in connection with this
offering.
BOARD COMMITTEES
Our board of directors intends to appoint an audit committee composed of
three independent directors and a compensation committee prior to the completion
of this offering. The audit committee will make recommendations to the board of
directors regarding the selection of independent accountants, will review the
results and scope of that firm's audit and the services provided by them and
will review and evaluate our audit and control functions.
The compensation committee will administer our stock plans and make
decisions concerning salaries and incentive compensation for our employees.
INDEMNIFICATION
We are parties to indemnification agreements with each of our directors and
executive officers. These indemnification agreements provide that we will
indemnify our directors or executive officers to the fullest extent permitted by
Texas law.
Our restated articles of incorporation contain provisions relating to the
limitation of liability and indemnification of our directors and officers. They
provide that directors shall not be personally liable to us or our shareholders
for monetary damages for any act or omission in the director's capacity as a
director, except for liability for:
- any breach of a director's duty of loyalty to us or our shareholders;
- acts or omissions not in good faith or which constitute a breach by a
director of a duty owed to us or an act or omission that involves
intentional misconduct or a knowing violation of law;
- a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope
of the director's office; or
- any act or omission for which the liability of a director is expressly
provided by an applicable statute.
Our restated articles of incorporation also provide that:
- if Texas law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of
our directors shall be eliminated or limited to the fullest extent
permitted by the amended Texas law; and
- we may not retroactively amend the provisions in our restated articles of
incorporation relating to indemnity in a way that would adversely affect
the rights of our directors or officers.
In addition, our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by Texas law; and
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<PAGE> 48
- we are required to advance all expenses incurred by a director or officer
in connection with legal proceedings relating to his service as an
officer or director to the fullest extent permitted by Texas law, subject
to limited exceptions.
MANAGEMENT OF OPERATING SUBSIDIARIES
Set forth below is a brief description of each principal executive officer
of each of our main operating subsidiaries:
William J. Thomas III has been the Chief Executive Officer of Thomas
Energy Services, Inc. since June 1994. Mr. Thomas has over 25 years of
experience in the oil and natural gas industry and has been with Thomas
Energy Services since 1974.
Daniel M. Spiller is the Chief Executive Officer of Drill Motor
Services. Mr. Spiller has over 20 years of experience in the design,
manufacture, sale, rental and operation of downhole drilling motors. Mr.
Spiller organized Drill Motor Services in 1991 and, prior to such time,
worked with several recognized leaders in the downhole drilling motor
sector.
Bill W. Bouziden is the President of Perf-O-Log and has over 15 years
of experience in the oil and natural gas industry and wireline business.
William Max Duncan, Jr. has been the President of Integrity since he
co-founded it in 1986. Mr. Duncan has over 20 years of experience in the
specialty chemicals and drilling fluids business.
Stephen T. Goree has been the Chief Executive Officer of Agri-Empresa
since its formation in 1977. Mr. Goree was the founder of Agri-Empresa and
has over 20 years of experience in the oil and natural gas industry.
Ronald A. Rose, Sr. has been with Grinding and Sizing since 1988 and
has been the President of Grinding and Sizing since 1995. Mr. Rose has over
10 years of experience in the drilling fluids business.
Craig Holston is the Chief Executive Officer of Charles Holston and
has been with Charles Holston since its formation in 1985 and has over 15
years of experience in the oil and natural gas industry.
J.B. Wilson, Jr. is the President of Well Safe and has been with Well
Safe since its inception in 1985. Mr. Wilson has over 20 years of
experience in the oil and natural gas industry.
Leif R. Syverson has been the Chief Executive Officer of Dyna Drill
Technologies since its formation in April 1999, prior to which Mr. Syverson
was with Halliburton for two years. Mr. Syverson has over 15 years of
experience in the oil and natural gas industry.
Shaun R. Gilley has been the Chief Executive Officer of Diamond
Wireline since its formation in October 1987. Mr. Gilley has over 30 years
of experience in the oil and natural gas industry.
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<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth summary compensation information with
respect to our President and Chief Executive Officer and certain of our other
officers for the year ended December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION OTHER ANNUAL ALL OTHER OPTIONS/WARRANTS
IN THE COMPANY(1) SALARY BONUS COMPENSATION COMPENSATION GRANTED
<S> <C> <C> <C> <C> <C>
Kenneth T. White, Jr. ........... $259,616 $250,000 $8,100 $-0- 900,900
Chairman, President and
Chief Executive Officer
William J. Thomas III............ 196,601 100,000 8,100 4,500 33,000
Vice President
Jeffrey L. Tepera................ 88,269 20,000 8,100 1,912 16,500
Vice President, Secretary
and Chief Financial Officer
</TABLE>
- ------------------------------
(1) Excludes David N. Eliff, who served as our Vice President, Secretary and
Chief Financial Officer, until his resignation in March 2000. For the year
ended December 31, 1999, Mr. Eliff received a salary of $140,192, a bonus of
$45,000, other annual compensation of $8,100 and other compensation of
$3,154. During the year ended December 31, 1999, we granted Mr. Eliff
options to purchase 33,000 shares of our common stock, which had not vested
and, thus, terminated upon Mr. Eliff's resignation.
OPTION GRANTS, EXERCISES AND HOLDINGS
Option Grants. The following table contains certain information concerning
options granted to the named executive officers during the year ended December
31, 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS GRANTED EXERCISE OR STOCK PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION OPTION TERM(3)
NAME(1) GRANTED IN 1999 PER SHARE(2) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Kenneth T. White, Jr. .... 900,900 64.5% $4.55 3/29/2009 $2,577,899 $6,532,902
William J. Thomas III..... 33,000 2.4 4.55 3/29/2009 94,429 239,300
Jeffrey L. Tepera......... 16,500 1.2 4.55 3/29/2009 47,214 119,650
</TABLE>
- ------------------------------
(1) Excludes David N. Eliff who, during the year ended December 31, 1999, was
granted options to purchase 33,000 shares of our common stock at an exercise
price of $4.55 per share, which was at or above fair market value. In March
2000, these options had not vested and, thus, terminated upon Mr. Eliff's
resignation.
(2) The options were granted at or above the fair market value of our common
stock on the date of grant with a term of 10 years, unless otherwise noted.
(3) In accordance with the rules of the Securities and Exchange Commission,
shown are the gains or "option spreads" that would exist for the respective
options granted. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. These assumed annual compound rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of our
future common stock prices.
45
<PAGE> 50
Option and Warrant Holdings. The following table sets forth certain
information regarding options and warrants held at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/WARRANTS HELD AT MONEY OPTIONS/WARRANTS HELD
DECEMBER 31, 1999 AT DECEMBER 31, 1999(2)
--------------------------- ----------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Kenneth T. White, Jr.
Options................................. 480,480 420,420 $ 5,021,016 $4,393,389
Warrants................................ 311,438 -0- 3,983,286 -0-
William J. Thomas III
Options................................. -0- 33,000 -0- 344,850
Warrants................................ 148,500 -0- 1,899,315 -0-
Jeffrey L. Tepera
Options................................. 8,250 24,750 86,212 258,638
Warrants................................ -0- -0- -0- -0-
</TABLE>
- ------------------------------
(1) Excludes David N. Eliff who, as of December 31, 1999, held unvested options
to purchase 33,000 shares of our common stock. In March 2000, these options
had not vested and, thus, terminated upon Mr. Eliff's resignation. As of
December 31, 1999, Mr. Eliff held warrants to purchase 115,500 shares of our
common stock, all of which are exercisable. The value of Mr. Eliff's
exercisable in-the-money warrants held at December 31, 1999 was $1,477,245.
(2) There was no public market for the common stock at December 31, 1999.
Accordingly, these values have been calculated by determining the difference
between the exercise price per share and the fair market value at December
31, 1999. A fair market value of $15.00 per share was used, which is the
assumed price in this offering.
EMPLOYMENT AGREEMENTS
Kenneth T. White, Jr. Mr. White serves as our Chairman, President and Chief
Executive Officer under an employment agreement, with an initial term expiring
March 29, 2002. However, Mr. White's employment agreement contains an option,
which we intend to exercise, that will extend Mr. White's employment agreement
for a term of three years from the effective date of this offering. We also have
the option to extend the employment agreement for a term of three years from the
effective date of certain events, including the completion of a merger or other
business combination with a third party in which there is more than a 50% change
in stock ownership and board control.
Mr. White's employment agreement provides for an annual base salary of
$300,000 plus a car allowance and such fringe benefits as are available from us
to our executive officers and the executive officers of our subsidiaries. Mr.
White is also entitled to receive incentive compensation up to a maximum of 100%
of his base compensation each year as determined in the sole discretion of our
board of directors. If we terminate Mr. White's employment for any reason other
than for cause, he is entitled to receive his base salary for a period of two
years. Mr. White has agreed during the term of the agreement, and for a period
of two years after any voluntary termination, not to engage directly or
indirectly in any type of business in which we or any of our subsidiaries are
actively engaged in the state of Texas or Louisiana.
Mr. White received a 10-year option to purchase 900,900 shares of our
common stock at an exercise price of $4.55 per share. Mr. White's option to
purchase 480,480 of these shares has already vested. Mr. White may exercise his
option with respect to 210,210 of these shares on or after March 29, 2001 and
may exercise his option with respect to the remaining 210,210 shares on or after
March 29, 2002. Under certain circumstances, vesting of the options may
accelerate and Mr. White will be permitted to exercise these options immediately
in full. These circumstances include a merger or consolidation of us with
another company in which we are not the surviving entity, a sale, lease or
exchange of all or substantially all of our assets to any other person or
entity, our dissolution or bankruptcy, or the acquisition by a person or entity
of ownership or control of more than 50% of the outstanding shares of our voting
stock.
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<PAGE> 51
William J. Thomas III. Mr. Thomas serves as our Vice President under an
employment agreement, with an initial term expiring May 1, 2003. However, Mr.
Thomas's employment agreement may be renewed automatically for an additional
period ending April 30, 2006, unless terminated by Mr. Thomas or us. Mr.
Thomas's employment agreement provides for an annual salary of $250,000 plus a
car allowance and other benefits. Mr. Thomas is also entitled to incentive
compensation up to a maximum of 100% of his base compensation each year as
determined by our compensation committee. Under the agreement, Mr. Thomas's
salary will be reviewed every two years by our compensation committee for
possible increases based on Mr. Thomas's performance. If we terminate Mr.
Thomas's employment for any reason other than for cause, he is entitled to
receive his salary for two years. Mr. Thomas has agreed, during the term of the
agreement and for a period of one year after any voluntary termination, that he
will not be employed by or associated with or own any entity which is engaged in
any type of business in which we or any of our subsidiaries are actively engaged
in the state of Texas or Louisiana.
Jeffrey L. Tepera. Mr. Tepera serves as our Vice President, Secretary and
Chief Financial Officer under an employment agreement, with an initial term
expiring March 26, 2002. However, Mr. Tepera's employment agreement may be
renewed automatically for an additional period ending March 26, 2005, unless
terminated by Mr. Tepera or us. Mr. Tepera's employment agreement provides for
an annual salary of $150,000 plus a car allowance and other benefits. Mr. Tepera
is also entitled to incentive compensation each year, as determined by our
compensation committee. Under the agreement, Mr. Tepera's salary will be
reviewed every two years by our compensation committee for possible increases
based on Mr. Tepera's performance. If we terminate Mr. Tepera's employment for
any reason other than for cause, he is entitled to receive his salary for two
years. Under Mr. Tepera's employment agreement, Mr. Tepera has agreed for a
period of one year from the date of voluntary termination, that he will not be
employed or associated with or own any entity which is engaged in any type of
business in which we or any of our subsidiaries are actively engaged.
COMPENSATION OF DIRECTORS
Upon completion of this offering, our outside directors will receive
$10,000 per year for their services to our company, plus reimbursement of
out-of-pocket expenses.
STOCK OPTION PLAN
Our board adopted a stock option plan in August 1997. Our board believes
that, by providing our key employees with an opportunity to acquire an ownership
interest in our company, the option plan will give employees a stronger
incentive to work for our continued success. Our board of directors also
believes that the option plan will help us attract and retain outstanding
personnel. The principal features of the option plan are described below.
The option plan will be administered by a committee of our board of
directors appointed by our board of directors. If no committee is appointed
under the option plan, the board of directors will act as the administrator. The
administrator has the power to determine those employees to be granted options,
the price and the number of shares subject to each option, the time at which
each option is granted and becomes exercisable, the duration of the option
period, the inclusion of stock appreciation rights and such other conditions and
limitations as may be applicable.
Each option granted under the option plan will contain terms and conditions
as may be approved by the administrator. The administrator has granted options
under the option plan that will vest over a four-year period and will expire in
all cases 10 years from the date the options were granted. Except in certain
circumstances, including a merger or consolidation with another corporation or
the sale of substantially all of our assets, no option may be exercised unless
the continuous service requirement has been satisfied. If an optionee's
employment terminates for any reason, the option may be exercised during the
three-month period following the termination, but only to the extent vested at
the time of the termination.
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<PAGE> 52
Each option will be assignable or transferable only by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined by the Internal Revenue Code of 1986, as amended, or Title 1 of the
Employee Retirement Income Security Act of 1974, as amended, and will be
exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.
No consideration is payable to us upon the grant of any option. The
exercise price of any option will be determined by the administrator.
Our board of directors may amend or terminate the option plan as it deems
advisable. Termination of the option plan will not affect the rights of the
optionees or their successors under any options outstanding and not exercised in
full on the date of termination. Unless earlier terminated by the board of
directors, the option plan will terminate in August 2007.
The option plan provides for the issuance of non-qualified stock options.
The option plan covers an aggregate of 2,475,000 shares of our common stock
(subject to adjustments in the event of stock dividends, stock splits and
certain other events). As of April 30, 2000, 10-year options have been granted
under the option plan with respect to a total of 1,328,250 shares of our common
stock, which will vest over a four-year period, in 25% increments after each
full year of service following the date of grant, beginning in August 1998. This
amount does not include:
- 900,900 options granted to Mr. White on March 29, 1999 under a separate
non-statutory stock option plan; or
- up to 170,000 options to be granted to certain of our employees under the
1997 option plan concurrently with this offering at an exercise price
equal to the initial public offering price.
Mr. White's options vest as described under "Management -- Employment
Agreements -- Kenneth T. White."
OTHER COMPENSATORY ARRANGEMENTS
Retirement Plan. We provide our employees with a 401(k) plan pursuant to
which we contribute $0.75 for each $1.00 contribution by the employee on the
first 3% of salary that the employee contributes to the plan.
Health Plan. We provide our employees with a traditional major medical plan
that pays 80% to 90% of an employee's medical expenses. Our health plan is
partially self-insured with a specific individual loss of limit of $40,000 and
an aggregate annual stop loss limit. We also offer our employees a voluntary
cafeteria plan to cover dental, disability and accident insurance. The cafeteria
plan is 100% paid for by the participating employee.
Group Life Insurance. We provide group term life insurance for each of our
employees which pays a $20,000 death benefit ($40,000 if death is the result of
an accident) to the employee's estate or beneficiary.
Key Man Life Insurance. We maintain a key man life insurance policy on Mr.
White which pays $1,500,000 to us and $500,000 to Mr. White's named beneficiary
in the event of his death.
RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a discussion of transactions between us and our executive
officers, directors and shareholders owning more than five percent of our common
stock. Because of the existence of these transactions, the parties to these
transactions could have interests different from those of other shareholders.
48
<PAGE> 53
TRANSACTIONS WITH THE JORDAN COMPANY, ITS AFFILIATES AND RELATED ENTITIES
Recapitalization. On August 11, 1997, we entered into an Agreement and Plan
of Recapitalization with W-H Investment, L.P. providing for a series of equity
and debt transactions which resulted in a recapitalization and change in our
controlling ownership. In connection with the recapitalization we:
- repurchased and retired shares of our common stock and warrants to
purchase shares of our common stock for approximately $48.1 million;
- repurchased outstanding options to purchase shares of our common stock
for approximately $13.5 million;
- issued 7,260,000 new shares of our common stock and new warrants to
purchase 1,247,813 shares of our common stock at an exercise price of
$2.21 per share to W-H Investment, L.P. for approximately $12.0 million;
- issued our 12 1/2% senior subordinated notes to JZ Equity Partners PLC
for $24.0 million;
- issued new warrants to purchase 1,020,937 shares of our common stock at
an exercise price of $2.21 per share to certain members of our
management; and
- entered into our credit facility.
On October 1, 1998, W-H Investment, L.P. transferred to W-H Investment II,
G.P. 3,630,000 of our shares of common stock and warrants to purchase 623,906
shares of our common stock received in connection with the recapitalization.
In March 2000, in lieu of making the interest payment on our 12 1/2% senior
subordinated notes due on March 15, 2000, we issued to JZ Equity Partners PLC
$1.5 million in additional notes, bearing interest initially at the rate of
14 1/2% per annum, and maturing on September 15, 2007. We expect to use a
portion of the proceeds of this offering to repay in full these notes and all
accrued interest on these notes. Please read "Use of Proceeds."
In addition, in March 2000, we paid JZ Equity Partners PLC $120,000 in
connection with obtaining its consent to the amendments being made to our credit
facility.
W-H Investment, L.P. and W-H Investment II, G.P. are affiliated with The
Jordan Company, a private merchant banking firm. JZ Equity Partners PLC, a
publicly traded U.K. investment trust, is a limited partner of W-H Investment,
L.P. and a general partner of W-H Investment II, G.P. Two of our directors,
Messrs. Boucher and Zalaznick, are members of W-H Investment GP, L.L.C., the
general partner of W-H Investment, L.P. and the managing general partner of W-H
Investment II, G.P. Three of our directors, Messrs. Zalaznick, Boucher and
Watson, are limited partners of W-H Investment, L.P. One of our directors, Mr.
Watson, is a general partner in W-H Investment II, G.P. The John W. Jordan II,
Revocable Trust is a member of W-H Investment GP, L.L.C. and is a limited
partner in W-H Investment, L.P.
Consulting Agreement. At the time of our recapitalization, we entered into
a consulting agreement with TJC Management Corp., an affiliate of The Jordan
Company, W-H Investment, L.P. and W-H Investment II, G.P., two of our principal
shareholders, and JZ Equity Partners PLC. This agreement was amended and
restated on March 26, 1999 in connection with the issuance of our 13% senior
subordinated notes.
We have agreed with TJC Management to terminate the consulting agreement
concurrently with the completion of this offering in consideration of a payment
by us to TJC Management of $250,000. In 1999, we paid TJC Management
approximately $145,000 under the consulting agreement. We expect to pay
approximately $750,000 during 2000 under the consulting agreement through its
date of termination exclusive of the $250,000 termination fee. As of March 31,
2000, we had accrued $600,000 of this $750,000.
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<PAGE> 54
Transaction Advisory Agreement. At the time of our recapitalization, we
also entered into a transaction advisory agreement with TJC Management, pursuant
to which TJC Management renders consulting services to us and our subsidiaries
in connection with our acquisitions, divestitures and investments. This
agreement was amended and restated on March 29, 1999 in connection with the
issuance of our 13% senior subordinated notes.
The transaction advisory agreement provides for:
- an investment banking and sponsorship fee payable by us of 2% of the
aggregate consideration
-- paid by us for any acquisition consummated by us,
-- paid by us in connection with any joint venture or minority investment,
or
-- paid to us in connection with any sale by us of substantially all of
our stock or assets or the stock or assets of any of our subsidiaries;
- a financial consulting fee of 1% of the amount obtained or made available
to us and/or our subsidiaries pursuant to any debt, equity or other
financing by us with the assistance of TJC Management;
- payment by us of fees for extraordinary services rendered by TJC
Management; and
- payment by us of an amount equal to TJC Management's out-of-pocket
expenses, including an allocable amount of TJC Management's overhead
expenses attributable to services provided to us.
The original term of the transaction advisory agreement ends December 31,
2007. However, unless either party elects to terminate the agreement, the
agreement automatically will be renewed for successive one-year terms starting
December 31, 2007. In addition, the agreement may be terminated with 90 days'
prior written notice from us to TJC management at any time after substantially
all of our stock or substantially all our assets are sold to any entity
unaffiliated with TJC management and/or a majority of our shareholders.
In 1999, we paid TJC Management approximately $500,000 under the
transaction advisory agreement, in lieu of the amounts that otherwise would have
been due under the transaction advisory agreement, for services rendered in
connection with the PathFinder acquisition and the issuance of our 13% senior
subordinated notes. We expect to pay $1.75 million under the transaction
advisory agreement, upon the consummation of this offering for services rendered
to us under the transaction advisory agreement.
TRANSACTIONS WITH DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND ITS
AFFILIATES
Notes and Warrants. In March 1999, to finance the PathFinder acquisition,
we issued $40.0 million of our 13% senior subordinated notes to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment funds. In May 1999, we
redeemed $5.0 million in principal amount of our 13% senior subordinated notes
from these holders, leaving $35.0 million in principal amount of these notes
outstanding. In March 2000, in lieu of making the interest payment due on these
notes on April 1, 2000, we issued to DLJ Merchant Banking Partners II, L.P. and
its affiliated investment funds additional notes in an aggregate principal
amount of $2.275 million, bearing interest at the rate of 14% per annum, and
maturing on April 1, 2006. We expect to use a portion of the proceeds of this
offering to repay in full these notes and all accrued interest on these notes.
Please read "Use of Proceeds."
In March 1999, at the time we issued our 13% senior subordinated notes, we
also issued warrants to purchase 6,115,263 shares of our common stock to DLJ
Merchant Banking Partners II, L.P. and its affiliated investment funds. These
warrants have an exercise price of $.0003 per share. These warrants, by their
terms, provide for a reduction in the number of shares of our common stock
issued under the warrants in the event that we prepay our 13% senior
subordinated notes by certain dates. In accordance with this provision, we
reduced the number of shares of our common stock that we must issue to DLJ
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<PAGE> 55
Merchant Banking Partners II, L.P. and its affiliated investment funds in
respect of their warrants from 6,115,263 to 4,756,323 when we prepaid $5.0
million of our 13% senior subordinated notes in May 1999.
Upon repayment of the 13% senior subordinated notes in full with a portion
of the net proceeds of this offering, we will further reduce the number of
shares of our common stock that must be issued in respect of these warrants from
4,756,323 to 2,974,488. Upon completion of this offering, DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds will own 2,974,488 shares
of our common stock.
In March 2000, we paid DLJ Merchant Banking Partners II, L.P. and its
affiliated investment funds $175,000 in connection with obtaining their consent
to the amendments being made to our credit facility.
DLJ Merchant Banking Partners II, L.P. is an affiliate of Donaldson, Lufkin
& Jenrette Securities Corporation, which is serving as lead managing underwriter
in connection with this offering.
Credit Agreement. DLJ Capital Funding, Inc. has served as syndication agent
in connection with our credit facility. For these services, DLJ Capital Funding,
Inc. was paid fees of 180,000 in 1999 and $277,500 in 2000. DLJ Capital Funding,
Inc. is an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation and
DLJ Merchant Banking Partners II, L.P. and its affiliated investment funds.
PathFinder Acquisition. In March 1999, we paid Donaldson, Lufkin & Jenrette
Securities Corporation $800,000 for financial advisory services rendered to us
in connection with the PathFinder acquisition.
Engagement Agreement. On March 29, 1999, we entered into an engagement
agreement with Donaldson, Lufkin & Jenrette Securities Corporation pursuant to
which we agreed that such firm would serve as lead or co-lead financial advisor
in reviewing our strategic alternatives and that it would serve as sole lead
manager on senior bank financings, sole lead placement agent, sole lead initial
purchaser, sole lead managing underwriter or sole lead dealer manager, as the
case may be, in connection with any transaction occurring during the term of the
agreement. In addition, we agreed to enter into an agreement with Donaldson,
Lufkin & Jenrette Securities Corporation in connection with any such transaction
which would provide for compensation and indemnification which are usual and
customary for the transaction. The engagement agreement terminates on March 29,
2001.
INDEMNIFICATION AGREEMENTS
We are parties to indemnification agreements with our directors and
executive officers containing provisions requiring us to, among other things,
indemnify them against liabilities that may arise by reason of their service to
us, other than liabilities arising from willful misconduct of a culpable nature,
and to advance expenses they incur as a result of any proceeding against them as
to which they could be indemnified. See "Management -- Indemnification."
LEASE AGREEMENT
Our subsidiary, Thomas Energy Services, Inc. leases its facilities in
Lafayette, Louisiana from Mr. Thomas, our Vice President. In 1999, we paid Mr.
Thomas $76,500, and, as of March 31, 2000, we had paid Mr. Thomas $27,000 under
this lease.
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<PAGE> 56
PRINCIPAL AND SELLING SHAREHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of March 31, 2000, by:
- each director;
- each named executive officer in the Summary Compensation Table;
- each person who is known by us to own beneficially 5% or more of our
common stock;
- W-H Investment, L.P., W-H Investment II, G.P., DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds, and , as
the selling shareholders; and
- all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock under options held by that
person that are currently exercisable or exercisable within 60 days of May 8,
2000 are considered outstanding. These shares, however, are not considered
outstanding when computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by that person.
Unless otherwise indicated, the address of each shareholder listed below is c/o
W-H Energy Services, Inc., 10370 Richmond Avenue, Suite 990, Houston, Texas
77042.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(2)
------------------------------------------
MAXIMUM AFTER
NUMBER OF AFTER OFFERING
SHARES TO BE OFFERING (ASSUMING
SOLD UPON (ASSUMING NO EXERCISE OF
SHARES EXERCISE OF EXERCISE OF OVER-ALLOTMENT
BENEFICIALLY OVER-ALLOTMENT BEFORE OVER-ALLOTMENT OPTION IN
PRINCIPAL AND SELLING SHAREHOLDERS OWNED OPTION(1) OFFERING OPTION) FULL)
<S> <C> <C> <C> <C> <C>
W-H Investment, L.P.(3)............... 4,253,906 33.4% 17.4%
c/o The Jordan Company
767 Fifth Avenue
New York, New York 10153
W-H Investment II, G.P.(4)............ 4,253,906 33.4 17.4
c/o The Jordan Company
767 Fifth Avenue
New York, New York 10153
DLJ Merchant Banking Partners II, L.P.
and affiliated investment
funds(5)............................ 2,974,488 24.6 12.5
c/o DLJ Merchant Banking Partners
II, L.P.
277 Park Avenue
New York, New York 10172
Kenneth T. White, Jr.(6).............. 1,187,918 -- 9.2 4.8
Jeffrey L. Tepera(7).................. 12,375 -- * *
William J. Thomas III(8).............. 222,750 -- 1.8 *
John W. Jordan II(9).................. -0- -- -- --
David W. Zalaznick(9)................. -0- -- -- --
Jonathan F. Boucher(9)................ -0- -- -- --
J. Jack Watson(9)..................... -0- -- -- --
Christopher Mills(10)................. 49,500 * *
Robert H. Whilden, Jr.(11)............ 65,043 -- * *
All directors and officers as a group
(9 persons)(9)(10).................. 1,537,586 -- 11.7 6.2
</TABLE>
- ---------------
* Represents less than 1% of the outstanding common stock.
(1) If the over-allotment option is exercised in full, then the selling
shareholders will sell the number of shares of common stock indicated. If
the over-allotment option is exercised in part, then the number
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<PAGE> 57
of shares to be sold by each selling shareholder will be allocated pro
rata, based upon the maximum number of shares to be sold by each selling
shareholder upon exercise of the over-allotment option.
(2) The percentage of shares beneficially owned before this offering is based
on total outstanding shares of 12,108,888. The percentage of shares
beneficially owned after this offering assuming no exercise of the
over-allotment option and assuming exercise in full of the over-allotment
option is based on total outstanding shares of 23,775,555.
(3) Includes 623,906 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days. W-H Investment, L.P. is a limited
partnership, for which W-H Investment GP, L.L.C. acts as the general
partner and exercises the voting and investment control over our common
stock and warrants. The members of W-H Investment GP, L.L.C. include
certain affiliates of The Jordan Company, including the John W. Jordan II,
Revocable Trust, David W. Zalaznick and Jonathan F. Boucher. The limited
partners of this partnership include the John W. Jordan II, Revocable
Trust, David W. Zalaznick, Jonathan F. Boucher, Leucadia Investors, Inc.,
Adam E. Max, John R. Lowden, A. Richard Caputo, Douglas Zych, Paul
Rodzevik, the James E. Jordan, Jr. Profit Sharing Plan & Trust, Jack J.
Watson and JZ Equity Partners PLC.
(4) Includes 623,906 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days. W-H Investment II, G.P. is a general
partnership, for which W-H Investment GP, L.L.C. acts as the managing
general partner and exercises the voting and investment control over our
common stock and warrants. The members of W-H Investment GP, L.L.C. include
certain affiliates of The Jordan Company, including the John W. Jordan II,
Revocable Trust, David W. Zalaznick and Jonathan F. Boucher. The other
partners of W-H Investment II, G.P. include J. Jack Watson and JZ Equity
Partners PLC.
(5) The entities affiliated with DLJ Merchant Banking Partners II, L.P. include
DLJ Merchant Banking II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding
II, Inc., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P.,
DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners, DLJ ESC II L.P.
and DLJ First ESC L.P.
(6) Includes 311,438 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days and 480,480 shares of our common stock
issuable upon the exercise of options exercisable within 60 days.
(7) Includes 12,375 shares of our common stock issuable upon the exercise of
options exercisable within 60 days.
(8) Includes 148,500 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days and 8,250 shares of our common stock
issuable upon exercise of options exercisable within 60 days.
(9) Excludes 3,630,000 shares and warrants to purchase 623,906 shares held by
W-H Investment, L.P., in which the John W. Jordan II, Revocable Trust and
Messrs. Zalaznick, Boucher and Watson are limited partners and of which W-H
Investment GP, L.L.C., in which Messrs. Jordan, Zalaznick and Boucher are
members, serves as general partner. Each of Mr. Jordan, Mr. Zalaznick, Mr.
Boucher and Mr. Watson disclaims beneficial ownership of the securities
held by W-H Investment, L.P. Also excludes 3,630,000 shares and warrants to
purchase 623,906 shares held by W-H Investment II, G.P. W-H Investment GP,
L.L.P., in which Messrs. Jordan, Zalaznick and Boucher are members, serves
as managing general partner of W-H Investment II, G.P. Mr. Watson is also a
partner in W-H Investment II, G.P. Each of Mr. Jordan, Mr. Zalaznick, Mr.
Boucher, and Mr. Watson disclaims any beneficial ownership of the
securities held by W-H Investment II, G.P.
(10) Includes 49,500 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days. Excludes 533,214 shares owned by North
Atlantic Smaller Companies Trust of which Mr. Mills is an affiliate and
57,222 shares owned by RBSI Custody Bank Limited of which Mr. Mills is an
affiliate. Mr. Mills disclaims any beneficial ownership of the securities
held by North Atlantic Smaller Companies Trust and RBSI Custody Bank
Limited.
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<PAGE> 58
(11) Includes 49,500 shares of our common stock issuable upon the exercise of
warrants exercisable within 60 days.
The table above excludes David N. Eliff, who served as our Vice President,
Secretary and Chief Financial Officer until his resignation in March 2000. As of
March 31, 2000, Mr. Eliff owned 95,700 shares of our common stock and warrants
to purchase 115,500 shares of our common stock.
SHAREHOLDERS AGREEMENT
We and the holders of approximately 48%, upon completion of this offering,
of the outstanding shares of our common stock are parties to a shareholders
agreement. The shareholder parties to this agreement include W-H Investment,
L.P., W-H Investment II, G.P., DLJ Merchant Banking Partners II, L.P. and its
affiliated investment funds, Kenneth T. White, Jr., Witham Management Corp. and
Bank of Scotland Nominees Ltd. (for the account of NASCIT). The shareholders
agreement gives the holders of shares of our common stock rights to request
registration of their securities and to participate in any registration by us of
any of our equity securities for sale to the public pursuant to the Securities
Act, other than in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans. We
are required to pay all registration expenses if these registration rights are
exercised, other than underwriting discounts and selling commissions. The
holders of shares of our common stock that are a party to the shareholders
agreement have waived their rights to participate in this offering.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.0001 par value per share, and 10,000,000 shares of preferred stock,
$.01 par value per share. Upon completion of this offering, 23,775,555 shares of
our common stock will be issued and outstanding and no shares of preferred stock
will be issued and outstanding.
Prior to this offering, there has been no public market for our common
stock. Although we expect to list the common stock on the Nasdaq National
Market, we cannot assure you that a market for our common stock will develop or,
if one develops, that it will be sustained.
COMMON STOCK
The rights of the holders of our common stock are identical in all
respects. All of the issued and outstanding shares of our common stock are
validly issued, fully paid and nonassessable.
The holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of common shareholders. The shares of
common stock do not have cumulative voting rights. Shares of common stock have
no preemptive rights, conversion rights, redemption rights or sinking fund
provisions. Except as otherwise required by Texas law, the holders of a majority
of the shares of common stock may approve any matter submitted to a vote of our
shareholders, including the election of directors. Our common stock is not
subject to redemption by us. All shares of common stock issued in this offering
will be validly issued, fully paid and nonassessable.
Subject to the rights of the holders of any class of our capital stock
having preference or priority over our common stock, the holders of common stock
are entitled to dividends in such amounts as may be declared by our board of
directors from time to time out of funds legally available for such payments
and, in the event of liquidation, to share ratably in any of our assets
remaining after payment in full of all creditors and provision for any
liquidation preferences on any outstanding preferred stock ranking prior to our
common stock.
PREFERRED STOCK
Our board of directors, in its sole discretion, may designate and issue one
or more series of preferred stock from the authorized and unissued shares of
preferred stock. Subject to limitations imposed by law or our restated articles
of incorporation, our board of directors is empowered to determine the
designation of and the number of shares constituting a series of preferred
stock. In addition, our board of directors may designate the dividend rate, the
terms and conditions of any voting and conversion rights, the amounts payable
upon redemption or upon liquidation, dissolution or winding-up of us, the
provisions of any sinking fund for the redemption or purchase of shares, and the
preferences and relative rights among the series of preferred stock. Such
rights, preferences, privileges and limitations could adversely effect the
rights of holders of common stock.
PROVISIONS OF OUR RESTATED ARTICLES OF INCORPORATION AND BYLAWS
Shareholder Action by Written Consent. Our restated articles of
incorporation provide that shareholders may act by the written consent of
holders having not less than the minimum number of votes necessary to take such
action.
Limitations on Shareholder Actions. Advance notice of at least 60 days but
not more than 90 days is required for shareholders to nominate directors or to
submit proposals for consideration at meetings of shareholders.
TEXAS ANTI-TAKEOVER LAW
Upon completion of this offering, we will be subject to Part Thirteen of
the Texas Business Corporation Act (TBCA). Generally, Part Thirteen of the TBCA
prohibits a publicly held Texas
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<PAGE> 60
corporation from engaging in any "business combination" with any "affiliated
shareholder" for a period of three years after the date that the person became
an affiliated shareholder, unless:
- prior to the date of the business combination, the transaction is
approved by the board of directors; or
- no earlier than six months after such date, the business combination is
approved by the affirmative vote of at least two-thirds of the
unaffiliated shareholders at a shareholders' meeting.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the shareholder. An affiliated shareholder
is a person who, together with affiliates and associates, owns (or within three
years, did own) 20% or more of the voting stock of a corporation.
These and certain other provisions of the TBCA may deter an unsolicited
merger or other efforts to obtain control of our company that are not approved
by our board of directors. Therefore, the TBCA may deprive our shareholders of
opportunities to sell their shares at a premium over prevailing market prices in
connection with a takeover attempt.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is [ ].
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. The
sale, or availability for sale, of substantial amounts of common stock in the
public market subsequent to this offering could adversely affect the prevailing
market price of the shares of common stock and could impair our ability to raise
additional capital through the sale of equity securities.
Upon completion of this offering, we will have 23,775,555 shares of common
stock outstanding. Of these shares, the 11,666,667 shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by our affiliates, as that term
is defined under the Securities Act, may generally only be sold in compliance
with the limitations of Rule 144 described below. Our remaining 12,108,888
shares of common stock are restricted shares under Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under the Securities Act.
Our executive officers, directors and certain shareholders, including the
selling shareholders, have agreed pursuant to "lock-up" agreements that, with
limited exceptions, they will not sell any shares of our common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. However, under
the staggered lock-up provisions described under "Underwriting," the shares of
common stock subject to the lock-up agreements may be released for resale after
90 days and/or 135 days upon the occurrence of certain events.
As a result of these "lock-up" agreements and the rules under the
Securities Act, the restricted shares will be available for sale in the public
market, subject in most cases to volume and other restrictions, as follows:
<TABLE>
<CAPTION>
DAYS AFTER NUMBER OF SHARES
THE EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT
<S> <C> <C>
Upon effectiveness................... Shares not locked up and eligible for
sale under Rule 144
90 days.............................. Shares not locked up and eligible for
sale under Rules 144 and 701
180 days............................. Lock-up released; shares eligible for
sale under Rules 144 and 701
</TABLE>
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<PAGE> 61
Of the shares set forth in the above table as eligible for resale after 180
days, shares will be eligible for resale after 90 days and an additional
shares will be eligible for resale after 135 days in the event that
shareholders subject to lock-up agreements are released from their lock-up
restrictions under the staggered lock-up provisions described under
"Underwriting."
Upon expiration of the lock-up period, or to the extent restricted shares
are not subject to the lock-up restrictions, the restricted shares will become
available for sale in the public market, subject to Rule 144 and Rule 701 of the
Securities Act.
RULE 144
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the date of this prospectus, a person (or persons whose
shares are aggregated, such as an affiliate) who has beneficially owned
restricted shares for at least one year, is entitled to sell, within any
three-month period, a number of shares of common stock that does not exceed the
greater of:
- 1% of the then-outstanding shares of common stock, which will equal
approximately 237,756 shares after giving effect to this offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding such sale.
Sales under Rule 144 are subject to restrictions relating to manner of
sale, notice and the availability of current public information about us.
RULE 144(k)
In addition, under Rule 144(k) of the Securities Act, a person who is not
our affiliate at any time within the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, is entitled to sell such
shares immediately following this offering without having to comply with volume
limitations, manner of sale provisions, notice or other requirements of Rule
144.
RULE 701
In general, under Rule 701, our employees, directors, officers, consultants
and advisors who purchase shares from us in connection with a compensatory stock
or option plan or other written agreement before the effective date of this
offering are entitled to sell such shares 90 days after the effective date of
this offering in reliance on Rule 144, without having to comply with the holding
period and notice filing requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice filing provisions of Rule 144.
No sooner than days following the consummation of this offering, we
intend to register on a registration statement on Form S-8, a total of
shares of common stock issued under our stock option plan. All of these shares
issued upon the exercise of these options will be freely tradeable without
restrictions or the need to be registered under the Securities Act, by persons
other than our affiliates. Our affiliates will be able to sell these shares
under Rule 144.
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<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated
, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, UBS Warburg LLC, Simmons & Company International and DLJdirect
Inc., have severally agreed to purchase an aggregate of 11,666,667 shares of our
common stock from us. The number of shares of our common stock that each
underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Morgan Stanley & Co. Incorporated...........................
UBS Warburg LLC.............................................
Simmons & Company International.............................
DLJdirect Inc. .............................................
----------
Total............................................. 11,666,667
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of our common stock
included in this offering are subject to approval by their counsel of certain
legal matters and to certain other conditions precedent that must be satisfied
by us. The underwriters are obligated to purchase and accept delivery of all the
shares of our common stock (other than those covered by the over-allotment
option described below) if they purchase any of the shares of our common stock.
The underwriters initially propose to offer some of the shares of our
common stock directly to the public at the public offering price set forth on
the cover page of this prospectus and some of the shares of our common stock to
certain dealers (including the underwriters) at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
these dealers may re-allow, a concession not in excess of $ per share on
sales to certain other dealers. After the initial offering of our common stock
to the public, the representatives may change the public offering price and
other selling terms at any time without notice. The underwriters will not
confirm sales to any accounts over which they exercise discretionary authority
without the prior specific written approval of the customer.
The selling shareholders have granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase, from
time to time, in whole or in part, up to 1,750,000 additional shares of our
common stock at the public offering price less underwriting fees. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares of our common stock
approximately proportionate to its initial purchase commitment. The selling
shareholders will receive the net proceeds of any sale of shares of common stock
to the underwriters upon the exercise of their right to purchase additional
shares under the over-allotment option.
The following table shows the underwriting fees we and the selling
shareholders will pay to the underwriters in connection with this offering. The
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of our common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
We estimate our expenses relating to this offering to be $3.25 million,
which includes $1.75 million we are required to pay to TJC Management under the
transaction advisory agreement. Please read "Relationships and Related
Transactions." We and the selling shareholders will pay to the underwriters
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<PAGE> 63
underwriting fees in an amount equal to the public offering price per share of
common stock less the amount the underwriters pay to us for each share of common
stock.
An electronic prospectus is available on the Internet site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
the Internet site relating to this offering is not a part of this prospectus,
has not been approved or endorsed by us or any underwriter and should not be
relied on by prospective purchasers.
We and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the underwriters may be required to make with
respect to these liabilities.
For a period ending 180 days from the date of this prospectus, we and our
executive officers, directors and certain of our shareholders, including the
selling shareholders, have agreed not to, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation:
- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly, any shares of our common stock or any securities convertible
into or exercisable or exchangeable for our common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of our common
stock, whether any such transaction described above is to be settled by
delivery of our common stock or other securities, in cash, or otherwise.
The shares of common stock subject to the lock-up restrictions described
above will be released from these restrictions as follows:
- 25% of these shares will be released if the reported last sale price of
the common stock on the Nasdaq National Market is at least twice the
initial public offering price for 20 of the 30 consecutive trading days
ending on the last trading day of the 90-day period after the date of
this prospectus. These shares will be released on the later to occur of
the 90-day period after the date of this prospectus and the second
trading day after the first public release of our quarterly results; and
- an additional 25% of the shares of common stock will be released from
these restrictions if the reported last sale price of the common stock on
the Nasdaq National Market is at least twice the initial public offering
price for 20 of the 30 consecutive trading days ending on the last
trading day of the 135-day period after the date of this prospectus.
In addition, during this 180-day period, we have also agreed not to file
any registration statement for the registration of any shares of our common
stock or any securities convertible into or exercisable or exchangeable for our
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. Likewise, during this 180-day period, our executive
officers, directors and certain of our shareholders, including the selling
shareholders, who have demand registration rights under our shareholders
agreement may not make any demand for, or exercise any right for, registration
of any shares of our common stock under the terms of that agreement.
At our request, the underwriters have reserved up to 5% of the shares
offered by this prospectus for sale at the initial public offering price to our
employees, officers and directors and other parties associated with us. These
persons must commit to purchase after the registration statement has become
effective but before the open of business on the following business day. The
number of shares available for sale to the general public will be reduced to the
extent these individuals purchase such reserved shares. Any reserved shares not
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
59
<PAGE> 64
Application has been made to list our common stock on the Nasdaq National
Market under the symbol "WHES."
Other than in the United States, no action has been taken by us, the
selling shareholders or the underwriters that would permit a public offering of
the shares of our common stock included in this offering in any jurisdiction
where action for that purpose is required. The shares of our common stock
included in this offering may not be offered or sold, directly or indirectly,
nor may this prospectus or any other offering material or advertisements in
connection with the offer and sale of any shares of our common stock be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of that
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to this offering of
our common stock and the distribution of this prospectus. This prospectus is not
an offer to sell or a solicitation of an offer to buy any shares of our common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may also bid for and
purchase shares of our common stock in the open market to cover syndicate short
positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of our common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
Prior to this offering, there has been no established market for our common
stock. The initial public offering price for the shares of our common stock
offered by this prospectus will be determined by negotiation between us and the
representatives of the underwriters. The factors to be considered in determining
the initial public offering price include:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future operational results;
- the recent market prices of securities of generally comparable companies;
and
- general conditions of the securities market at the time of this offering.
Donaldson, Lufkin & Jenrette Securities Corporation has in the past
provided, and may in the future from time to time provide, investment banking
and general financing and banking services to us and our affiliates for which
they have in the past received, and may in the future receive, customary fees
and reimbursement of expenses. DLJ Capital Funding, Inc. acted as arranger and
syndication agent under our credit facility and received customary fees and
reimbursements in connection therewith. In addition, DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds, all of which are
affiliated with Donaldson, Lufkin & Jenrette Securities Corporation, own
warrants to purchase shares of our common stock. We will issue common stock to
these entities in respect of these warrants in connection with this offering.
DLJ Merchant Banking Partners II L.P. and its affiliated investment funds also
hold approximately $37.275 million in principal amount of our 13% senior
subordinated notes and the related payment-in-kind notes issued in March 2000.
The net proceeds of this offering will be used in part to redeem these notes and
in part to repay a portion of the indebtedness outstanding under our credit
facility. For more information about our relationships with these parties,
please read "Principal Shareholders" and "Relationships and Related
Transactions."
60
<PAGE> 65
Because DLJ Merchant Banking Partners II, L.P. and its affiliated
investment funds are deemed to beneficially own more than 10% of our outstanding
common stock, this offering is being made in compliance with Rule 2720(c) of the
Conduct Rules of the National Association of Securities Dealers, Inc. In
addition, this offering will comply with the venture capital restrictions set
forth in Rule 2710(c)(7)(C) of the NASD Conduct Rules since DLJ Merchant Banking
Partners II, L.P. and its affiliated investment funds will be selling
shareholders upon any exercise of the over-allotment option. Both of these rules
require that the initial public offering price be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with this requirement, Morgan Stanley & Co. Incorporated will act
as the qualified independent underwriter in connection with this offering and
assume the customary responsibilities of acting as a qualified independent
underwriter in pricing and conducting due diligence for this offering.
LEGAL MATTERS
The validity of our common stock offered in this prospectus will be passed
upon for us by Vinson & Elkins L.L.P., Houston, Texas. Some legal matters in
connection with the sale of our common stock offered in this prospectus will be
passed upon for the underwriters by Andrews & Kurth L.L.P., Houston, Texas.
Robert H. Whilden, Jr., a former partner of Vinson & Elkins L.L.P., is one of
our directors. Please read "Principal Shareholders" for a description of common
stock and warrants to purchase common stock held by Mr. Whilden.
EXPERTS
The financial statements included in this prospectus and elsewhere in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act relating to our common stock
being sold in this offering. This prospectus is a part of that registration
statement. This prospectus does not contain all of the information included in
the registration statement and the exhibits and schedules to the registration
statement because some parts have been omitted in accordance with the rules and
regulations of the commission. For further information about us and our common
stock being sold in this offering, you should refer to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus regarding the contents of any
agreement, contract or other document referred to are not necessarily complete;
reference is made in each instance to the copy of the contract or document filed
as an exhibit to the registration statement. Each statement is qualified by
reference to the exhibit. The registration statement, including related exhibits
and schedules, may be inspected without charge at the commission's principal
office in Washington, D.C. Copies of all or any part of the registration
statement may be obtained after payment of fees prescribed by the commission
from:
- the commission's public reference room at the commission's principal
office, 450 Fifth Street, N.W., Washington D.C. 20549; or
- the commission's regional offices in:
-- New York, located at 7 World Trade Center, Suite 1300, New York, New
York 10048 or
-- Chicago, located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
61
<PAGE> 66
You may obtain information regarding the operation of the public reference
room by calling the commission at 1-800-SEC-0330. The commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the commission. The address of the site is www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.
62
<PAGE> 67
W-H ENERGY SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
Unaudited Pro Forma Financial Information................... F-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ F-3
Unaudited As Adjusted Condensed Consolidated Statement of
Operations................................................ F-4
HISTORICAL:
I. W-H ENERGY SERVICES, INC.
Report of Independent Public Accountants.................... F-5
Consolidated Balance Sheets................................. F-6
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-7
Consolidated Statements of Shareholders' Equity (Deficit)... F-8
Consolidated Statements of Cash Flows....................... F-9
Notes to Consolidated Financial Statements.................. F-10
II. GRINDING AND SIZING COMPANY, INC. AND AFFILIATES
Report of Independent Public Accountants.................... F-28
Combined Statements of Operations........................... F-29
Combined Statements of Shareholders' Equity................. F-30
Combined Statements of Cash Flows........................... F-31
Notes to Combined Financial Statements...................... F-32
III. AGRI-EMPRESA INC. AND AFFILIATES
Report of Independent Public Accountants.................... F-35
Combined Statements of Operations........................... F-36
Combined Statements of Shareholders' Equity................. F-37
Combined Statements of Cash Flows........................... F-38
Notes to Combined Financial Statements...................... F-39
</TABLE>
F-1
<PAGE> 68
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed financial
information is derived from the historical financial statements of W-H Energy
Services, Inc. included elsewhere in this prospectus. The unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1999 gives effect to the acquisition of the PathFinder business located in the
United States and the North Sea and related financing as if they occurred on
January 1, 1999 and the offering described in this prospectus. The unaudited as
adjusted condensed consolidated statement of operations for the three-months
ended March 31, 2000 gives effect to the offering described in this prospectus.
The unaudited pro forma financial information does not purport to represent
what W-H Energy Services, Inc.'s results of operations actually would have been
had these events occurred at January 1, 1999 nor are they intended to project
W-H Energy Services, Inc.'s results of operations for any future period or date.
The unaudited pro forma consolidated financial information should be read in
conjunction with the historical financial statements appearing elsewhere in this
prospectus.
F-2
<PAGE> 69
W-H ENERGY SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
PATHFINDER
(PREACQUISITION
PERIOD FROM
JANUARY 1, 1999
W-H ENERGY TO PRO FORMA OFFERING
SERVICES, INC. MARCH 29, 1999) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 127,641 $ 9,501 $ -- $ 137,142 $ -- $ 137,142
Costs and Expenses:
Cost of revenues............... 68,399 5,758 -- 74,157 -- 74,157
Selling, general and
administrative............... 36,118 3,243 -- 39,361 -- 39,361
Depreciation and
amortization................. 15,521 2,876 (2,046)(1) 16,351 -- 16,351
----------- ------- ------ ----------- ----------- -----------
Total costs and
expenses............... 120,038 11,877 (2,046) 129,869 -- 129,869
----------- ------- ------ ----------- ----------- -----------
Income (loss) from operations.... 7,603 (2,376) 2,046 7,273 -- 7,273
Other expense:
Interest expense............... 21,989 -- 2,318(2) 24,307 (19,856)(3) 4,451
Other expense, net............. 595 -- -- 595 -- 595
----------- ------- ------ ----------- ----------- -----------
Income (loss) before income
taxes.......................... (14,981) (2,376) (272) (17,629) 19,856 2,227
Provision for income taxes....... 239 -- -- 239 -- 239(4)
----------- ------- ------ ----------- ----------- -----------
Net income (loss)................ $ (15,220) $(2,376) $ (272) $ (17,868) $ 19,856 $ 1,988(5)(6)
=========== ======= ====== =========== =========== ===========
Net income (loss) per share
Basic.......................... $ (1.35) $ (1.48) $ 0.08
=========== =========== ===========
Diluted........................ $ (1.35) $ (1.48) $ 0.07
=========== =========== ===========
Shares used in computing net
income (loss) per share
Basic.......................... 11,305,866 12,049,488 23,765,655
=========== =========== ===========
Diluted........................ 11,305,866 12,049,488 27,498,610
=========== =========== ===========
</TABLE>
- ------------------------------
(1) To adjust depreciation expense to reflect the new basis in property and
equipment as a result of the PathFinder acquisition purchase price
allocation.
(2) To record interest expense at an effective interest rate of 22% for amounts
borrowed related to the 13% senior subordinated notes used to finance the
PathFinder acquisition and amortization of deferred financing costs. The
effective interest rate of 22% is based on the 13% stated interest rate
adjusted for amortization of the $10.2 million original issue discount
associated with the sale of the 13% senior subordinated notes.
(3) Reduction in interest expense, including amortization of deferred financing
costs and the original issue discount, related to the payment of the
following debt with proceeds from the offering (in thousands):
<TABLE>
<CAPTION>
INTEREST
PRINCIPAL EXPENSE
PAID REDUCTION
<S> <C> <C>
13% senior subordinated notes........................... $ 37,275 $ 7,963
12 1/2% senior subordinated notes....................... 25,500 3,055
Senior secured credit facility.......................... 96,725 8,838
-------- -------
Total......................................... $159,500 $19,856
======== =======
</TABLE>
(4) No adjustment is reflected in the provision for income taxes due to the net
valuation allowance on the deferred tax assets.
(5) Does not include the write-off for $9.9 million in deferred financing costs
and unamortized discount associated with the debt to be retired with the
proceeds from the offering. The write-off will be recorded in W-H's
historical statement of operations in the period the debt is repaid.
(6) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
W-H expensed $600,000 for the year ended December 31, 1999 related to this
agreement. The charge will be recorded in W-H's historical statement of
operations in the period the fee is paid.
F-3
<PAGE> 70
W-H ENERGY SERVICES, INC.
UNAUDITED AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------
W-H ENERGY OFFERING
SERVICES, INC. ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C>
Revenues.................................................... $ 47,237 $ -- $ 47,237
Costs and Expenses:
Cost of revenues.......................................... 25,853 -- 25,853
Selling, general and administrative....................... 11,225 -- 11,225
Depreciation and amortization............................. 4,429 -- 4,429
----------- ----------- -----------
Total costs and expenses............................ 41,507 -- 41,507
----------- ----------- -----------
Income (loss) from operations............................... 5,730 -- 5,730
Other expense:
Interest expense.......................................... 6,510 (4,826)(1) 1,684
Other expense, net........................................ 134 -- 134
----------- ----------- -----------
Income (loss) before income taxes........................... (914) 4,826 3,912
Provision for income taxes.................................. 292 -- 292(2)
----------- ----------- -----------
Net income (loss)........................................... $ (1,206) $ 4,826 $ 3,620(3)(4)
=========== =========== ===========
Net income (loss) per share
Basic..................................................... $ (0.10) $ 0.15
=========== ===========
Diluted................................................... $ (0.10) $ 0.13
=========== ===========
Shares used in computing net income (loss) per share
Basic..................................................... 12,059,388 23,775,555
=========== ===========
Diluted................................................... 12,059,388 27,608,129
=========== ===========
</TABLE>
- ------------------------------
(1) Reduction in interest expense, including amortization of deferred financing
costs and the original issue discount, related to the payment of the
following debt with proceeds from the offering (in thousands):
<TABLE>
<CAPTION>
INTEREST
PRINCIPAL EXPENSE
PAID REDUCTION
<S> <C> <C>
13% senior subordinated notes........................... $ 37,275 $ 1,853
12 1/2% senior subordinated notes....................... 25,500 764
Senior secured credit facility.......................... 96,725 2,209
-------- -------
Total......................................... $159,500 $ 4,826
======== =======
</TABLE>
(2) No adjustment is reflected in the provision for income taxes due to the net
valuation allowance on the deferred tax assets.
(3) Does not include the write-off for $9.2 million in deferred financing costs
and unamortized discount associated with the debt to be retired with the
proceeds from the offering. The write-off will be recorded in W-H's
historical statement of operations in the period the debt is repaid.
(4) Does not include a charge of $250,000 related to the termination of the
consulting agreement with TJC Management in connection with this offering.
W-H expensed $150,000 for three-months ended March 31, 2000 related to this
agreement. The charge will be recorded in W-H's historical statement of
operations in the period the fee is paid.
F-4
<PAGE> 71
After the stock dividend discussed in Note 9 to W-H Energy Services Inc.'s
Financial Statements is effected, we expect to be in a position to render the
following report.
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
W-H Energy Services, Inc.:
We have audited the accompanying consolidated balance sheets of W-H Energy
Services, Inc. (a Texas corporation), and subsidiaries as of December 31, 1998
and 1999, and the related consolidated statements of operations and
comprehensive loss, shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
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 consolidated financial position of
W-H Energy Services, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Houston, Texas
April 12, 2000 (except with respect
to the matter discussed in the first
paragraph of Note 9, as to which the
date is May 8, 2000)
F-5
<PAGE> 72
W-H ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,466 $ 2,490 $ 3,250
Accounts receivable, net of allowance of $1,721, $2,897
and $2,897, respectively............................... 21,835 40,439 42,018
Income tax receivable..................................... 253 75 15
Deferred income taxes..................................... 343 1,907 2,068
Inventories............................................... 7,837 13,694 14,093
Prepaid expenses and other................................ 495 614 753
-------- -------- --------
Total current assets.............................. 32,229 59,219 62,197
Property and Equipment, net................................. 50,843 83,235 84,975
Goodwill and Other Intangibles, net......................... 45,579 43,751 43,229
Other Assets, net........................................... 3,948 5,399 7,088
-------- -------- --------
Total assets...................................... $132,599 $191,604 $197,489
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt...................... $ 3,250 $ 4,900 $ 4,900
Accounts payable.......................................... 4,487 14,772 13,262
Accrued liabilities....................................... 5,127 11,125 13,015
-------- -------- --------
Total current liabilities......................... 12,864 30,797 31,177
Long-term debt, net of current maturities................... 124,438 142,437 146,900
Long-term debt, related parties............................. 25,762 52,438 54,535
Deferred Income Taxes....................................... 926 2,347 2,650
Commitments and Contingencies Shareholders' Equity
(Deficit):
Common stock, $0.01 par value, 100,000,000 shares
authorized, 9,075,000, 9,075,000 and 9,084,900 shares
issued and outstanding, respectively................... 9,075 91 91
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, none issued and outstanding................ -- -- --
Additional paid-in capital................................ (8,525) 10,839 12,425
Deferred compensation..................................... -- (141) (1,528)
Cumulative translation adjustment......................... -- (43) (349)
Note receivable from shareholder.......................... -- -- (45)
Retained earnings (deficit)............................... (31,941) (47,161) (48,367)
-------- -------- --------
Total shareholders' equity (deficit).............. (31,391) (36,415) (37,773)
-------- -------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $132,599 $191,604 $197,489
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 73
W-H ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ---------------------------
1998 1999 1999 2000
1997 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 59,833 $ 90,293 $ 127,641 $ 21,724 $ 47,237
Costs and Expenses:
Cost of revenues.............. 25,889 43,431 68,399 10,295 25,853
Selling, general and
administrative............. 17,279 23,788 36,118 7,189 11,225
Depreciation and
amortization............... 5,870 10,748 15,521 3,251 4,429
Recapitalization compensation
charge..................... 13,453 -- -- -- --
----------- ---------- ---------- ---------- ----------
Total costs and
expenses............ 62,491 77,967 120,038 20,735 41,507
----------- ---------- ---------- ---------- ----------
Income (Loss) from Operations... (2,658) 12,326 7,603 989 5,730
Other Expense (Income):
Interest expense.............. 4,733 13,418 21,989 3,655 6,510
Other expense (income), net... (8) 142 595 142 134
----------- ---------- ---------- ---------- ----------
Loss Before Income Taxes........ (7,383) (1,234) (14,981) (2,808) (914)
Provision (Benefit) for Income
Taxes......................... (1,714) 152 239 (93) 292
----------- ---------- ---------- ---------- ----------
Net Loss........................ (5,669) (1,386) (15,220) (2,715) (1,206)
Foreign Currency Translation
Adjustment.................... -- -- (43) -- (306)
----------- ---------- ---------- ---------- ----------
Comprehensive Loss.............. $ (5,669) $ (1,386) $ (15,263) $ (2,715) $ (1,512)
=========== ========== ========== ========== ==========
Net Loss per Share (basic and
diluted)...................... $ (0.32) $ (0.15) $ (1.35) $ (0.30) $ (0.10)
=========== ========== ========== ========== ==========
Number of Shares Used in
Calculating Net Loss per Share
(basic and diluted)........... 17,447,562 9,075,000 11,305,866 9,108,050 12,059,388
=========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 74
W-H ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK NOTE
------------------ ADDITIONAL CUMULATIVE RECEIVABLE RETAINED
PAR PAID-IN DEFERRED TRANSLATION FROM EARNINGS
SHARES VALUE CAPITAL COMPENSATION ADJUSTMENT SHAREHOLDER (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996.................... 22,803 $ 22,803 $(13,399) $ -- $ -- $ -- $ 3,669 $ 13,073
Income Tax Benefit from
Purchase of Restricted
Stock................... -- -- 984 -- -- -- -- 984
Issuance of Stock Purchase
Warrants................ -- -- 130 -- -- -- -- 130
Conversion of Debt to
Common Stock in
Connection with
Recapitalization........ 330 330 170 -- -- -- -- 500
Proceeds from the Sale of
Common Stock in
Connection with
Recapitalization, net of
transaction costs of
$3,334.................. 7,260 7,260 1,450 -- -- -- -- 8,710
Repurchase of Outstanding
Common Stock and
Warrants in Connection
with Recapitalization... (21,318) (21,318) 1,865 -- -- -- (28,555) (48,008)
Net Loss.................. -- -- -- -- -- -- (5,669) (5,669)
------- -------- -------- ------- ----- -------- -------- --------
Balance, December 31,
1997.................... 9,075 9,075 (8,800) -- -- -- (30,555) (30,280)
Issuance of Stock Purchase
Warrants................ -- -- 275 -- -- -- -- 275
Net Loss.................. -- -- -- -- -- -- (1,386) (1,386)
------- -------- -------- ------- ----- -------- -------- --------
Balance, December 31,
1998.................... 9,075 9,075 (8,525) -- -- -- (31,941) (31,391)
Change in Par Value of
Class A Common Stock.... -- (8,984) 8,984 -- -- -- -- --
Issuance of Stock Purchase
Warrants................ -- -- 10,222 -- -- -- -- 10,222
Deferred Compensation..... -- -- 158 (158) -- -- -- --
Amortization of Deferred
Compensation............ -- -- -- 17 -- -- -- 17
Foreign Currency
Translation
Adjustment.............. -- -- -- -- (43) -- -- (43)
Net Loss.................. -- -- -- -- -- -- (15,220) (15,220)
------- -------- -------- ------- ----- -------- -------- --------
Balance, December 31,
1999.................... 9,075 91 10,839 (141) (43) -- (47,161) (36,415)
Issuance of Common Stock
(unaudited)............. 10 -- -- -- -- -- -- --
Deferred Compensation
(unaudited)............. -- -- 1,458 (1,458) -- -- -- --
Amortization of Deferred
Compensation
(unaudited)............. -- -- -- 71 -- -- -- 71
Foreign Currency
Translation Adjustment
(unaudited)............. -- -- -- -- (306) -- -- (306)
Issuance of common stock
for note receivable
(unaudited)............. -- -- 128 -- -- (45) -- 83
Net Loss (unaudited)...... -- -- -- -- -- -- (1,206) (1,206)
------- -------- -------- ------- ----- -------- -------- --------
Balance, March 31, 2000
(unaudited)............. 9,085 $ 91 $ 12,425 $(1,528) $(349) $ (45) $(48,367) $(37,773)
======= ======== ======== ======= ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 75
W-H ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- ---------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $ (5,669) $ (1,386) $(15,220) $ (2,715) $ (1,206)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities --
Depreciation and amortization................... 5,870 10,748 15,521 3,251 4,429
Gain on sale of assets.......................... (867) (1,395) (3,260) (334) (1,916)
Deferred tax provision (benefit)................ (756) 26 (143) (1,438) 142
Noncash stock-based compensation expense........ 13,453 -- -- -- 83
Amortization of deferred compensation........... -- -- 17 -- 71
Noncash interest expense........................ -- -- 1,898 -- 597
Change in operating assets and liabilities,
excluding effects of acquisitions --
(Increase) decrease in accounts receivable,
net........................................ (7,685) 120 (18,604) 107 (1,579)
(Increase) decrease in prepaid expenses and
other...................................... 109 (169) (119) 96 (139)
(Increase) decrease in inventories............ (167) (1,197) 727 (229) (399)
(Increase) decrease in income tax
receivable................................. (2,588) 1,352 178 -- 60
Increase in other assets, net................. (2,761) (1,316) (1,872) (6,085) (1,689)
Increase (decrease) in accounts payable and
accrued liabilities........................ 4,533 (5,680) 13,647 2,201 380
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities............................... 3,472 1,103 (7,230) (5,146) (1,166)
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Acquisition of businesses, net of cash acquired... (16,248) (29,768) (27,173) (27,173) --
Additions to property and equipment............... (20,810) (25,300) (23,849) (7,570) (6,578)
Proceeds from sale of property and equipment...... 2,298 2,779 4,670 444 2,847
-------- -------- -------- -------- --------
Net cash used in investing activities...... (34,760) (52,289) (46,352) (34,299) (3,731)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt................ 102,950 66,750 66,778 40,000 21,500
Payments on debt.................................. (18,843) (15,768) (22,351) (10,972) (15,537)
Proceeds from the issuance of common stock and
warrants, net of offering costs................. 8,710 -- 10,222 10,222 --
Repurchase of outstanding common stock, stock
options and warrants............................ (61,461) -- -- -- --
Income tax benefit from repurchase of restricted
stock........................................... 984 -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities............................... 32,340 50,982 54,649 39,250 5,963
-------- -------- -------- -------- --------
Translation Adjustment.............................. -- -- (43) -- (306)
-------- -------- -------- -------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents....................................... 1,052 (204) 1,024 (195) 760
Cash and Cash Equivalents, beginning of period...... 618 1,670 1,466 1,466 2,490
-------- -------- -------- -------- --------
Cash and Cash Equivalents, end of period............ $ 1,670 $ 1,466 $ 2,490 $ 1,271 $ 3,250
======== ======== ======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period................... $ 3,267 $ 12,843 $ 17,877 $ 4,278 $ 3,754
======== ======== ======== ======== ========
Income taxes paid during the period............... $ 1,052 $ 188 $ 681 $ 112 $ 1
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 76
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING AMOUNTS RELATED TO UNAUDITED INTERIM PERIODS)
1. BUSINESS ORGANIZATION:
DESCRIPTION OF COMPANY
W-H Energy Services, Inc. and its subsidiaries (collectively, W-H) is a
diversified oilfield service company that provides products and services used
primarily for the drilling, completion and production of oil and natural gas
wells. W-H has the following three primary lines of business: (i) drilling
related products and services, which include logging-while-drilling,
measurement-while-drilling, rental tools (including drill pipe), downhole
drilling motors and drilling fluids; (ii) completion and workover related
products and services, which include cased-hole wireline logging and
perforating, polymers and specialty chemicals and tubing; and (iii) maintenance
and safety related products and services, which include integrated on-site
cleaning and waste management and safety equipment.
W-H's business depends in large part on the conditions of the oil and
natural gas industry, and specifically on the capital investment of W-H's
customers. A prolonged downturn in oil and natural gas prices could have a
material adverse effect on W-H's results of operations and financial condition,
particularly with respect to its drilling related products and services. Demand
for WH's drilling related products and services is particularly sensitive to the
level of exploration, development and production activity of, and the
corresponding capital spending by, oil and natural gas companies. Prices for oil
and natural gas are subject to large fluctuations in response to relatively
minor changes in the supply of and demand for oil and natural gas, market
uncertainty and a variety of other factors that are beyond W-H's control. Any
prolonged reduction in oil and natural gas prices will depress the level of
exploration, development and production activity. Lower levels of activity
result in a corresponding decline in the demand for W-H's drilling related
products and services which could have a material adverse effect on its revenues
and profitability. Other risk factors include, but are not limited to,
competition, risks relating to W-H's acquisition strategy, risks relating to
acquisition financing and reliance on key personnel. Management believes that
cash flows anticipated to be generated from operations together with W-H's
existing credit capacity will provide sufficient liquidity for its foreseeable
needs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION AND PRESENTATION
The accompanying consolidated financial statements include the accounts of
W-H and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.
ACCOUNTS RECEIVABLE
Accounts receivable have a concentration of credit risk in the oil and
natural gas industry. W-H performs continuing credit evaluations of its
customers and generally does not require collateral.
INVENTORIES
Inventories are stated at the lower of cost or market, determined on a
first-in, first-out basis. Inventories consist primarily of equipment, parts,
raw materials and supplies.
F-10
<PAGE> 77
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of such assets are charged
to operations as incurred. Disposals are removed at cost less accumulated
depreciation, and any resulting gain or loss is reflected in the accompanying
consolidated statements of operations.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the depreciable assets. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the lease. The
useful lives of the major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
LIFE IN
YEARS
<S> <C>
Rental equipment............................................ 7-10
Machinery and equipment..................................... 5-10
Automobiles and trucks...................................... 5
Office equipment, furniture and fixtures.................... 5-7
Leasehold improvements...................................... 5-39
</TABLE>
REALIZATION OF LONG-LIVED ASSETS
Under Statement of Financial Accounting Standard (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," W-H has evaluated its long-lived assets for financial
impairment and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.
W-H evaluates the recoverability of assets not held for sale by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values. Based on these evaluations, there were no adjustments to the
carrying value of long-lived assets in 1997, 1998 or 1999.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the aggregate price paid by W-H in
acquisitions accounted for as purchases over the fair market value of the
tangible and identifiable intangible net assets acquired. Under Accounting
Principles Board (APB) Opinion No. 17 and SFAS No. 121, W-H periodically
evaluates whether events and circumstances after the acquisition date indicate
that the remaining balance of goodwill may not be recoverable. If factors
indicate that goodwill should be evaluated for possible impairment, W-H would
compare estimated undiscounted future cash flows from the related operations to
the carrying amount of goodwill. If the carrying amount of goodwill was greater
than undiscounted future cash flows, an impairment loss would be recognized. Any
impairment loss would be computed as the excess of the carrying amount of
goodwill over the estimated fair value of the goodwill (calculated based on
discounting estimated future cash flows). Amortization expense charged to
operations totaled approximately $522,000, $1,802,000 and $2,243,000 for the
years ended December 31, 1997, 1998 and 1999 respectively.
F-11
<PAGE> 78
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and other intangibles as of December 31, 1998, 1999, and March 31,
2000, consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999 MARCH 31, 2000
(UNAUDITED) LIFE IN YEARS
<S> <C> <C> <C> <C>
Goodwill................................. $41,863 $42,005 $42,005 20-40
Workforce................................ 2,560 2,560 2,560 12-24
License agreements....................... 1,900 2,173 2,173 12-17
Non-compete agreements................... 1,185 1,185 1,185 5
Customer lists........................... 953 953 953 7
------- ------- -------
Total.................................. 48,461 48,876 48,876
Less-accumulated amortization............ (2,882) (5,125) (5,647)
------- ------- -------
Goodwill and other intangibles, net...... $45,579 $43,751 $43,229
======= ======= =======
</TABLE>
REVENUE RECOGNITION AND COST OF REVENUES
W-H recognizes revenue for services as services are provided. Revenue from
products is recognized upon shipment of the product. Revenue from the rental of
equipment is recognized as earned over the life of the contract. The primary
components of operating expenses are those salaries, expendable supplies,
repairs and maintenance, costs of products sold and general operational costs
that are directly associated with the services performed or products sold by W-H
for its customers. Proceeds from customers for the cost of oilfield rental
equipment that is involuntarily damaged or lost downhole are reflected as
revenues.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. For the years
ended December 31, 1997, 1998 and 1999, research and development costs of
$68,000, $249,000 and $4.1 million, respectively, are included in selling,
general and administrative expenses in the accompanying consolidated financial
statements.
INCOME TAXES
W-H utilizes the liability method of accounting for income taxes. Under the
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying values of existing assets and liabilities and their
respective tax bases based on enacted tax rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
W-H considers the fair value of all financial instruments (primarily
long-term debt) not to be materially different from their carrying values at the
end of each fiscal year based on management's estimate of W-H's ability to
borrow funds under terms and conditions similar to those of W-H's existing debt.
F-12
<PAGE> 79
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation,"
W-H can adopt either of two methods for accounting for stock options granted to
employees. W-H has elected to account for its stock-based compensation plans
under APB Opinion No. 25, "Accounting for Stock Issued to Employees," and to
provide pro forma disclosures required by SFAS No. 123 (see Note 9).
FOREIGN CURRENCY TRANSLATIONS
The operations of foreign locations were translated into U.S. dollars based
on the current exchange rate at the balance sheet date and the weighted-average
rate for the period of the statement of operations and comprehensive loss. The
translation adjustment was a loss of $43,000 for the year ended December 31,
1999, and is reflected as a foreign currency translation adjustment in the
consolidated statement of operations and comprehensive loss for the year ended
December 31, 1999. There were no such adjustments for the years ended December
31, 1997 and 1998.
EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share is computed
considering the dilutive effect of stock options and warrants. The 2,974,488
warrants issued in connection with the 13% senior subordinated notes (see Note
9) are considered to be outstanding as of the date of issuance and included in
the computation of basic and diluted earnings per share as the warrants are
exerciseable for nominal consideration and are not contingent. Because of the
loss for each year, no shares resulting from the assumed exercise of options or
warrants, with the exception of the warrants exerciseable for nominal
consideration discussed above, are added to the denominator because the
inclusion of such shares would be antidilutive due to the losses for all periods
included in the consolidated statements of operations. For the years ended
December 31, 1997, 1998 and 1999, options of 573,375, 738,375, and 2,111,175,
respectively and warrants of 2,680,194, 3,125,694, and 3,125,694, respectively
were excluded from the computation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which W-H is
required to adopt effective January 1, 2001. SFAS No. 133 will require W-H to
record all derivatives as assets or liabilities at fair value. Changes in
derivative fair values will either be recognized in earnings, offset against
changes in the fair value of the related hedged assets, liabilities and firm
commitments or, for forecasted transactions, recorded as a component of other
comprehensive income in shareholders" equity until the hedged transactions occur
and are recognized in earnings. The ineffective portion of a hedging
derivative's change in fair value will be recognized in earnings immediately.
W-H has not, to date, engaged in activities or entered into arrangements
associated with derivative instruments.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101)
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 is effective by the second fiscal
quarter of fiscal years beginning after December 15, 1999 and requires companies
to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation. W-H's management believes
that its revenue recognition policy is in accordance with SAB 101 and does not
believe that SAB 101 will have a material impact on W-H's financial position or
results of operations.
F-13
<PAGE> 80
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL INFORMATION
The interim consolidated balance sheet as of March 31, 2000 and
consolidated statements of operations and comprehensive loss, shareholders'
equity (deficit) and cash flows for the three months ended March 31, 1999 and
2000 are unaudited, and certain information and footnote disclosures, normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States, have been omitted. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations, comprehensive income and cash flows with respect to the interim
consolidated financial statements have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
3. ACQUISITIONS:
PATHFINDER ENERGY SERVICES
On March 29, 1999, W-H acquired the logging-while-drilling (LWD) and
related measurement-while-drilling (MWD) businesses from Halliburton Company
(Halliburton), located in the United States and North Sea (the U.S. and North
Sea PathFinder Assets) and certain LWD, MWD and other related assets in other
foreign locations (the Foreign PathFinder Assets) for consideration of $33.3
million in cash, including acquisition costs. Management allocated $27.2 million
and $6.1 million to the U.S. and North Sea PathFinder Assets and the Foreign
PathFinder Assets, respectively, based on the relative fair value of the assets
acquired. W-H funded the acquisition of the U.S. and North Sea PathFinder Assets
and the Foreign PathFinder Assets (the PathFinder acquisition) through the
issuance of its 13% senior subordinated notes (see Note 5).
GRINDING AND SIZING COMPANY, INC.
On April 24, 1998, W-H acquired 100 percent of the issued and outstanding
stock of Grinding and Sizing Company, Inc., Houston Bagging and Blending, Inc.,
and Reliable Equipment, Inc., collectively, GSI, for consideration of $10.2
million, including acquisition costs. GSI is in the business of size reduction
(grinding) of products primarily used in the drilling and specialty chemical
fluids industry. W-H funded this acquisition with a $10 million term C loan
facility under W-H's credit facility (see Note 5).
AGRI-EMPRESA, INC.
On July 27, 1998, W-H acquired 100 percent of the issued and outstanding
stock of Agri-Empresa, Inc., Lone Star Distribution, Inc., STG and Agri-Empresa
Transportation and Superior Packaging & Distribution, collectively,
Agri-Empresa, for consideration of $21.3 million, including acquisition costs.
Agri-Empresa manufactures, packages, distributes and transports chemicals used
in oilfield and industrial applications. W-H funded this acquisition with a $25
million term D loan facility under W-H's credit facility (see Note 5).
INTEGRITY INDUSTRIES, INC.
On September 25, 1997, W-H acquired 100 percent of the issued and
outstanding stock of Integrity Industries, Inc. (Integrity) for total
consideration of approximately $13.4 million, including acquisition costs.
Integrity is a manufacturer and wholesaler of specialty chemicals and drilling
fluid products. W-H funded this acquisition with a $15 million delayed term loan
facility under W-H's credit facility (see Note 5).
All of the above business acquisitions have been accounted for as
purchases; therefore, the accompanying consolidated statements of operation and
comprehensive loss reflect the results of each
F-14
<PAGE> 81
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisitions' operations since their respective acquisition dates. The purchase
price and direct acquisition costs were allocated based on the fair value of the
assets acquired and liabilities assumed.
The purchase price and estimated fair market value of the assets acquired
and liabilities assumed with the U.S. and North Sea PathFinder Assets, GSI,
Agri-Empresa and Integrity acquisitions are as follows (in thousands):
<TABLE>
<CAPTION>
PATHFINDER GSI AGRI-EMPRESA INTEGRITY
<S> <C> <C> <C> <C>
Purchase price:
Cash paid................................ $26,673 $ 9,250 $21,000 $13,000
Debt issued.............................. -- 800 -- 200
Warrants issued to former owners......... -- 110 165 130
Acquisition costs........................ 500 85 135 27
------- ------- ------- -------
Total purchase price............. $27,173 $10,245 $21,300 $13,357
======= ======= ======= =======
Net assets acquired:
Current assets........................... $ 8,240 $ 1,338 $ 5,673 $ 3,900
Property and equipment................... 23,233 253 1,520 314
Goodwill and other intangibles........... -- 9,450 17,483 13,386
Current liabilities...................... (4,300) (796) (3,376) (1,895)
Other liabilities........................ -- -- -- (2,348)
------- ------- ------- -------
Net assets acquired.............. $27,173 $10,245 $21,300 $13,357
======= ======= ======= =======
</TABLE>
Goodwill is being amortized over 40 years, 30 years and 20 years for GSI,
Agri-Empresa, and Integrity, respectively.
The following table reflects on an unaudited consolidated pro forma basis
the results of operations as though each acquired company had been acquired as
of the beginning of W-H's fiscal years 1998 and 1999. Adjustments have been made
to reflect the accounting basis used in recording the acquisitions. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that would have resulted
had the combination been in effect on the date indicated, that have resulted
since the date of acquisition or that may result in the future. Pro forma
amounts are as follows (in thousands, unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1999
<S> <C> <C>
Total revenues.............................................. $158,486 $137,142
Net income (loss)........................................... 2,778 (17,868)
Net income (loss) per share -- basic........................ 0.23 (1.48)
Net income (loss) per share -- diluted...................... 0.22 (1.48)
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in W-H's allowance for doubtful accounts for the years ended
December 31, 1997, 1998 and 1999, consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Balance, beginning of year............................... $ 479 $1,223 $1,721
Deductions for uncollectible receivables written off..... (105) (353) (380)
Additions charged to expense............................. 174 451 1,556
Additions due to acquisition............................. 675 400 --
------ ------ ------
Balance, end of year..................................... $1,223 $1,721 $2,897
====== ====== ======
</TABLE>
F-15
<PAGE> 82
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of inventories as of December 31, 1998 and 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Finished goods.............................................. $3,282 $ 6,421
Work-in-process............................................. 83 221
Raw materials and supplies.................................. 4,472 7,052
------ -------
Inventories............................................... $7,837 $13,694
====== =======
</TABLE>
Property and equipment, net as of December 31, 1998 and 1999, consists of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Rental equipment............................................ $ 61,475 $ 97,883
Machinery and equipment..................................... 7,203 11,985
Automobiles and trucks...................................... 2,857 3,179
Office equipment, furniture and fixtures.................... 1,809 2,568
Leasehold improvements...................................... 1,498 4,394
-------- --------
Total............................................. 74,842 120,009
Less -- accumulated depreciation............................ (23,999) (36,774)
-------- --------
Property and equipment, net............................... $ 50,843 $ 83,235
======== ========
</TABLE>
Depreciation expense charged to operations totaled approximately
$5,348,000, $8,946,000 and $13,278,000 for the years ended December 31, 1997,
1998 and 1999, respectively.
Accrued liabilities as of December 31, 1998 and 1999, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Accrued compensation and benefits........................... $1,216 $ 2,219
Accrued interest............................................ 1,053 2,210
Other accrued liabilities................................... 2,858 6,696
------ -------
Total............................................. $5,127 $11,125
====== =======
</TABLE>
F-16
<PAGE> 83
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT:
Long-term debt as of December 31, 1998 and 1999 and March 31, 2000,
consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
CREDIT FACILITY:
Senior secured term A loan facility to financial
institutions payable in equal quarterly installments
equivalent to 5% of principal through August 1998, 10%
through August 1999, 15% through August 2000, 30% through
August 2001 and 40% through August 2002, bearing interest
at LIBOR (5.16% at December 31, 1999) plus 3.25% which is
payable monthly, maturing at August 11, 2002.............. $ 18,500 $ 16,250 $ 15,500
Senior secured term B, term C and delayed term loan facility
to financial institutions payable in equal quarterly
installments equivalent to 1% of principal annually
through August 2002 and 95% of principal through August
2003, bearing interest at LIBOR plus 3.75% which is
payable monthly, maturing at August 11, 2003.............. 64,275 63,625 63,462
Senior secured term D and term E loan facilities to
financial institutions payable in equal quarterly
installments equivalent to 1% of principal annually
through September 2004 and 95% of principal in December
2004, bearing interest at LIBOR plus 4.25% which is
payable monthly, maturing at December 31, 2004............ 34,913 34,562 34,475
Senior secured term F loan facility to financial
institutions payable in equal quarterly installments equal
to 1% of principal annually through March 2005, and 95% of
principal in June 2005, bearing interest at LIBOR plus
4.5%, which is payable monthly, maturing March 2005....... -- 14,900 33,363
Revolving credit facility to financial institutions bearing
interest at LIBOR plus 3.25% which is payable monthly,
maturing at August 11, 2002............................... 10,000 18,000 5,000
SUBORDINATED DEBT:
13% senior subordinated notes payable to DLJ Merchant
Banking Partners II, L.P. and its affiliated investment
funds (also a warrant holder; also a related party) due on
April 1, 2006, net of unamortized discount of $8,324,
bearing interest at an effective interest rate of 22%.
Interest is payable semi-annually on April 1 and October 1
and the related $2.275 million payment-in-kind notes that
bear interest at 14% per annum and mature April 1, 2006... -- 26,676 27,273
12 1/2% senior subordinated notes payable to JZ Equity
Partners PLC (affiliated with a warrant holder; also a
related party) with $12.0 million due at September 15,
2006 and 2007, respectively, bearing interest at 12 1/2%,
which is payable semiannually on March 15 and September 15
and the related $1.5 million payment-in-kind notes that
bear interest at 14 1/2% per annum and mature September
15, 2007.................................................. 24,000 24,000 25,500
</TABLE>
F-17
<PAGE> 84
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
OTHER DEBT:
Notes payable to prior owners of Integrity, due October 1,
2001, bearing interest at 10%, which is payable annually
on
September 30.............................................. 962 962 962
Notes payable to prior owners of GSI, due May 1, 2002,
bearing interest at 10% which is payable annually on April
30........................................................ 800 800 800
-------- -------- --------
Total long-term debt.............................. 153,450 199,775 206,335
Less -- Current maturities of long-term debt................ (3,250) (4,900) (4,900)
-------- -------- --------
$150,200 $194,875 $201,435
======== ======== ========
</TABLE>
CREDIT FACILITY
In August 1997 and in connection with the recapitalization (see Note 9),
Perf-O-Log, Inc., a wholly owned subsidiary of W-H, entered into a senior
secured credit facility. The term A loan facility and term B loan facility were
used primarily to finance the recapitalization and related fees and expenses.
The delayed term loan facility was used to finance the acquisition of Integrity.
The credit facility was amended in 1998 to include a term C and term D loan
facility, which were used to fund the acquisitions of GSI and Agri-Empresa as
described in Note 3. Additionally, in 1998, W-H entered into an amended credit
facility that included a term E loan facility which was used to pay down the
revolving credit facility. In March 1999, in connection with the PathFinder
acquisition, W-H amended the credit facility to include a $15 million term F
loan facility which was primarily used for working capital purposes. As of
December 31, 1999 W-H has $1,661,250 additional borrowing capacity related to
the credit facility and is subject to a 0.5 percent commitment fee for all
unused balances on the revolving credit facility. The credit facility is secured
by substantially all of the assets of W-H.
SUBORDINATED DEBT
In connection with the PathFinder acquisition in March 1999, W-H issued
senior subordinated notes with a face value of $40 million to DLJ Merchant
Banking II, L.P. and its affiliated investment funds. The 13% senior
subordinated notes are unsecured and subordinated in the right of payment and
liquidation preference to the credit facility. Additionally, W-H issued the
noteholders warrants to purchase shares of its common stock (see Note 9). The
13% senior subordinated notes were recorded at a discount of $10.2 million from
face value which represented the amount allocated to the warrants. In accordance
with SFAS No. 123, the warrants were recorded at the deemed fair value of W-H's
common stock, on the date of issuance, due to the de minimis exercise price.
In connection with the recapitalization in August 1997, W-H issued $24
million of 12 1/2% senior subordinated notes to JZ Equity Partners PLC. The
12 1/2% senior subordinated notes are unsecured and subordinated in right of
payment and liquidation preference to the credit facility.
The credit facility, 13% senior subordinated notes and 12 1/2% senior
subordinated notes contain restrictions which, among other things, require
maintenance of certain financial ratios and restrict encumbrances of assets,
incurrence of indebtedness, capital expenditures, investing activities and
payments of dividends.
F-18
<PAGE> 85
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
For the year ended December 31 --
2000.................................................... $ 4,900
2001.................................................... 8,612
2002.................................................... 25,950
2003.................................................... 62,175
2004.................................................... 33,312
Thereafter.............................................. 64,826
--------
Total........................................... $199,775
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
W-H leases certain real estate properties and automobiles under operating
leases that expire at various dates through 2004. Rental expense under operating
leases was approximately $933,000, $1,012,000, and $1,827,000 for the years
ended December 31, 1997, 1998 and 1999, respectively. Future minimum lease
payments under noncancelable operating leases are as follows (in thousands):
<TABLE>
<S> <C>
For the year ended December 31 --
2000..................................................... $ 3,488
2001..................................................... 2,876
2002..................................................... 2,696
2003..................................................... 2,102
2004..................................................... 1,346
-------
Total............................................ $12,508
=======
</TABLE>
EMPLOYMENT AGREEMENTS
W-H has employment agreements with certain of its employees. These
agreements have initial terms which expire through April 2003 and provide for a
base annual salary ranging from approximately $54,000 to $300,000. The
agreements also provide for severance pay in the event of involuntary
termination.
W-H also has entered into a royalty agreement with an employee which
provides for a maximum future payment of approximately $1.3 million upon the
occurrence of certain events. This maximum payment is reduced over time by
royalties received from recurring operations. All amounts pursuant to this
royalty agreement are expensed as incurred.
LITIGATION
W-H is involved in various lawsuits arising from normal business
activities. Management has reviewed pending litigation with legal counsel and
believes that the ultimate liability, if any, resulting from such actions will
not have a material adverse effect on W-H's financial position or results of
operations.
F-19
<PAGE> 86
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The components of W-H's income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
<S> <C> <C> <C>
Current
U.S. federal and state income taxes....................... $ (958) $126 $ 50
Foreign................................................... -- -- 332
------- ---- -----
Total Current..................................... (958) 126 382
------- ---- -----
Deferred
U.S. federal and state income taxes....................... (756) 26 (143)
Foreign................................................... -- -- --
------- ---- -----
Total Deferred.................................... (756) 26 (143)
------- ---- -----
Total provision (benefit)......................... $(1,714) $152 $ 239
======= ==== =====
</TABLE>
The provision (benefit) for income taxes differs from an amount computed at
the statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
<S> <C> <C> <C>
Federal income tax at statutory rates..................... $(2,458) $(419) $(5,094)
State income taxes........................................ (217) 69 (328)
Foreign income tax........................................ -- -- (64)
Nondeductible items....................................... 74 231 240
Restricted stock.......................................... (210) -- --
Increase in valuation allowance........................... 871 248 5,439
Other..................................................... 226 23 46
------- ----- -------
$(1,714) $ 152 $ 239
======= ===== =======
</TABLE>
The significant components of the deferred tax assets and liabilities as of
December 31, 1998 and 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforwards.......................... $ 6,520 $ 14,295
Accruals not currently deductible for tax purposes and
other.................................................. 269 1,129
Write-off of bad debts.................................... 259 703
Other..................................................... 19 36
------- --------
Total gross deferred tax assets................... 7,067 16,163
Less -- valuation allowance............................... (1,229) (6,489)
------- --------
Net deferred tax assets........................... 5,838 9,674
------- --------
Deferred tax liabilities --
Tax depreciation in excess of book depreciation........... (5,615) (8,819)
Other..................................................... (806) (1,295)
------- --------
Total gross deferred tax liabilities.............. (6,421) (10,114)
------- --------
Net deferred tax liabilities...................... $ (583) $ (440)
======= ========
</TABLE>
F-20
<PAGE> 87
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
W-H has recorded a valuation allowance to reflect the estimated amount of
deferred tax assets which may not be realized due to the expiration of net
operating losses and tax credit carryforwards. The change in the valuation
allowance for the years ended December 31, 1998 and 1999, is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Balance at beginning of year................................ $ 981 $1,229
Increase in valuation allowance............................. 248 5,260
------ ------
Balance at end of year...................................... $1,229 $6,489
====== ======
</TABLE>
W-H files a consolidated federal tax return. As of December 31, 1999, W-H
had net operating loss (NOL) carryforwards for federal income tax purposes of
approximately $39.5 million. The NOL carryforwards are available through 2019 to
offset future taxable income. A change in ownership, as defined by federal
income tax regulations, could significantly limit W-H's ability to utilize its
NOL carryforwards. As a result of the material changes in the ownership of W-H,
the utilization of certain NOL carryforwards is subject to annual limitations
and has not been tax benefitted for financial statement purposes. In addition,
W-H has NOL carryforwards in various state jurisdictions in an aggregate amount
of approximately $28.0 million. The utilization of these losses is limited to
the jurisdiction in which they arose.
8. RELATED-PARTY TRANSACTIONS:
SUBORDINATED DEBT
In connection with the recapitalization, W-H issued $24,000,000 of 12 1/2%
senior subordinated notes to a merchant banking firm that is affiliated with two
partnerships which are shareholders of W-H. (See Note 5).
CONSULTING AND ADVISORY AGREEMENTS
On March 29, 1999, W-H entered into an advisory agreement with Donaldson,
Lufkin & Jenrette Securities Corporation (DLJ), an investment banking firm whose
affiliates own W-H's 13% senior subordinated notes and warrants issued by W-H.
In the event W-H pursues any business combination, or debt or equity
transaction, DLJ has the right to act as W-H's lead or co-lead financial advisor
in reviewing strategic alternatives and sole lead manager on bank financings,
sole lead placement agent, sole lead initial purchaser, sole lead managing
underwriter or sole lead dealer manager, as the case may be, in connection with
any transaction occurring during the term of the agreement. This agreement
expires in March 2001.
On August 11, 1997, W-H entered into a consulting agreement with an
affiliate of The Jordan Company (Jordan), a private merchant banking firm that
is affiliated with two partnerships that are shareholders of W-H. The agreement
provides for an annual fee payable on a quarterly basis equal to 2.5% of W-H's
net income before interest, tax, depreciation and amortization and other
non-cash or non-recurring expenses; provided that from and after March 26, 1999,
such fee may not exceed $600,000 per annum for as long as the 13% senior
subordinated notes described in Note 5 are outstanding. Under this agreement,
W-H paid Jordan approximately $34,000, $341,000 and $145,000 for the years ended
December 31, 1997, 1998 and 1999. This agreement expires on December 31, 2007.
On August 11, 1997, W-H entered into a transaction advisory agreement with
an affiliate of Jordan which expires on December 31, 2007. The advisory
agreement provides for an investment banking and financial consulting fee
ranging up to 1% to 2% of the aggregate transaction size for equity, debt,
acquisitions, divestitures and other transactions. Under this agreement, W-H
paid Jordan approximately $1.4 million, $0.4 million and $0.5 million for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-21
<PAGE> 88
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY (DEFICIT):
STOCK DIVIDEND
In May 2000, W-H's Board of Directors declared a stock dividend to effect a
stock split of 33 shares for every one share of common stock then outstanding.
The stock split will become effective immediately prior to the effectiveness of
the Registration Statement relating to the public offering of common stock. The
accompanying consolidated financial statements and footnotes have been restated
to reflect the stock split, including an assumed increase in the authorized
shares of common stock. The par value of the shares of common stock to be issued
in connection with the stock dividend was credited to common stock and a like
amount charged to additional paid-in capital.
RECAPITALIZATION OF W-H ENERGY SERVICES, INC.
On August 11, 1997, W-H's board of directors approved a series of equity
and debt transactions which resulted in a recapitalization of W-H and a change
in controlling ownership of W-H's common stock outstanding (the
Recapitalization). In connection with the Recapitalization, W-H's board of
directors (i) approved the repurchase and retirement of 21,314,898 shares of
common stock and warrants for the purchase of 496,650 shares of common stock for
approximately $48.1 million, (ii) approved the repurchase of 8,299,500
outstanding options for approximately $13.5 million which was charged to
operating expenses in the accompanying consolidated statement of operations for
the year ending December 31, 1997, (iii) approved the execution of the credit
facility, which provided for borrowings up to $95.0 million and which was used
to fund the repurchase of the common stock, options, warrants and to retire the
outstanding borrowings under W-H's loan agreement with a bank (see Note 5), (iv)
approved the issuance of 7,260,000 new shares of common stock and warrants to
purchase 1,247,813 shares of common stock at an exercise price of $2.21 per
share for approximately $12.0 million, (v) approved the issuance of the 12 1/2%
senior subordinated notes in the amount of $24.0 million to an affiliate of
Jordan, and (vi) approved the issuance of warrants to purchase 1,020,937 shares
of common stock to continuing members of management at an exercise price of
$2.21 per share. After the Recapitalization, 80% of the outstanding common stock
is held by new shareholders, with 20% being retained by shareholders existing
prior to the Recapitalization. Expenses of approximately $5.9 million were
incurred in connection with the Recapitalization, of which $3.3 million was
recorded as a reduction to equity and $2.6 million was capitalized as debt
offering costs, which is included in other assets in the accompanying
consolidated financial statements, and will be amortized over the term of the
applicable debt agreements. In connection with the Recapitalization, $500,000 of
convertible debentures were converted into 330,000 shares of common stock.
CAPITAL STOCK
In March 1999, W-H shareholders approved an amendment to W-H's articles of
incorporation which reduced the par value of each share of common stock from
$1.00 per share to $0.01 per share. The change in par value did not affect any
of the existing rights of shareholders and has been recorded as an adjustment to
additional paid-in capital and common stock in 1999.
In May 2000, W-H amended its articles of incorporation to reclassify its
Class A common stock to common stock and eliminate its Class B common stock. In
addition, W-H authorized its Board of Directors to authorize up to 10,000,000
shares of preferred stock, par value $0.01, in one or more series.
STOCK OPTIONS AND STOCK PURCHASE WARRANTS
In August 1997, W-H adopted a stock option plan (the 1997 Option Plan) to
provide non-qualified stock options to employees and authorized the issuance of
up to 2,475,000 shares to be issued under the
F-22
<PAGE> 89
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 Option Plan. Each option granted under the 1997 Option Plan will contain
such terms and conditions as may be approved by the Board of Directors or
compensation committee (the Committee). As of December 31, 1999, the Committee
has granted options under the 1997 Option Plan at exercise prices equal to the
fair market value at W-H's common stock at date of grant. These options vest
over a four-year period and will expire ten years from the date the options were
granted. These options will vest in 25% increments after each full year of
service following the date of grant. If an optionee's employment terminates for
any reason, the option may be exercised during the three-month period following
such termination, but only to the extent vested at the time of such termination.
In connection with issuance of its 13% senior subordinated notes (see Note
5), W-H issued warrants to purchase up to 6,115,263 shares of common stock at
$0.0003 per share. The warrants have a provision that if $5 million of the 13%
senior subordinated notes are redeemed by May 29, 1999, then the number of
warrants is reduced to 4,756,323, and if the 13% senior subordinated notes are
redeemed in whole by September 26, 2000, then the number of warrants are reduced
to 2,974,488. On May 29, 1999, W-H redeemed $5 million of the 13% senior
subordinated notes, reducing the outstanding warrants to 4,756,323. No warrants
have been exercised. The fair value of the minimum number of warrants 2,974,488,
which aggregated $10.2 million, was recorded as a discount to the face amount of
the 13% senior subordinated notes and additional paid-in-capital upon issuance.
The additional 1,781,835 warrants available to the holders of the 13% senior
subordinated notes will be recorded at fair value if and when all contingencies
are resolved.
In connection with the acquisitions of GSI and Agri-Empresa, W-H issued
445,500 warrants to the former owners of the respective companies with exercise
prices ranging from $3.48 to $4.09. The fair value of the warrants were included
in the purchase price, and estimated on the date of grant using the Black-
Scholes option pricing model.
A summary of W-H's stock options and warrants as of December 31, 1997, 1998
and 1999 is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------- PRICE
OPTIONS WARRANTS PER SHARE
<S> <C> <C> <C>
Outstanding December 31, 1996................... 8,299,500 496,650 $0.30-1.21
Purchased in recapitalization................... (8,299,500) (496,650) 2.21
Granted......................................... 573,375 2,680,194 2.21
---------- ----------
Outstanding December 31, 1997................... 573,375 2,680,194 2.21
Granted......................................... 495,000 445,500 3.03-4.09
Expired/canceled................................ (330,000) -- 3.03
---------- ----------
Outstanding December 31, 1998................... 738,375 3,125,694 2.21-4.09
Granted......................................... 1,397,550 2,974,488 0.0003-4.55
Expired/canceled................................ (24,750) -- 2.21-4.55
---------- ----------
Outstanding December 31, 1999................... 2,111,175 6,100,182 0.0003-4.55
========== ==========
Exercisable at December 31, 1999................ 595,733 5,840,307 0.0003-4.55
========== ==========
</TABLE>
F-23
<PAGE> 90
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------ ------------------------------------
WEIGHTED AVERAGE
RANGE OF OUTSTANDING AS OF REMAINING CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AS OF WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1999 LIFE (IN YEARS) EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE
- --------------- ----------------- --------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.21 - 3.48 614,625 7.7 $2.26 298,238 $2.24
3.48 - 4.55 1,496,550 9.2 4.51 297,495 4.50
--------- -------
$2.21 - 4.55 2,111,175 8.8 $3.86 595,733 $3.37
========= =======
</TABLE>
Under SFAS No. 123, the fair value of each option and warrant grant was
estimated on the date of grant using the Black-Scholes option pricing model. The
following assumptions were used for the grants in the years ended December 31,
1997, 1998 and 1999: risk-free interest rates of between 5.24%-5.99%; dividend
rates of zero; expected lives of ten years and expected volatilities of
41.32%-65.91%. The 2,111,175 options and 6,100,182 warrants outstanding as of
December 31, 1999 have a remaining contractual life of between 7.6 and 9.6
years.
The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. W-H's stock options have
characteristics significantly different from those of traded options, and
changes in the subjective input assumptions can materially affect the fair value
estimate.
Had compensation cost for the stock options and warrants granted to
employees been determined under SFAS No. 123, net loss and basic and diluted net
loss per share for the years ended December 31, 1997, 1998 and 1999 would have
changed as indicated in the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss --
As reported............................................ $(5,669) $(1,386) $(15,220)
Pro forma.............................................. (5,886) (1,494) (16,073)
Basic and diluted net loss per share --
As reported............................................ $ (0.32) $ (0.15) $ (1.35)
Pro forma.............................................. (0.34) (0.16) (1.42)
</TABLE>
W-H recorded approximately $158,000 in deferred compensation expense,
relating to options issued during the year ended December 31, 1999, for the
excess of the estimated fair value of the common stock on the date of grant over
the exercise price. The fair value of the common stock on the date of grant was
determined based on a third-party entity valuation and taking into consideration
certain industry and company-specific factors. The deferred compensation will be
amortized over the four-year vesting period of the options. During the year
ended December 31, 1999, W-H recognized $17,000 in compensation expense relating
to these options.
10. 401(K) PLAN:
W-H maintains a 401(k) plan that enables employees to contribute up to
specified percentages of their annual compensation. W-H may contribute a
matching amount for each participant equal to a discretionary percentage
determined annually by W-H. W-H may also contribute additional amounts at its
sole discretion. W-H matching contributions were approximately $107,000,
$210,000 and $456,000 for the years ended December 31, 1997, 1998, and 1999,
respectively.
F-24
<PAGE> 91
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SEGMENTS:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires that companies report separately information about each
significant operating segment reviewed by the chief operating decision maker.
Management has elected to organize segments based on differences in each
segment's customers and the products and services offered. All segments that
meet a threshold of 10% of revenues, reported profit or loss, or combined assets
are defined as significant segments. Based on these requirements, management has
identified three reportable segments, drilling related products and services,
completion and workover related products and services, and maintenance and
safety related products and services.
DRILLING RELATED PRODUCTS AND SERVICES:
The drilling related products and services segment provides products and
services used by oil and natural gas companies, drilling contractors and other
oilfield service companies for the drilling of oil and natural gas wells. These
products and services are used primarily onshore in the Gulf Coast region and
offshore in the Gulf of Mexico and the North Sea. This segment consists of five
primary business lines: (i) LWD; (ii) MWD; (iii) rental tools; (iv) downhole
drilling motors; and (v) drilling fluids.
COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES:
The completion and workover related products and services segment provides
products and services primarily to customers onshore in the Gulf Coast region
and offshore in the Gulf of Mexico. These products include: (i) wireline logging
and perforating; (ii) polymers and specialty chemicals; and (iii) tubing.
MAINTENANCE AND SAFETY RELATED PRODUCTS AND SERVICES:
The maintenance and safety related products and services segment provides
safety products and maintenance products and services primarily for refinery and
petrochemical plant applications and major and independent oil and natural gas
companies, including: (i) integrated on-site cleaning and waste management; and
(ii) safety equipment.
W-H recognizes revenues and cost of products and services by segment.
Selling, general and administrative, depreciation and amortization, interest
expense, and other income (expense) are not monitored by segment. Summarized
information for W-H's reportable segments is contained in the following tables
(in thousands):
As of and for the year ended December 31, 1999:
<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 80,643 $27,436 $19,562 $ -- $127,641
Gross profit.................... 37,657 12,895 8,690 -- 59,242
Total assets.................... 130,629 39,310 17,693 3,972 191,604
Capital expenditures............ 16,080 5,450 2,194 125 23,849
</TABLE>
F-25
<PAGE> 92
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues......................... $46,368 $23,789 $20,136 $ -- $ 90,293
Gross profit..................... 23,834 12,440 10,588 -- 46,862
Total assets..................... 77,298 33,602 18,361 3,338 132,599
Capital expenditures............. 13,792 6,170 5,081 257 25,300
</TABLE>
As of and for the year ended December 31, 1997:
<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues.......................... $29,149 $14,966 $15,718 $ -- $59,833
Gross profit...................... 17,420 8,902 7,622 -- 33,944
Total assets...................... 47,143 20,078 12,744 4,306 84,271
Capital expenditures.............. 13,079 3,601 3,922 208 20,810
</TABLE>
As of and for the quarter ended March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 10,316 $ 5,772 $ 5,636 $ -- $ 21,724
Gross profit.................... 5,627 3,192 2,610 -- 11,429
Total assets.................... 114,840 30,986 19,300 7,264 172,390
Capital expenditures............ 6,350 633 568 19 7,570
</TABLE>
As of and for the quarter ended March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
MAINTENANCE
DRILLING COMPLETION AND SAFETY OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 32,591 $ 8,887 $ 5,759 $ -- $ 47,237
Gross profit................... 14,888 3,844 2,652 -- 21,384
Total assets................... 130,944 37,588 18,931 10,026 197,489
Capital expenditures........... 1,867 3,575 794 342 6,578
</TABLE>
W-H operates in both the United States and the North Sea. The following is
summary information by geographic region (in thousands):
Revenues:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ---------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
The United States................... $59,833 $90,293 $113,506 $21,724 $43,620
The North Sea....................... -- -- 14,135 -- 3,617
------- ------- -------- ------- -------
Total..................... $59,833 $90,293 $127,641 $21,724 $47,237
======= ======= ======== ======= =======
</TABLE>
F-26
<PAGE> 93
W-H ENERGY SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1998 1999 2000
(UNAUDITED)
<S> <C> <C> <C>
The United States..................................... $50,843 $72,743 $74,859
The North Sea......................................... -- 10,492 10,116
------- ------- -------
Total....................................... $50,843 $83,235 $84,975
======= ======= =======
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED):
FINANCING
Effective March 24, 2000, W-H amended its credit facility (See Note 5) to
increase its term F loan facility by $18.5 million which was used to pay down
the revolving credit facility. In connection therewith, the credit facility
restricts W-H from paying any interest due on its 13% senior subordinated notes
or 12 1/2% senior subordinated notes in 2000 unless W-H consummates an initial
public offering resulting in gross proceeds of at least $50 million.
Concurrently therewith, W-H paid interest then due to its senior subordinated
note holders by delivering additional notes in the original principal amount of
$1.5 million and $2.275 million, respectively, due on September 15, 2007 and
April 1, 2006, respectively, and bearing interest initially at the rate of 14.5%
per annum and 14% per annum, respectively. In connection with this amendment,
W-H paid the subordinated debt holders $295,000 and DLJ Capital Funding
$277,500. As of March 31, 2000, W-H has $15 million of borrowing capacity under
its revolving credit facility.
STOCK OPTIONS
During January 2000, W-H issued options to purchase 190,575 shares of
common stock to employees. W-H recorded additional deferred compensation
totaling approximately $1.5 million for options granted in the first quarter of
2000. The additional deferred compensation expense will be amortized over the
four year vesting period of the individual stock options issued. W-H expects to
record additional amortization expense for deferred compensation as follows:
$344,000 during 2000, $375,000 during 2001, $375,000 during 2002, $375,000
during 2003 and $31,000 during 2004.
REGISTRATION STATEMENT
In May 2000, the Board of Directors of W-H authorized the filing of an
amendment to its pending registration statement with the Securities and Exchange
Commission permitting W-H to sell shares of its common stock to the public.
F-27
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
W-H Energy Services, Inc.:
We have audited the accompanying combined statements of operations,
shareholders' equity and cash flows of Grinding and Sizing Company, Inc., and
Affiliates, all Texas corporations (Grinding and Sizing Company, Inc.), for the
years ended December 31, 1996 and 1997. These combined financial statements are
the responsibility of Grinding and Sizing Company, Inc. and Affiliates'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall combined financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Grinding and Sizing Company, Inc., and Affiliates for the years ended
December 31, 1996 and 1997, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
May 29, 1998
F-28
<PAGE> 95
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- -----------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................... $5,080,257 $7,598,908 $1,470,912 $2,049,944
Costs and Expenses:
Cost of revenues........................... 2,778,403 4,026,458 744,270 917,294
Depreciation and amortization.............. 106,562 140,281 23,595 26,199
Selling, general and administrative........ 732,958 958,812 242,667 232,407
---------- ---------- ---------- ----------
Income from Operations....................... 1,462,334 2,473,357 460,380 874,044
Other Income (Expense):
Interest expense........................... (27,281) (21,838) (3,990) (2,972)
Other...................................... 6,483 (23,798) 1,277 (113)
---------- ---------- ---------- ----------
Income Before Income Taxes................... 1,441,536 2,427,721 457,667 870,959
Provision for Income Taxes................... 64,025 115,568 21,102 40,049
---------- ---------- ---------- ----------
Net Income................................... $1,377,511 $2,312,153 $ 436,565 $ 830,910
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE> 96
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996.................... 38,523 $469,130 $ -- $ 646,708 $(423,938) $ 691,900
Net Income................ -- -- -- 1,377,511 -- 1,377,511
Contributed Capital....... -- 2,393 5,607 -- -- 8,000
Distributions to
Shareholders............ -- -- -- (1,089,973) -- (1,089,973)
------ -------- ------- ----------- --------- -----------
Balance, December 31,
1996.................... 38,523 471,523 5,607 934,246 (423,938) 987,438
Contributed Capital....... 100 100 21,900 -- -- 22,000
Net Income................ -- -- -- 2,312,153 -- 2,312,153
Distributions to
Shareholders............ -- -- -- (1,642,332) -- (1,642,332)
------ -------- ------- ----------- --------- -----------
Balance, December 31,
1997.................... 38,623 471,623 27,507 1,604,067 (423,938) 1,679,259
Net Income (Unaudited).... -- -- -- 830,910 -- 830,910
Distributions to
Shareholders
(Unaudited)............. -- -- -- (566,353) -- (566,353)
------ -------- ------- ----------- --------- -----------
Balance, March 31, 1998
(Unaudited)............. 38,623 $471,623 $27,507 $ 1,868,624 $(423,938) $ 1,943,816
====== ======== ======= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
F-30
<PAGE> 97
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................ $ 1,377,511 $ 2,312,153 $ 436,565 $ 830,910
Adjustments to reconcile net income to
cash provided by operating activities
--
Depreciation and amortization.......... 106,562 140,281 23,595 26,199
Loss on sale of assets.................... (999) 18,141 5,967 4,944
Change in Operating Assets and Liabilities:
Decrease (increase) in accounts
receivable............................. (155,590) (417,453) (211,666) 6,357
Increase in inventories................... (61,889) (54,147) (66,635) (103,280)
(Increase) decrease in prepaid expenses
and other assets....................... 2,375 (2,510) (25,051) 1,474
Increase in accounts payable and accrued
liabilities............................ 78,271 70,626 127,552 52,184
----------- ----------- --------- ---------
Net cash flows provided by
operating activities............ 1,346,241 2,067,091 290,327 818,788
----------- ----------- --------- ---------
Cash Flows from Investing Activities:
Purchases of machinery and equipment...... (186,258) (213,303) (49,328) --
Proceeds from sale of assets.............. 19,674 -- -- 4,000
----------- ----------- --------- ---------
Net cash flows (used in) provided
by investing activities......... (166,584) (213,303) (49,328) 4,000
----------- ----------- --------- ---------
Cash Flows from Financing Activities:
Payments on long-term debt................ (268,413) (327,778) (33,706) (80,285)
Borrowings of long-term debt.............. 92,199 149,309 50,000 --
Distributions to shareholders............. (1,089,973) (1,642,332) (278,649) (566,353)
----------- ----------- --------- ---------
Net cash flows used in financing
activities...................... (1,266,187) (1,820,801) (262,355) (646,638)
----------- ----------- --------- ---------
Net Increase (Decrease) in Cash............. (86,530) 32,987 (21,356) 176,150
Cash, beginning of period................... 480,515 393,985 393,985 426,972
----------- ----------- --------- ---------
Cash, end of period......................... $ 393,985 $ 426,972 $ 372,629 $ 603,122
=========== =========== ========= =========
Supplemental Disclosure of Cash Flow
Information:
Interest paid during the period........... $ 27,281 $ 21,838 $ 3,990 $ 2,972
=========== =========== ========= =========
Income taxes paid during the period....... $ 8,796 $ 63,960 $ -- $ 7,901
=========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
F-31
<PAGE> 98
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION:
These financial statements represent the combined financial statements of
Grinding and Sizing Company, Inc., Houston Bagging and Blending, Inc. and
Reliable Equipment, Inc. and are herein referred to as the Combined Companies.
Each of the Combined Companies share common ownership. Grinding and Sizing
Company, Inc., incorporated on June 29, 1979, and Houston Bagging and Blending,
Inc., incorporated on April 5, 1994, are both Texas corporations and are
primarily engaged in the business of producing additives for drilling mud used
in the exploration for oil and natural gas. Reliable Equipment, Inc.,
incorporated on December 5, 1996, is primarily a metal fabrication company which
manufactures parts for the machinery used to produce, bag and blend the
additives. The majority of the Combined Companies sales are in Texas. All
significant transactions between the Combined Companies have been eliminated in
the combination.
On April 24, 1998, the shareholders of the Combined Companies completed the
sale of all of the outstanding stock of the Combined Companies to Drill Motor
Services, a subsidiary of W-H Energy Services, Inc. (W-H), for cash
consideration of $9,250,000, $800,000 in notes to be paid in April 2002 and
warrants to purchase W-H common stock that were valued at $110,000. The
shareholders of the Combined Companies placed in escrow $1,000,000 for a period
of two years following the closing date for potential claims and damages as
agreed to by the shareholders of the Combined Companies and W-H. The
accompanying combined financial statements were prepared in conjunction with the
acquisition by W-H. Effective April 29, 1998, as part of the acquisition by W-H,
Houston Bagging and Blending, Inc., and Reliable Equipment, Inc., were merged
into Grinding and Sizing Company, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The interim financial statements for the three months ended March 31, 1998
and 1997, are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
REVENUE RECOGNITION
The Combined Companies record revenue when inventory is shipped to the
customer for the production, bagging and blending of additives. The Combined
Companies ship inventory F.O.B. shipping point. Accounts receivable represent
amounts recorded for inventory shipped. Reliable Equipment, Inc., records
accounts receivable and recognizes revenue based on contractual terms with the
customer which approximates the percentage of completion method for contract
accounting.
DEPRECIATION
Depreciation is calculated using the double-declining balance method over
the estimated useful lives of the depreciable assets which range from five to 30
years.
FEDERAL INCOME TAXES
Grinding and Sizing Company, Inc. and Houston Bagging and Blending Company,
Inc., have individually elected S Corporation status, as defined by the Internal
Revenue Code, whereby they are not
F-32
<PAGE> 99
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
subject to federal taxation. Under S Corporation status, the shareholders report
their proportionate share of taxable earnings on their personal tax returns.
Reliable Equipment, Inc. (REI) elected C Corporation status at start up and
effective January 1, 1998, changed their filing status to S Corporation status.
Federal income taxes for REI for the year ended December 31, 1997, are reported
in the statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. COMMITMENTS AND CONTINGENCIES:
Grinding and Sizing Company, Inc., has an agreement to pay a shareholder
royalties for use of a patent of $1 per each 25 pounds of pecan pith product (a
raw material input) sold expiring in 2013. Payments made under this agreement
totaled $15,768 and $29,544 for the years ended December 31, 1996 and 1997,
respectively.
Grinding and Sizing Company, Inc., has an agreement with an unrelated third
party for use of a license to produce a drilling additive from corn cob outers.
Payments made under this agreement totaled $151,013 and $200,591 for the years
ended December 31, 1996 and 1997, respectively.
The Combined Companies are involved in lawsuits from time to time arising
from normal business activities. Management has reviewed any pending litigation
with legal counsel and believes that the ultimate liability, if any, resulting
from such actions will not have a material adverse effect on the Combined
Companies' financial position or results of operations.
4. SHAREHOLDERS' EQUITY:
The components of capital stock as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
PAR
CLASS SHARES SHARES VALUE
COMPANY OF SHARES AUTHORIZED ISSUED PER SHARE
<S> <C> <C> <C> <C>
December 31, 1996
Grinding and Sizing Company, Inc. ......... Common 1,000,000 30,000 No Par
Houston Bagging and Blending, Inc. ........ Common 100,000 8,523
------
Total capital stock................ 38,523
======
December 31, 1997
Grinding and Sizing Company, Inc. ......... Common 1,000,000 30,000 No Par
Houston Bagging and Blending, Inc. ........ Common 100,000 8,523 $1
Reliable Equipment, Inc. .................. Common 100,000 100 $1
------
Total capital stock................ 38,623
======
</TABLE>
F-33
<PAGE> 100
GRINDING AND SIZING COMPANY, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. SIGNIFICANT SUPPLIERS AND CUSTOMERS:
The Combined Companies have one significant supplier that represents 13
percent of purchases for the year ended December 31, 1996, and two significant
suppliers that represent 16 percent and 14 percent of purchases for the year
ended December 31, 1997.
The Combined Companies have sales to two significant customers that
represent 31 percent and 10 percent of revenues for the year ended December 31,
1996. The Combined Companies had revenues to two significant customers that
represent 33 percent and 16 percent of revenues for the year ended December 31,
1997.
F-34
<PAGE> 101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
W-H Energy Services, Inc.:
We have audited the accompanying combined statements of operations,
shareholders' equity and cash flows of Agri-Empresa, Inc., and Affiliates, all
Texas corporations, for the years ended December 31, 1996 and 1997. These
combined financial statements are the responsibility of Agri-Empresa, Inc., and
Affiliates' management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall combined financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Agri-Empresa, Inc., and Affiliates for the years ended December 31,
1996 and 1997, in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
August 28, 1998
F-35
<PAGE> 102
AGRI-EMPRESA, INC., AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................. $24,424,559 $31,187,087 $14,484,096 $13,858,389
Costs and Expenses:
Cost of revenues....................... 20,427,381 25,260,141 11,906,025 11,112,775
Depreciation........................... 443,475 529,376 245,257 291,872
Selling, general and administrative.... 2,378,325 1,985,243 865,027 782,586
----------- ----------- ----------- -----------
Income from Operations................... 1,175,378 3,412,327 1,467,787 1,671,156
Other (Expense) Income:
Interest expense....................... (161,627) (163,321) (82,161) (77,525)
Other income........................... 89,888 172,075 96,050 123,657
----------- ----------- ----------- -----------
Income Before Income Taxes............... 1,103,639 3,421,081 1,481,676 1,717,288
Provision for Income Taxes............... 453,595 191,421 87,056 57,006
----------- ----------- ----------- -----------
Net Income............................... $ 650,044 $ 3,229,660 $ 1,394,620 $ 1,660,282
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-36
<PAGE> 103
AGRI-EMPRESA, INC., AND AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES VALUE CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............ 102,389 $3,389 $116,600 $ 4,868,756 $ 4,988,745
Net Income............................ -- -- -- 650,044 650,044
Issuance of Common Stock.............. 11,000 2,000 -- -- 2,000
------- ------ -------- ----------- -----------
Balance, December 31, 1996............ 113,389 5,389 116,600 5,518,800 5,640,789
Net Income............................ -- -- -- 3,229,660 3,229,660
Distributions to Shareholders......... -- -- -- (1,510,000) (1,510,000)
------- ------ -------- ----------- -----------
Balance, December 31, 1997............ 113,389 5,389 116,600 7,238,460 7,360,449
Net Income (unaudited)................ -- -- -- 1,660,282 1,660,282
Distributions to Shareholders
(unaudited)......................... -- -- -- (3,337,104) (3,337,104)
------- ------ -------- ----------- -----------
Balance, June 30, 1998 (unaudited).... 113,389 $5,389 $116,600 $ 5,561,638 $ 5,683,627
======= ====== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
F-37
<PAGE> 104
AGRI-EMPRESA, INC., AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.......................................... $ 650,044 $ 3,229,660 $ 1,394,620 $ 1,660,282
Adjustments to reconcile net income to cash provided
by operating activities --
Depreciation...................................... 443,475 529,376 245,257 291,872
Loss (gain) on sale of assets....................... 44,116 (10,187) (10,187) 3,826
Deferred taxes...................................... (27,286) 30,556 12,604 (1,488)
Change in Operating Assets and Liabilities:
(Increase) decrease in accounts receivable........ (968,227) (2,158,147) (1,097,908) 2,206,367
(Increase) decrease in inventories................ (30,960) (302,024) 350,216 (138,259)
Increase in prepaid expenses and other assets..... 13,447 (27,888) (227,736) (97,758)
Decrease in income taxes receivable............... (108,005) 108,005 108,005 --
Increase in income taxes payable.................. 85,657 95,891 9,480 58,494
Increase (decrease) in accounts payable and
accrued liabilities............................. 650,205 757,935 454,890 (596,557)
----------- ----------- ----------- -----------
Net cash flows provided by operating
activities................................. 752,466 2,253,177 1,239,241 3,386,779
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of machinery and equipment................ (810,182) (684,845) (212,442) (73,414)
Proceeds from sale of assets........................ 110,000 -- -- --
----------- ----------- ----------- -----------
Net cash flows used in investing
activities................................. (700,182) (684,845) (212,442) (73,414)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Repayments of notes payable......................... (765,592) (1,501,553) (568,286) (200,478)
Repayments of related-party notes payable........... (211,789) (106,853) (63,412) (17,660)
Borrowings under notes payable...................... 1,504,000 1,325,000 660,000 111,466
Loans made to related parties....................... (412,071) (187,582) (36,031) (187,971)
Loan repayments from related parties................ 189,312 654,907 47,435 411,185
Advances received from related parties.............. 70,000 -- -- --
Repayment of advances from related parties.......... -- (70,000) (70,000) --
Issuance of common stock............................ 2,000 -- -- --
Distributions to shareholders....................... -- (1,510,000) (510,000) (3,337,104)
----------- ----------- ----------- -----------
Net cash flows used in financing
activities................................. 375,860 (1,396,081) (540,294) (3,220,562)
----------- ----------- ----------- -----------
Net Increase in Cash.................................. 428,144 172,251 486,505 92,803
Cash, beginning of period............................. 478,707 906,851 906,851 1,079,102
----------- ----------- ----------- -----------
Cash, end of period................................... $ 906,851 $ 1,079,102 $ 1,393,356 $ 1,171,905
=========== =========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period..................... $ 161,627 $ 163,321 $ 82,161 $ 77,525
=========== =========== =========== ===========
Income taxes paid (refunded) during the period...... $ 460,216 $ (37,113) $ 98,526 $ 94,388
=========== =========== =========== ===========
Supplemental Disclosure of Noncash Investing
Transaction:
Trade-in value received for trucks.................. $ -- $ 15,000 $ 15,000 $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE> 105
AGRI-EMPRESA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying combined financial statements include the accounts of
Agri-Empresa, Inc. (Agri), STG Transportation (STG), Agri-Empresa Transportation
(AET), Lonestar Distribution, Inc. (LDI), and Superior Packaging & Distribution
(SPD) (collectively, AEI or the Company). Each of the companies share common
ownership. Agri was founded and incorporated in Texas in 1977 and is the Permian
Basin's largest manufacturer, packager and distributor of chemicals used in
oilfield and industrial applications. Agri also operates in the Carlsbad, New
Mexico, area. STG, founded and incorporated in Texas in 1995, and AET, founded
and incorporated in Texas in 1987, offer delivery of oilfield chemicals in the
Permian Basin. LDI was founded and incorporated in Texas in 1981 to provide
outsourcing to oilfield companies of noncore activities including warehousing,
material handling and transportation. LDI operates in the Permian Basin, Abilene
and Jacksboro, Texas, and Hobbs, New Mexico. SPD, founded and incorporated in
Texas in 1996, provides chemical warehousing, bagging and export services in the
Houston, Texas, area. All significant transactions between the combined
companies have been eliminated.
On July 27, 1998, the shareholders of the Company completed the sale of all
of the outstanding stock of Agri, STG, AET, LDI and SPD to Drill Motor Services,
Inc., a subsidiary of W-H Energy Services, Inc. (W-H), for cash consideration of
$21,000,000 and warrants to purchase W-H common stock that were valued at
approximately $165,000. The shareholders of the Company have placed in escrow
$2,000,000 for a period of two years following the closing date to provide for
potential claims and damages as agreed to by the shareholders of the Company and
W-H. The accompanying combined financial statements were prepared in conjunction
with the acquisition by W-H.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The interim combined financial statements for the six months ended June 30,
1997 and 1998, are unaudited and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the
accompanying combined financial statements for the six months ended June 30,
1997 and 1998, contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's results of operations and
cash flows for the six months ended June 30, 1997 and 1998. The results of
operations and cash flows for the six months ended June 30, 1997 and 1998, are
not necessarily indicative of the operating results for the full years.
REVENUE RECOGNITION AND OPERATING EXPENSES
The Company records revenue when inventory is shipped to the customer. The
primary components of operating expenses are those salaries, expendable
supplies, repairs and maintenance and general operational costs that are
directly associated with the services performed by the Company for its
customers.
DEPRECIATION
Depreciation is calculated using the straight-line method over the estimate
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings............................................ 12-31.5 years
Machinery and equipment.............................. 5-12 years
</TABLE>
F-39
<PAGE> 106
AGRI-EMPRESA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FEDERAL INCOME TAXES
Effective January 1, 1997, Agri and LDI individually elected S Corporation
status, as defined by the Internal Revenue Code, whereby they are not subject to
federal taxation. Under S Corporation status, the shareholders report their
proportionate share of taxable earnings on their personal tax returns. SPD
elected S Corporation status in the year of its inception.
AET and STG are C Corporations for federal taxation purposes and, as such,
are subject to federal taxation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. LEASES:
The minimum future lease payments for equipment and facilities under
noncancelable operating leases as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 24,300
1999..................................................... 32,400
2000..................................................... 32,400
2001..................................................... 32,400
2002..................................................... 32,400
Thereafter............................................... 8,100
--------
$162,000
========
</TABLE>
4. SHAREHOLDERS' EQUITY:
The components of capital stock as of December 31, 1996 and 1997, are as
follows:
<TABLE>
<CAPTION>
PAR
CLASS SHARES SHARES VALUE
COMPANY OF SHARES AUTHORIZED ISSUED PER SHARE
<S> <C> <C> <C> <C>
Agri........................................ Common 10,000 1,389 $1.00
STG......................................... Common 1,000,000 10,000 $ .10
AET......................................... Common 1,000,000 100,000 $ .01
LDI......................................... Common 500,000 1,000 $1.00
SPD......................................... Common 100,000 1,000 $1.00
-------
Total capital stock....................................... 113,389
=======
</TABLE>
5. SIGNIFICANT SUPPLIERS AND CUSTOMERS:
The Company had one significant supplier that represented approximately 33
percent and 24 percent of purchases for the years ended December 31, 1996 and
1997, respectively.
The Company had sales to one significant customer that represented
approximately 17 percent and 20 percent of revenues for the years ended December
31, 1996 and 1997, respectively.
F-40
<PAGE> 107
AGRI-EMPRESA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED-PARTY TRANSACTIONS:
The following transactions have occurred between the Company and related
parties:
(1) A shareholder's stepfather renders accounting and other consulting
services to the Company. The aggregate charges for these services during
1996 and 1997 were approximately $106,000 and $92,000, respectively.
(2) A company owned by two shareholders leases hunting land to the
Company for approximately $17,500 a year.
(3) SPD leases a warehouse from a corporation owned by two of the
Company's shareholders. Rent expense totaled approximately $140,000 and
$288,000 in 1996 and 1997, respectively.
7. INCOME TAXES:
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
<S> <C> <C>
Federal --.................................................. $428,026 $ 2,472
Current................................................... (25,893) 33,441
-------- --------
Deferred.................................................. 402,133 35,913
-------- --------
State --.................................................... 52,855 158,393
Current................................................... (1,393) (2,885)
-------- --------
Deferred.................................................. 51,462 155,508
-------- --------
$453,595 $191,421
======== ========
</TABLE>
A reconciliation of the U.S. statutory tax rate to the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1996 1997
<S> <C> <C>
Income tax expense at the statutory rate.................... $408,939 $ 1,027,677
State income taxes, net of federal income tax benefit....... 32,513 157,239
Nondeductible expenses...................................... 12,143 116
Change in sales tax rate.................................... -- 72,662
Effect of S Corporation election............................ -- (1,066,273)
-------- -----------
$453,595 $ 191,421
======== ===========
</TABLE>
8. 401(K) PLAN:
Effective June 1, 1993, the Company established a 401(k) plan which covers
all employees who choose to contribute a portion of their salary to the plan.
All contributions from Company funds are discretionary. Company discretionary
contributions totaled $28,359 and $35,003 for the plan years ended December 31,
1996 and 1997, respectively.
F-41
<PAGE> 108
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
W-H ENERGY SERVICES, INC.
11,666,667 SHARES OF COMMON STOCK
-------------------
PROSPECTUS
-------------------
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
UBS WARBURG LLC
SIMMONS & COMPANY INTERNATIONAL
DLJDIRECT INC.
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF W-H ENERGY
SERVICES, INC. HAVE NOT CHANGED SINCE THE DATE HEREOF.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS" OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale of common stock
being registered. All amounts are estimates except the SEC registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $56,673
NASD filing fee............................................. 21,967
NASDAQ National Market initial listing fee.................. 95,000
Legal fees and expenses of the Company...................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing and engraving expenses............................. *
Transfer agent fees......................................... *
Miscellaneous expenses...................................... *
-------
TOTAL............................................. $ *
=======
</TABLE>
- ------------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company provide that the Company shall indemnify to the
fullest extent permitted by the Texas Business Corporation Act (i) its
directors, (ii) its directors or officers serving at its request as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise
and (iii) its officers, against judgments, penalties (including excise and
similar taxes and punitive damages), fines, settlements and reasonable expenses
incurred by them in connection with the defense of any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding, where the person who was, is, or is threatened to be made
defendant or respondent in a proceeding was named because the person is or was a
director or an officer of the Company. The foregoing indemnification is
conditioned upon a determination (i) by a majority vote of a quorum consisting
of directors who at the time of the vote are not named defendants or respondents
in the proceeding, (ii) if such a quorum cannot by obtained, by a majority vote
of a committee of the Board of Directors, designated to act in the matter by a
majority vote of all directors who at the time of the vote are not named
defendants or respondents in the proceeding, (iii) by special legal counsel
selected by the Board of Directors or a committee of the Board by vote as set
forth in subsection (i) or (ii), or, if such a quorum cannot be obtained and
such a committee cannot be established, by a majority vote of all directors, or
(iv) by the stockholders in a vote that excludes the shares held by directors
who are named defendants or respondents in the proceeding, that such person (1)
conducted himself in good faith, (2) reasonably believed, in the case of conduct
in his official capacity as a director or officer of the Company, that his
conduct was in the Company's best interest, and in all other cases, that his
conduct was at least not opposed to the Company's best interest, and (3) in the
case of any criminal proceeding, had no reasonable cause to believe his conduct
was unlawful. Notwithstanding the foregoing, the Company shall indemnify each
director and officer against reasonable expenses incurred by him in connection
with a proceeding in which he is a party because he is a director or officer if
he has been wholly successful, on the merits or otherwise, in the defense of the
proceeding. A director or officer, found liable on the basis that personal
benefit was improperly received by him, or found liable to the Company, may be
indemnified but the indemnification is limited to reasonable expenses actually
incurred by the person in connection with the proceeding and shall not be made
in
II-1
<PAGE> 110
respect of any proceeding in which the person shall have been found liable for
willful or intentional misconduct in the performance of his duty to the Company.
The Company's Bylaws also provide that reasonable expenses incurred by a
director or officer who was, is or is threatened to be named a defendant or
respondent in a proceeding may be paid or reimbursed by the Company in advance
of the final disposition of the proceeding after (i) the Company receives a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification under the
Company's Bylaws and 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 has not met that standard or if it is ultimately determined that
indemnification of the director against expenses incurred by him in connection
with that proceeding is prohibited by law and (ii) a determination is made that
the facts then known to those making the determination would not preclude
indemnification under the Company's Bylaws. The Bylaws of the Company also
provide that the Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company or
who is or was serving at the Company's request as a director, officer, partner,
venturer, proprietor, trustee, employee or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, in accordance
with Article 2.02-1 of the Texas Business Corporation Act.
In addition, the Company's restated articles of incorporation provide that
a director of the Company will not be liable to the Company or its stockholders
for monetary damages for an act or omission in the director's capacity as a
director, except in the case of (i) a breach of the director's duty of loyalty
to the Company or its stockholders, (ii) an act or omission not in good faith
that constitutes a breach of duty of the director to the Company or an act or
omission that involves intentional misconduct or a knowing violation of the law,
(iii) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office, or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute. The restated articles
of incorporation also excuse a director from liability to the fullest extent
permitted by any provisions of the statutes of Texas enacted in the future that
further limit the liability of a director.
The Company has agreements with each of its directors to indemnify them for
costs and expenses resulting from their service as directors of the Company to
the fullest extent permitted by law.
The Company has director and officer insurance in the amount of $2 million
per occurrence and $2 million in the aggregate.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The securities of the registrant which were sold by the registrant since
January 1997 and not registered under the Securities Act are as follows:
(i) On August 11, 1997, the registrant sold 7,260,000 shares of common
stock for $12,045,000 and warrants to purchase 1,247,813 shares of Common
Stock to W-H Investment, L.P., a Delaware limited partnership, and issued
$24 million of 12 1/2% senior subordinated notes due September 15, 2006 and
September 15, 2007 to an affiliate of JZ Equity Partners PLC. Each of the
foregoing sales of Common Stock, warrants and 12 1/2% senior subordinated
notes was issued pursuant to the exemption from the registration
requirements of Section 5 of the Securities Act offered by Section 4(2) of
the Securities Act.
(ii) In September 1997, the registrant issued warrants to purchase
411,444 shares of common stock and $1,200,000 of subordinated notes to
William Max Duncan, Burt Bull and Billy Saul as partial consideration for
the acquisition of all of the outstanding stock of Integrity Industries,
Inc., a Texas corporation, pursuant to the exemption from the registration
requirements of Section 5 of the Securities Act offered by Section 4(2) of
the Securities Act.
(iii) On April 24, 1998, the registrant issued warrants to purchase
198,000 shares of its common stock and $800,000 of subordinated notes to
Ronald A. Rose, Ron Chastain and James Witliff as
II-2
<PAGE> 111
partial consideration for the acquisition of all of the outstanding stock
of Grinding and Sizing Company, Inc. pursuant to the exemption from the
registration requirements of Section 5 of the Securities Act offered by
Section 4(2) of the Securities Act.
(iv) On July 27, 1998, the registrant issued warrants to purchase
247,500 shares of its common stock to Stephen T. Goree, Travis Goree and E.
Ashford Brock as partial consideration for the acquisition of all of the
outstanding stock of Agri-Empresa Inc. pursuant to the exemption from the
registration requirements of Section 5 of the Securities Act offered by
Section 4(2) of the Securities Act.
(v) On March 26, 1999, the registrant issued warrants to purchase
6,115,263 shares of common stock and sold $40.0 million of its 13% senior
subordinated notes to DLJ Merchant Banking Partners II, L.P. and its
affiliated investment funds, pursuant to the exemption from registration
requirements of Section 5 of the Securities Act offered by Section 4(2) of
the Securities Act.
(vi) On February 1, 2000, the registrant issued 9,900 shares of its
common stock to Tom Stroud as partial consideration for the termination of
Mr. Stroud's employment agreement pursuant to the exemption from the
registration requirements of Section 5 of the Securities Act offered by
Section 4(2) of the Securities Act.
(vii) In March 2000, we issued to JZ Equity Partners PLC $1.5 million
principal amount of 14 1/2% payment-in-kind notes which mature September
15, 2007 in lieu of making the interest payment due on March 15, 2000 on
our 12 1/2% senior subordinated notes pursuant to the exemption from the
registration requirements of Section 5 of the Securities Act offered by
Section 4(2) of the Securities Act.
(viii) In March 2000, we issued to DLJ Merchant Banking Partners II,
L.P. and its affiliated investment funds $2.275 million principal amount of
14% payment-in-kind notes which mature April 1, 2006 in lieu of making the
interest payment due on April 1, 2000 on our 13% senior subordinated notes
pursuant to the exemption from the registration requirements of Section 5
of the Securities Act offered by Section 4(2) of the Securities Act.
(ix) Since August 11, 1997, the Registrant has issued options to
purchase an aggregate of 2,326,500 shares of common stock at a weighted
average exercise price of $3.97 per share under its 1997 Stock Option Plan
and under its Non-Statutory Stock Option Plan. These issuances were exempt
from registration pursuant to Rule 701 under the Securities Act.
(x) Since August 11, 1997, the Registrant has issued warrants to
purchase an aggregate of 3,125,694 shares of common stock at a weighted
average exercise price of $2.44 per share, excluding the warrants described
in paragraph (v) above. These issuances were exempt from registration
pursuant to Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Restated Articles of Incorporation of the Company*
3.2 -- Bylaws of the Company*
4.1 -- Specimen Common Stock certificate*
5.1 -- Opinion of Vinson & Elkins L.L.P.*
9.1 -- Amended and Restated Stockholders Agreement, dated March
26, 1999
10.1 -- Amended and Restated Employment Agreement of Kenneth T.
White, Jr., dated March 27, 1999
</TABLE>
II-3
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.2 -- Employment Agreement of Jeffery L. Tepera, dated March
26, 1999, 2000, as amended
10.3 -- Employment Agreement of William J. Thomas III, dated May
1, 2000
10.4 -- W-H Energy Services, Inc. 1997 Stock Option Plan
10.5 -- Non-Statutory Stock Option Agreement, dated March 29,
1999
10.6 -- Form of Warrant Agreement for Kenneth T. White, Jr.*
10.7 -- Form of Warrant Agreement for William J. Thomas III*
10.8 -- Form of Officer and Director Indemnification Agreement*
10.9 -- Agreement and Plan of Recapitalization among W-H
Investment, L.P. and W-H Holdings, Inc. and the
stockholders identified therein, dated August 11, 1997
10.10 -- Fourth Amended and Restated Credit Agreement, dated March
24, 2000, as amended
10.11 -- Amended and Restated TJC Transaction Advisory Agreement
with TJC Management Corp., dated March 26, 1999
10.12 -- Purchase and Sale Agreement by and between W-H Energy
Services, Inc. and Halliburton Energy Services, Inc. and
Halliburton Company, dated January 22, 1999, as amended
10.13 -- Agri-Empresa Stock Purchase Agreement, dated July 27,
1998
11.1 -- Computation of Per Share Earnings*
11.2 -- Computation of Ratio of Earnings per Share*
21.1 -- List of Subsidiaries of the Company
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)*
24.1 -- Power of Attorney (included on the signature page to this
Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Consolidated Financial Statement Schedules, Years ended December 31,
1998 and 1999 and the three months ended March 31, 2000.
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 113
(b) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
(c) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 114
The Registrant and each person whose original signature appears below
hereby authorizes each of Kenneth T. White, Jr. and Jeffrey L. Tepera (the
"Agents") to file one or more amendments (including post effective amendments)
to the Registration Statement which amendments may make such changes in the
Registration Statement as such Agent deems appropriate and the Registrant and
each such person hereby appoints each such Agent as attorney-in-fact to execute
in the name and on behalf of the Registrant and each such person, individually
and in each capacity stated below, such amendments to the Registration
Statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 11th day of May, 2000.
W-H ENERGY SERVICES, INC.
By: /s/ KENNETH T. WHITE, JR.
----------------------------------
Kenneth T. White, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KENNETH T. WHITE, JR. Chairman of the Board, President May 11, 2000
- ----------------------------------------------------- and Chief Executive Officer
Kenneth T. White, Jr.
/s/ JEFFREY L. TEPERA Vice President, Secretary and May 11, 2000
- ----------------------------------------------------- Chief Financial Officer
Jeffrey L. Tepera (Principal Financial and
Accounting Officer )
/s/ WILLIAM J. THOMAS III Vice President May 11, 2000
- -----------------------------------------------------
William J. Thomas III
/s/ JONATHAN F. BOUCHER Director May 11, 2000
- -----------------------------------------------------
Jonathan F. Boucher
/s/ JOHN W. JORDAN II Director May 11, 2000
- -----------------------------------------------------
John W. Jordan II
/s/ DAVID W. ZALAZNICK Director May 11, 2000
- -----------------------------------------------------
David W. Zalaznick
/s/ J. JACK WATSON Director May 11, 2000
- -----------------------------------------------------
J. Jack Watson
</TABLE>
II-6
<PAGE> 115
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHRISTOPHER MILLS Director May 11, 2000
- -----------------------------------------------------
Christopher Mills
/s/ ROBERT H. WHILDEN, JR. Director May 11, 2000
- -----------------------------------------------------
Robert H. Whilden, Jr.
</TABLE>
II-7
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Restated Articles of Incorporation of the Company*
3.2 -- Bylaws of the Company*
4.1 -- Specimen Common Stock certificate*
5.1 -- Opinion of Vinson & Elkins L.L.P.*
9.1 -- Amended and Restated Stockholders Agreement, dated March
26, 1999
10.1 -- Amended and Restated Employment Agreement of Kenneth T.
White, Jr., dated March 27, 1999
10.2 -- Employment Agreement of Jeffery L. Tepera, dated March
26, 1999, as amended
10.3 -- Employment Agreement of William J. Thomas III, dated May
1, 2000
10.4 -- W-H Energy Services, Inc. 1997 Stock Option Plan
10.5 -- Non-Statutory Stock Option Agreement, dated March 29,
1999
10.6 -- Form of Warrant Agreement for Kenneth T. White*
10.7 -- Form of Warrant Agreement for William J. Thomas III*
10.8 -- Form of Officer and Director Indemnification Agreement*
10.9 -- Agreement and Plan of Recapitalization among W-H
Investment, L.P. and W-H Holdings, Inc. and the
stockholders identified therein, dated August 11, 1997
10.10 -- Fourth Amended and Restated Credit Agreement, dated March
24, 2000, as amended
10.11 -- Amended and Restated TJC Transaction Advisory Agreement
with TJC Management Corp., dated March 26, 1999
10.12 -- Purchase and Sale Agreement by and between W-H Energy
Services, Inc. and Halliburton Energy Services, Inc. and
Halliburton Company, dated January 22, 1999, as amended
10.13 -- Agri-Empresa Stock Purchase Agreement, dated July 27,
1998
11.1 -- Computation of Per Share Earnings*
11.2 -- Computation of Ratio of Earnings per Share*
21.1 -- List of Subsidiaries of the Company
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)*
24.1 -- Power of Attorney (included on the signature page to this
Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 9.1
W-H ENERGY SERVICES, INC.
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
Dated as of March 26, 1999
<PAGE> 2
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01. Certain Definitions ................................................... 2
ARTICLE 2
MANAGEMENT
SECTION 2.01. Conduct of Business ................................................... 8
SECTION 2.02. Registration of Common Stock .......................................... 8
SECTION 2.03. No Conflict with Agreement ............................................ 8
ARTICLE 3
CORPORATE GOVERNANCE
SECTION 3.01. Board of Directors .................................................... 8
SECTION 3.02. Vacancies ............................................................. 9
SECTION 3.03. Covenant to Vote ...................................................... 10
SECTION 3.04. Significant Actions ................................................... 10
ARTICLE 4
TRANSFERS OF STOCK
SECTION 4.01. Restrictions on Transfer............................................... 10
SECTION 4.02. Exceptions to Restrictions ............................................ 11
SECTION 4.03. Endorsement of Certificates ........................................... 12
SECTION 4.04. Improper Transfer...................................................... 13
SECTION 4.05. Prohibition on Transfers to Competitors................................ 13
ARTICLE 5
RIGHTS OF FIRST OFFER; RIGHT TO JOIN IN SALE; TAKE ALONG
SECTION 5.01. Transfers by a Stockholder ............................................ 14
SECTION 5.02. Transfer of Offered Shares to Third Parties ........................... 16
SECTION 5.03. Purchase of Offered Shares............................................. 16
SECTION 5.04. Waiting Period with Respect to Subsequent Transfers ................... 17
SECTION 5.05. Legally Binding Obligation; Power of Attorney; Personal Rights ........ 17
SECTION 5.06. Right to Join in Sale.................................................. 17
SECTION 5.07. Take along............................................................. 18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 6
REGISTRATION RIGHTS
SECTION 6.01. Piggyback Registrations .......................................... 19
SECTION 6.02. Demand Registration............................................... 20
SECTION 6.03. Registration Procedures........................................... 23
SECTION 6.04. Indemnification................................................... 26
SECTION 6.05. Contribution...................................................... 29
SECTION 6.06. Rule 144.......................................................... 30
SECTION 6.07. Other Provisions Regarding Registration Rights.................... 30
ARTICLE 7
TERMINATION
SECTION 7.01. Certain Terminations ............................................. 31
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Successors and Assigns............................................ 31
SECTION 8.02. Amendment and Modification; Waiver of Compliance; Conflicts....... 31
SECTION 8.03. Notices .......................................................... 32
SECTION 8.04. Entire Agreement ................................................. 33
SECTION 8.05. Injunctive Relief................................................. 33
SECTION 8.06. Inspection........................................................ 33
SECTION 8.07. Headings.......................................................... 33
SECTION 8.08. Recapitalizations, Exchanges, Etc., Affecting the
Common Stock; New Issuances ...................................... 34
SECTION 8.09. Right to Negotiate................................................ 34
SECTION 8.10. CHOICE OF LAW..................................................... 34
SECTION 8.11. ARBITRATION....................................................... 34
SECTION 8.12. No Strict Construction............................................ 35
SECTION 8.13. Counterparts...................................................... 35
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of March 26,
1999, among (i) W-H Energy Services, Inc., a Texas corporation (the "COMPANY"),
(ii) W-H Investment, L.P. and W-H Investment II, L.P., each a Delaware limited
partnership (collectively, "JORDAN"), (iii) the other existing stockholders of
the Company that are signatories hereto (the "EXISTING STOCKHOLDERS") and (iv)
DLJ Merchant Banking Partners II, L.P., a Delaware limited partnership ("DLJMB")
and the other DLJ Entities (as defined below).
W I T N E S S E T H:
WHEREAS, the Company, the Existing Stockholders and Jordan are parties
to a Stockholders Agreement dated as of August 11, 1997 (the "1997 STOCKHOLDERS
AGREEMENT");
WHEREAS, the DLJ Entities are on the date hereof making an investment
in the Company and its wholly owned subsidiary, Perf-O-Log, Inc., pursuant to a
Subscription Agreement dated as of the date hereof among the Company, such
subsidiary and the DLJ Entities (the "DLJ SUBSCRIPTION AGREEMENT");
WHEREAS, as of the date hereof and after giving effect to the
transactions contemplated by the DLJ Subscription Agreement, each party hereto
acknowledges that it owns the Stock (as defined below) that is set forth
opposite such party's name on Schedule A attached hereto;
WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to provide consistent and uniform management for
the Company and desire to enter into this Agreement, which shall amend and
restate the 1997 Stockholders Agreement, in order to effectuate that purpose and
to set forth their respective rights and obligations in connection with
their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of capital
stock of the Company, including issued and outstanding shares of Common Stock
that may be issued hereafter, and to provide for certain rights and obligations
with respect thereto as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
<PAGE> 5
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"AFFILIATE" shall mean with respect to any Person, (a) any Person which
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person, or (b) any Person
who is a director or executive officer (i) of such Person, (ii) of any
Subsidiary of such Person, or (iii) of any Person described in clause (a) above,
or with respect to any Stockholder, the Company; provided, that any Affiliate of
a corporation shall be deemed an Affiliate of such corporation's stockholders.
For purposes of this definition, "control" of a Person shall mean the power,
direct or indirect, (i) to vote or direct the voting of more than 5% of the
outstanding shares of Voting Stock of such Person, or (ii) to direct or cause
the direction of the management and policies of such Person, whether by contract
or otherwise.
"AGREEMENT" shall mean this Agreement as in effect on the date hereof
and as hereafter from time to time amended, modified or supplemented in
accordance with the terms hereof.
"ARTICLES OF INCORPORATION" shall mean the Articles of Incorporation of
the Company as in effect on the date hereof, and as hereafter from time to time
amended, restated, modified or supplemented in accordance with the terms hereof
and pursuant to applicable law.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as duty constituted in accordance with this Agreement, or any committee thereof
duly constituted in accordance with this Agreement, the By-laws and applicable
law and duly authorized to make the relevant determination or take the relevant
action. To the extent that the Board of Directors is required under this
Agreement to authorize or approve, or make a determination in respect of a
transaction between the Company, on the one hand, and a Stockholder, and/or a
Stockholder's Affiliates, on the other hand, the Board of Directors shall be
deemed to exclude such Stockholder, any of its Affiliates, and any of the
directors, officers, employees, agents or representatives of such Stockholder
and/or its Affiliates, who are members of the Board of Directors.
"BY-LAWS" shall mean the By-Laws of the Company as amended and in
effect on the date hereof, and as hereafter further amended or restated in
accordance with the terms hereof and pursuant to applicable law.
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"CLASS A COMMON STOCK" shall mean the Class A Common Stock, par value
$0.01 per share, of the Company.
"CLASS B COMMON STOCK" shall mean the Class B Common Stock, par value
$0.01 per share, of the Company.
"COMMISSION" shall mean the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"COMMON STOCK" shall mean the Class A Common Stock and the Class B
Common Stock.
"COMPANY" shall have the meaning specified in the preamble hereto.
"DEMAND REGISTRATION" shall have the meaning specified in Section
6.02(a).
"DLJ ENTITY" means each of DLJMB, DLJ Merchant Banking Partners II-A,
L.P., a Delaware limited partnership, DLJ Offshore Partners II, C.V., a
Netherlands Antilles limited partnership, DLJ Diversified Partners, L.P., a
Delaware limited partnership, DLJ Diversified Partners-A, L.P., a Delaware
limited partnership, DLJMB Funding II, Inc., a Delaware corporation, DLJ
Millennium Partners, L.P., a Delaware limited partnership, DLJ Millennium
Partners-A, L.P., a Delaware limited partnership, DLJ EAB Partners, L.P., a
Delaware limited partnership, UK Investment Plan 1997 Partners, a Delaware
general partnership, DLJ ESC II L.P., a Delaware limited partnership, and DLJ
First ESC L.P., a Delaware limited partnership.
"DLJ INVESTORS" shall mean the DLJ Entities and any Permitted
Transferee of any DLJ Entity who becomes a Stockholder in accordance with the
terms hereof.
"DLJMB" shall have the meaning specified in the preamble hereto.
"DLJ SUBSCRIPTION AGREEMENT" shall have the meaning specified in the
recitals hereto.
"DLJ WARRANTS" means warrants to purchase up to 185,311 shares of Class
A Common Stock issued to the DLJ Entities pursuant to the DLJ Subscription
Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute then in effect, and a reference to a
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particular section thereof shall include a reference to the comparable section,
if any, of such similar Federal statute.
"EXISTING STOCKHOLDERS" shall have the meaning specified in the
preamble hereto.
"FIRST OFFER PRICE" shall have the meaning specified in Section 5.01
(a).
"INSTITUTIONAL INVESTORS" shall mean the DLJ Investors and the Jordan
Investors.
"JORDAN" shall have the meaning specified in the preamble hereto.
"JORDAN INVESTORS" shall mean Jordan and any Permitted Transferee of
Jordan who becomes a Stockholder in accordance with the terms hereof.
"JORDAN WARRANTS" shall mean the warrants exercisable for 37,812.5
shares of Common Stock issued to Jordan.
"MANAGEMENT AGREEMENTS" shall mean the TJC Management Consulting
Agreement and the TJC Transaction Advisory Agreement, each between TJC
Management Corporation and the Company, as each such agreement is in effect in
the date hereof.
"MAXIMUM OFFERING SIZE" shall have the meaning specified in Section
6.02(e).
"MCIT" shall mean MCIT PLC.
"1997 STOCKHOLDERS AGREEMENT" shall have the meaning specified in the
recitals hereto.
"NOTES" shall mean the Senior Subordinated Notes due 2006 of
Perf-o-Long, Inc. issued to DLJ Entities pursuant to the DLJ Subscription
Agreement.
"NOTICE OF EXERCISE" shall have the meaning specified in Section 5.01
(b).
"NOTICE OF INTENTION" shall have the meaning specified in Section 5.01
(a).
"OFFERED SHARES" shall have the meaning specified in Section 5.01.
"PERCENTAGE OWNERSHIP" means, with respect to any Stockholder at any
time, (i) the number of shares of Common Stock that such Stockholder
beneficially owns (and (without duplication) has the right to acquire pursuant
to
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any securities convertible into or exchangeable for Common Stock, stock
appreciation rights or options, warrants and other irrevocable rights to
purchase or subscribe for Common Stock or securities convertible into or
exchangeable for Common Stock) at such time, divided by (ii) the total number of
shares of Common Stock outstanding at such time and all shares described in the
parenthetical in clause (i) of this definition.
"PERMITTED TRANSFEREE" shall mean any Person to whom a Transfer of
Stock is permitted to be made pursuant to clauses (a), (b) or (c) of Section
4.02 or Section 5.01.
"PERSON" shall mean an individual or a corporation, association,
partnership, joint venture, organization, business, trust, or any other entity
or organization, including a government or any subdivision or agency thereof
"PROPOSED PURCHASER" shall have the meaning specified in Section
5.06(b).
"PUBLIC DISTRIBUTION" shall mean a Public Offering of Common Stock, at
the conclusion of which the aggregate number of shares of Common Stock that have
been sold to the public pursuant to one or more effective registration
statements under the Securities Act equals at least 20% of the shares of Common
Stock then outstanding (on a fully diluted basis) after giving effect to such
sale and results in the Company receiving at least $20 million in gross proceeds
from such sale.
"PUBLIC OFFERING" shall mean a public offering and sale of equity
securities of the Company pursuant to an effective registration statement under
the Securities Act.
"PURCHASE OFFER" shall have the meaning specified in Section 5.06(b).
"REGISTRABLE SECURITIES" shall mean the following:
(a) all shares of Class A Common Stock outstanding on the date hereof
and now or hereafter owned of record by any of the Institutional Investors; and
(b) all shares of Class A Common Stock outstanding on the date hereof
and now or hereafter owned of record by the Existing Stockholders; and
(c) any shares of capital stock issued or issuable by the Company in
respect of any shares of Common Stock referred to in the foregoing clauses (a)
or (b) by way of a stock dividend or stock split or in connection with a
combination
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or subdivision of shares, reclassification, recapitalization, merger,
consolidation or other reorganization of the Company.
As to any particular Registrable Securities that have been issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of under such registration statement, (ii) they shall have been sold in
compliance with Rule 144 of the Commission, (iii) they shall have been otherwise
transferred or disposed of, and new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company, and
subsequent transfer or disposition of them shall not generally require their
registration or qualification under the Securities Act or any similar state law
then in force, or (iv) they shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with Article 6 hereof,
including, without limitation, all Commission, stock exchange or National
Association of Securities Dealers, Inc. ("NASD") registration and filing fees,
all fees and expenses of complying with securities and blue sky laws (including
the reasonable fees and disbursements of underwriters' counsel in connection
with blue sky qualifications and NASD filings), all fees and expenses of the
transfer agent and registrar for the Registrable Securities, all printing
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, and one firm of counsel (other than house counsel) retained by the
Existing Stockholders if holding Registrable Securities being registered, one
firm of counsel (other than in-house counsel) retained by the Jordan Investors
holding Registrable Securities being registered and one firm of counsel (other
than in-house counsel) retained by the DLJ Investors holding Registrable
Securities being registered, but excluding underwriting discounts and
commissions and applicable transfer and documentary stamp taxes, if any, which
shall be borne by the seller of the securities in all cases.
"SALE PROPOSAL" shall have the meaning specified in Section 5.01(a).
"SECURITIES ACT" shall mean, as of any date, the Securities Act of
1933, as amended, or any similar federal statute then in effect, and in
reference to a particular section thereof shall include a reference to the
comparable section, if any, of any such similar federal statute and the rules
and regulations thereunder.
"SELLING DLJ STOCKHOLDERS" shall have the meaning specified in Section
6.02(a).
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"SELLING HOLDERS" shall have the meaning specified in Section 6.02(a).
"SELLING INVESTORS" shall have the meaning specified in Section 5.07.
"SELLING STOCKHOLDER" shall have the meaning specified in Section
5.01(a).
"STOCK" shall mean the Common Stock, the Jordan Warrants, the DLJ
Warrants and any options or warrants issued to employees or directors of the
Company or any of its Subsidiaries.
"STOCKHOLDER" shall mean any of Jordan, the DLJ Entities, the Existing
Stockholders, and any Permitted Transferee of any such Person who becomes a
party to or bound by the provisions of this Agreement in accordance with the
terms hereof.
"SUBSIDIARY" shall mean as to any Person a corporation of which
outstanding shares of stock having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency) to elect a
majority of the Board of Directors of such corporation are at the time owned,
directly or indirectly through one or more intermediaries, or both, by such
Person.
"UNDERWRITTEN OFFERING" shall mean an underwritten Public Offering.
"VOTING STOCK" shall mean capital stock of the Company of any class or
classes, the holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of corporate directors (or Persons performing
similar functions), which as of the date hereof comprises only the Class A
Common Stock.
"VOTING STOCKHOLDER" shall mean a Stockholder who holds Voting Stock or
retains, by proxy or otherwise, the power to vote Voting Stock.
ARTICLE 2
MANAGEMENT
SECTION 2.01. Conduct of Business. The parties hereto confirm that it
is their intention that the business and affairs of the Company shall be managed
by its Board of Directors in the best interests of the Company and its
Subsidiaries taken as a whole.
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SECTION 2.02. Registration of Common Stock. In the event of a Public
Offering of the Company's Common Stock, each Voting Stockholder shall, at a
meeting convened for the purpose of amending the Articles of Incorporation, vote
to increase the number of authorized shares of Class A Common Stock and, if
necessary, increase the number of issued and outstanding shares of Class A
Common Stock, whether by stock split, stock dividend or otherwise, or change in
its par value, as recommended by a majority of the members of the Board of
Directors in order to facilitate such Public Offering.
SECTION 2.03. No Conflict with Agreement. Each Voting Stockholder shall
vote his shares of Voting Stock, and shall take all actions necessary, to ensure
that the Articles of Incorporation and By-Laws do not, at any time, conflict
with the provisions of this Agreement.
ARTICLE 3
CORPORATE GOVERNANCE
SECTION 3.0 1. Board of Directors. (a) The Stockholders hereby agree
that at all times after the date hereof, the Board of Directors of the Company
shall consist of not less than seven members, including the individuals
described in this Section 3.01(a). Promptly after the date hereof, the Voting
Stockholders shall take all actions necessary to elect, or to cause the Board of
Directors to approve and appoint, the designees described below to be members of
the Board of Directors, and such other members as may, consistent with this
Agreement, be selected by the holders of Voting Stock from time to time
outstanding:
(i) Four individuals designated by the beneficial owners of
the majority of the shares of Class A Common Stock beneficially owned
by the Jordan investors ("JORDAN DIRECTORS"), which Jordan Directors
initially shall be John W. Jordan, II, David W. Zalaznick, Jonathan F.
Boucher and J. Jack Watson;
(ii) Three individuals designated by the holders of a majority
of the shares of Class A Common Stock held by the Existing Stockholders
("MANAGEMENT DIRECTORS"), which Management Directors initially shall be
Kenneth T. White, Jr., Christopher Mills and Robert H. Whilden, Jr.;
and
(iii) A number of individuals designated by DLJMB ("DLJ
DIRECTORS"), which number shall be determined from time to time by
DLJMB and shall not exceed the lowest number (rounded up to the nearest
whole number) that would result in DLJ Directors representing, as a
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percentage of the total Board of Directors, at least the Percentage
Ownership of the DLJ Investors; provided that so long as the DLJ
Investors' Percentage Ownership is at least 10% or the DLJ Investors
own at least $10 million in aggregate principal amount of Notes, DLJMB
will be entitled to designate at least one director. Initially, DLJMB
has determined to designate one director.
(b) Each Voting Stockholder hereby agrees to vote all shares of Voting
Stock owned or held of record by such Stockholder at each annual or special
meeting of stockholders of the Company at which directors of the Company are to
be elected, in favor of, or to take all actions by written consent in lieu of
any such meeting as are necessary to cause, the election as members of the Board
of Directors of those individuals described in Section 3.01 (a) in accordance
with, and to otherwise effect the intent of, the provisions of Section 3.01(a).
(c) The Company and each member of the Board of Directors shall execute
a Directors Indemnification Agreement.
(d) As long as there is only one DLJ Director and the DLJ Investors'
Percentage Ownership is at least 10% or the DLJ Investors own at least $10
million in aggregate principal amount of Notes, DLJMB shall be entitled to
designate one non-voting observer to attend meetings of the Board of Directors.
The right of DLJMB to nominate DLJ Directors pursuant to Section 3.01 is not
assignable.
SECTION 3.02. Vacancies. In the event that a vacancy is created on the
Board of Directors at any time by the death, disability, retirement, resignation
or removal of any member of the Board of Directors, or for any other reason
there shall exist or occur any vacancy on the Board of Directors, each Voting
Stockholder hereby agrees to take such actions as will result in the election or
appointment as a director of an individual designated or elected to fill such
vacancy and serve as a director by the Stockholders that had designated or
elected (pursuant to Section 3.01) the director whose death, disability,
retirement, resignation or removal resulted in such vacancy on the Board of
Directors (in the manner set forth in Section 3.01). In the interim from the
time the vacancy is created until a new director is elected, (i) if the vacancy
is for a Jordan Director, the remaining Jordan Directors may appoint a
replacement to act as a director until a new director is duly elected, (ii) if
the vacancy is for a DLJ Director, the remaining (or if none are remaining, the
departing) DLJ Director(s) may appoint a replacement to act as a director until
a new director is duly elected and (iii) if the vacancy is for a Management
Director, the remaining Management Directors may appoint a replacement to act as
a director until a new director is duly elected.
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SECTION 3.03. Covenant to Vote. Each Voting Stockholder hereby agrees
to take all actions necessary to call, or cause the Company and the appropriate
officers and directors of the Company to call, an annual meeting (and when
circumstances so require, a special meeting) of stockholders of the Company and
to vote all shares of Voting Stock owned or held of record by such Voting
Stockholder at any such meeting and at any other annual or special meeting of
stockholders in favor of, or take all actions by written consent in lieu of any
such meeting as may be necessary to cause, the election as members of the Board
of Directors of those individuals so designated in accordance with, and to
otherwise effect the intent of, this Article 3. In addition, each Voting
Stockholder agrees to vote the shares of Voting Stock owned by such Stockholder
upon any other matter arising under this Agreement submitted to a vote of the
stockholders in such a manner as to implement the terms of this Agreement.
SECTION 3.04. Significant Actions. As long as the DLJ Investors'
Percentage Ownership is at least 10% or the DLJ Investors own at least $10
million in aggregate principal amount of Notes, the following actions shall
require the approval of a majority of the disinterested directors then in
office, including the approval of all DLJ Directors then in office:
(a) the election, appointment or removal of the Chief Executive Officer
of the Company; and
(b) transactions or agreements (or the amendment or waiver of any terms
thereof) between the Company or any of its Subsidiaries, on the one hand, and
any director, officer or Affiliate of the Company, on the other hand; provided
that the foregoing will not apply to transactions that are expressly
contemplated by the terms of any agreement with Jordan or its Affiliates
(including the Management Agreements) or with Kenneth White as in effect on the
date hereof, a copy of which has been furnished to the DLJ Entities.
ARTICLE 4
TRANSFERS OF STOCK
SECTION 4.01. Restrictions on Transfer. Each Stockholder agrees that
such Stockholder will not, directly or indirectly, offer, sell, transfer,
assign or otherwise dispose of (or make any exchange, gift, assignment or pledge
of) (collectively, for purposes of Articles 4 and 5 hereof only, a "TRANSFER")
any Stock except (a) as provided in Section 4.02; (b) in accordance with Article
5; and (c) in an exchange of Common Stock of one class for Common Stock of
another class in accordance with the Articles of Incorporation. In addition to
the other restrictions noted in this Article 4, each Stockholder agrees that it
will not, directly or
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indirectly, transfer any of its Stock except as permitted under the Securities
Act and other applicable securities laws.
SECTION 4.02. Exceptions to Restrictions. The provisions of Section
4.01 and Article 5 (other than Section 5.07) shall not apply to any of the
following transfers:
(a) In the case of Jordan, (i) from a Jordan partnership to any of its
partners, (ii) from any Jordan Investor to the other Jordan Investors, and (iii)
from any Jordan Investor to any trust solely for such Jordan Investor's benefit
or the benefit of such Jordan Investor's spouse or children (as the case may
be); provided, that such Jordan Investor acts as trustee and retains the sole
power to direct the voting and disposition of such Stock; and provided, further,
that each such Person including any such trust shall execute a counterpart of
and become a party to this Agreement and shall agree in writing in form and
substance satisfactory to the Company to be bound and becomes bound by the terms
of this Agreement.
(b) In the case of the Existing Investors, (i) among Existing
Stockholders or from any Existing Stockholder to such Existing Stockholder's
spouse or children or (ii) from any Existing Stockholder to any trust solely for
such Existing Stockholder's benefit or the benefit of such Existing
Stockholder's spouse or children; provided, that, in each case referred to
above, such Existing Stockholder acts as trustee and retains the sole power to
direct the voting and disposition of such Stock; and provided, further that each
such Person including any such trust shall execute a counterpart of and become a
party to this Agreement and shall agree in writing in form and substance
satisfactory to the Company to be bound and becomes bound by the terms of this
Agreement as a Stockholder.
(c) In the case of any DLJ Investor, from any DLJ Investor to (i) any
other DLJ Entity, (ii) any general or limited partner of any DLJ Entity (a "DLJ
PARTNER"), and any corporation, partnership, Affiliated Employee Benefit Trust
or other entity that is an Affiliate of any DLJ Partner (collectively, the "DLJ
AFFILIATES"), (iii) any managing director, director, general partner, limited
partner, officer or employee of any DLJ Entity or of any DLJ Affiliate, or the
heirs, executors, administrators, testamentary trustees, legatees or
beneficiaries of any of the foregoing persons referred to in this clause (iii)
(collectively, the "DLJ ASSOCIATES"), (iv) a trust, the beneficiaries of which,
or a corporation, limited liability company or partnership, the stockholders,
members or general or limited partners of which, include only DLJ Entities, DLJ
Affiliates, DLJ Associates, their spouses or their lineal descendants or (v) a
voting trustee for one or more DLJ Entities, DLJ Affiliates or DLJ Associates
under the terms of a voting trust; provided, that each such Person including any
such trust shall execute a counterpart of and become a party to this Agreement
and shall agree in writing in
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form and substance satisfactory to the Company to be bound and becomes bound by
the terms of this Agreement as a Stockholder. "AFFILIATED EMPLOYEE BENEFIT
TRUST" means any trust that is a successor to the assets held by a trust
established under an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
promulgated thereunder, or any other trust established directly or indirectly
under such plan or any other such plan having the same sponsor.
(d) Pursuant to a merger or consolidation involving the Company or a
sale of all or substantially all of the outstanding shares of Common Stock.
(e) Pursuant to a Public Offering or an open market sale following a
Public Offering in accordance with Rule 144 of the Commission.
(f) Transfers by any Stockholders consisting of donations to charitable
organizations.
(g) Any pledge or hypothecation by any Stockholder, provided that the
pledgee acknowledges this Agreement and agrees to be bound by and subject to its
terms in the event of any Transfer of such pledged Stock resulting from such
pledge or any foreclosure thereunder.
(h) Any transfer of the DLJ Warrants to any transferee of the Notes.
SECTION 4.03. Endorsement of Certificates. (a) Upon the execution of
this Agreement, in addition to any other legend which the Company may deem
advisable under the Securities Act and certain state securities laws, all
certificates representing issued and outstanding Stock shall be endorsed at all
times prior to any Public Distribution as follows:
For Stock issued prior to the date hereof:
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE
ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF THE SUBSCRIPTION
AGREEMENT, DATED AUGUST 11, 1997, AMONG THE COMPANY AND
CERTAIN INVESTORS THEREIN. REFERENCE ALSO IS MADE TO THE
RESTRICTIVE PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BY-LAWS OF THE CORPORATION.
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For all Stock:
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE
ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF AN AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT DATED AS OF MARCH 26, 1999.
COPIES OF THE ABOVE REFERENCED AGREEMENT(S) ARE ON FILE AT THE
OFFICE OF THE COMPANY AT THE JORDAN COMPANY, 767 FIFTH AVENUE,
NEW YORK, NEW YORK 10153.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION,
UNDER SAID ACT.
(b) Except as otherwise expressly provided in this Agreement, all
certificates representing Stock hereafter issued to or acquired by any of the
Stockholders or their successors hereto shall bear the legends set forth above,
and the Stock represented by such certificates shall be subject to the
applicable provisions of this Agreement. The obligations of each party hereto
shall be binding upon each transferee to whom Stock is transferred by any party
hereto, whether or not such transfer is permitted under the terms of this
Agreement, except for transfers described in Section 4.02(e) or Section 4.02(h).
Prior to consummation of any transfer, except for transfers described in Section
4.02(e) or Section 4.02(h), such party shall cause the transferee to execute an
agreement in form and substance reasonably satisfactory to the other parties
hereto, providing that such transferee shall fully comply with the terms of this
Agreement. Prompt notice shall be given to the Company and each Stockholder by
the transferor of any transfer (whether or not to a Permitted Transferee) of any
Stock.
SECTION 4.04. Improper Transfer. Any attempt to transfer or encumber
any Stock not in accordance with this Agreement shall be null and void and
neither the Company nor any transfer agent of such securities shall give any
effect to such attempted transfer or encumbrance in its stock records.
SECTION 4.05. Prohibition on Transfers to Competitors. Notwithstanding
anything in this Agreement to the contrary, no DLJ Investor shall transfer in a
private transaction any Stock or Notes to a direct competitor of a material
portion of the Company's and its Subsidiaries' business, unless such transfer is
approved by the Board of Directors.
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ARTICLE 5
RIGHTS OF FIRST OFFER; RIGHT TO JOIN IN SALE; TAKE ALONG
SECTION 5.01. Transfers by a Stockholder. (a) Except for transfers
permitted by Sections 4.01 and 4.02, and transactions subject to Section 5.07,
if at any time any Stockholder shall desire to sell any Stock owned by him or it
(such Stockholder desiring to sell shares of such Stock being referred to herein
as a "SELLING STOCKHOLDER"), then such Selling Stockholder shall deliver written
notice of its desire to sell such Stock (a "NOTICE OF INTENTION"), accompanied
by a copy of a proposal relating to such sale (the "SALE PROPOSAL"), to each of
the other Stockholders and to the Company, setting forth such Selling
Stockholder's desire to make such sale (which shall be for cash only), the
number and class or type of Stock proposed to be transferred (the "OFFERED
SECURITIES") and the price at which such Selling Stockholder proposes to sell
the Offered Securities (the "FIRST OFFER PRICE") and other terms applicable
thereto.
(b) Upon receipt of the Notice of Intention, the Company and the other
Stockholders shall then have the right to purchase at the First Offer Price and
on the other terms specified in the Sale Proposal all or, subject to Section
5.01(d), any portion of the Offered Securities in the following order of
priority:
(i) if the Selling Stockholder is an Existing Stockholder, the
other Existing Stockholders shall have the first right to purchase the
Offered Securities pro rata among those Existing Stockholders so
electing on the basis of the respective number of shares of Common
Stock owned or held as trustee by such Existing Stockholders (or in
such other proportions as such Existing Stockholders may agree), then
the Company shall have the second right to purchase the Offered
Securities, then the Jordan Investors shall have the third right to
purchase the Offered Securities pro rata among those of the Jordan
Investors so electing on the basis of the respective numbers of shares
of Common Stock owned by such Jordan Investors (or in such other
proportion as such Jordan Investors may agree), and thereafter the DLJ
Investors shall have the right to purchase the Offered Securities on a
basis agreed to among those of the DLJ Investors so electing;
(ii) if the Selling Stockholder is a Jordan Investor, the
other Jordan Investors shall have the first right to purchase the
Offered Securities pro rata among those of the Jordan Investors so
electing on the basis of the respective numbers of shares of Common
Stock owned by such Jordan Investors (or in such other proportion as
such Jordan Investors may agree), then the Company shall have the
second right to purchase the Offered Securities, then the Existing
Stockholders shall have the third right to purchase the Offered
Securities pro rata among the Existing
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Stockholders so electing to purchase on the basis of the respective numbers of
shares of Common Stock owned by such Existing Stockholders (or in such other
proportion as such other Existing Stockholders may agree), and thereafter the
DLJ Investors shall have the right to purchase the Offered Securities on a basis
agreed to among those of the DLJ Investors so electing; and
(iii) if the Selling Stockholder is a DLJ Investor, the other DLJ
Investors shall have the first right to purchase the Offered Securities on a
basis agreed to among those of the DLJ Investors so electing, then the Company
shall have the second right to purchase the Offered Securities, then the Jordan
Investors shall have the third right to purchase the Offered Securities pro rata
among those of the Jordan Investors so electing on the basis of the respective
numbers of shares of Common Stock owned by such Jordan Investors (or in such
other proportion as such Jordan Investors may agree) and thereafter the Existing
Stockholders shall have the right to purchase the Offered Securities pro rata
among the Existing Stockholders so electing to purchase on the basis of the
respective numbers of shares of Common Stock owned by such Existing Stockholders
(or in such other proportion as such other Existing Stockholders may agree).
The rights of the Jordan Investors, the DLJ Investors, the Existing
Stockholders and the Company pursuant to this Section 5.01(b) shall be
exercisable by the delivery of notice to the Selling Stockholder (the "NOTICE OF
EXERCISE"), within 30 calendar days from the date of delivery of the Notice of
Intention. The Notice of Exercise shall state the total number of Offered
Securities such Person is willing to purchase without regard to whether or not
other Persons purchase any shares of the Offered Securities. A copy of such
Notice of Exercise shall also be delivered to each other Stockholder. The rights
of the Existing Stockholders, the DLJ Investors, the Jordan Investors and the
Company pursuant to this Section 5.01(b) shall terminate if unexercised 30
calendar days after the date of delivery of the Notice of Intention.
(c) In the event that any Person exercises its rights to purchase any
or all of the Offered Securities in accordance with Section 5.01 (b), then the
Selling Stockholder must sell the Offered Securities in accordance therewith
within 30 calendar days from the date of delivery of the Notice of Exercise
received by the Selling Stockholder.
(d) Notwithstanding the foregoing provisions of this Section 5.01,
unless the Selling Stockholder shall have consented to the purchase of less than
all of the Offered Securities, no Stockholder or Stockholders nor the Company
may purchase any Offered Securities hereunder unless all of the Offered
Securities are to be so purchased.
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(e) For purposes of this Article 5, any Person who has failed to give
notice of the election of an option hereunder within the specified time period
will be deemed to have waived its rights on the day after the last day of such
period.
(f) Each Stockholder, solely in its capacity as a stockholder of the
Company, agrees and acknowledges that the Company may purchase or acquire Common
Stock pursuant to Section 5.01(b) hereof, and approves such purchases and
acquisitions, and waives any objection or claim relating thereto, whether
against the Company, the Board of Directors or otherwise.
(g) Sections 5.01 through 5.05 shall terminate in all respects as to
the DLJ Investors on and after the third anniversary of the date hereof.
SECTION 5.02. Transfer of Offered Shares to Third Parties. If all
notices required to be given pursuant to Section 5.01 have been duly given and
the Stockholders and the Company do not exercise their respective options to
purchase all of the Offered Securities at the First Offer Price and the Selling
Stockholder does not desire to sell less than all the Offered Securities or if
with the consent of the Selling Stockholder, the other Stockholders and the
Company purchase less than all of the Offered Securities pursuant to the
provisions hereof, then in either such event the Selling Stockholder shall have
the right, subject to compliance by the Selling Stockholder with the provisions
of Section 4.03(b) hereof, for a period of 120 calendar days from the earlier of
(a) the expiration of the option period pursuant to Section 5.01 with respect to
such Sale Proposal or (ii) the date on which such Selling Stockholder receives
notice from the other Stockholders and the Company that they will not exercise
in whole or in part the options granted pursuant to Section 5.01, to sell to any
third party which is not an Affiliate of, or related by consanguinity or
marriage to, the Selling Stockholder the Offered Securities remaining unsold at
a price of not less than the First Offer Price, and on the other terms specified
in the Sale Proposal.
SECTION 5.03. Purchase of Offered Shares. The consummation of any
purchase and sale pursuant to Section 5.01 shall take place on such date, not
later than 30 calendar days after the expiration of the option period pursuant
to Section 5.01 with respect to such option, as the Selling Stockholder shall
select. Prior to the consummation of any sale pursuant to Section 5.01, the
Selling Stockholder shall comply with Section 4.03(b) hereof. Upon the
consummation of any such purchase and sale, the Selling Stockholder shall
deliver certificates evidencing the Offered Securities sold duly endorsed, or
accompanied by written instruments of transfer in form satisfactory to the
purchaser duly executed by the Selling Stockholder free and clear of any liens,
against delivery of the First Offer Price, payable in the manner specified in
Section 5.01 (a).
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SECTION 5.04. Waiting Period with Respect to Subsequent Transfers. In
the event that the Stockholders and the Company do not exercise their options to
purchase all of the Offered Securities, and the Selling Stockholder shall not
have sold the remaining Offered Securities to a third party for any reason
before the expiration, as applicable, of the 120-day period described in Section
5.02, then such Selling Stockholder shall not give another Notice of Intention
pursuant to Section 5.01 for a period of 90 calendar days after the last day of
such 120-day period.
SECTION 5.05. Legally Binding Obligation; Power of Attorney; Personal
Rights. (a) Subject to Section 5.01(a), making a written offer, giving or
failing to give written notice within the stated period, accepting an offer or
making a decision or election, in each case as provided in Section 5.01 or 5.02,
shall create a legally binding obligation to buy or sell, or an obligation not
to buy or sell, as the case may be, the subject Stock as provided in such
Section 5.01 or 5.02.
(b) Subject to Section 5.01(a), each holder of Stock hereby appoints
any executive officer of the Company as an attorney-in-fact for such holder with
the power to execute such documents and take such other actions to provide for
the transfer of Stock owned by such holder in accordance with this Article 5.
Such executive officer is hereby authorized (i) to transfer such Stock on the
books of the Company at the direction and without regard to the surrender of
certificates or instruments representing such Stock held by such holder, and
(ii) to place on all certificates or instruments representing Stock a legend
reflecting this authority to transfer such Stock.
SECTION 5.06. Right to Join in Sale. (a) Anything in this Agreement to
the contrary notwithstanding, if any Stockholder or group of Stockholders (other
than any DLJ Investor) proposes, in a single transaction or a series of
transactions during any six-month period (other than transfers to a Permitted
Transferee pursuant to Section 4.02 and transactions subject to Section 5.07) to
sell, dispose of or otherwise transfer 5% or more of the outstanding Common
Stock or, if less than such amount, in the case of any Stockholder which owns
Common Stock on the date hereof, 50% or more of its initial holdings of such
interests in Common Stock, as the case may be (each a "DISPOSING STOCKHOLDER"),
such person or group shall refrain from effecting such transaction unless, prior
to the consummation thereof, each other Stockholder (but, in the case of any DLJ
Investor, only if such Disposing Stockholder is a Jordan Investor or Kenneth
White) shall have been afforded the opportunity to join in such sale of Common
Stock on a pro rata basis, as hereinafter provided.
(b) Prior to consummation of any proposed sale, disposition or transfer
of shares of Common Stock described in Section 5.06(a), the Disposing
Stockholder shall cause the person or group that proposes to acquire such shares
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(the "PROPOSED PURCHASER") to offer (the "PURCHASE OFFER") in writing to each
other Stockholder (but, in the case of any DLJ Investor, only if such Disposing
Stockholder is a Jordan Investor or Kenneth White) to purchase shares of Common
Stock owned by such Stockholder (regardless of whether the shares of Common
Stock proposed to be sold by the Disposing Stockholders are the same class as
the shares of Common Stock owned by such Stockholders), such that the number of
shares of such Common Stock so offered to be purchased from such Stockholder
shall be equal to the product obtained by multiplying the total number of shares
of such Common Stock then owned by such Stockholder by a fraction, the numerator
of which is the aggregate number of shares of Common Stock proposed to be
purchased by the Proposed Purchaser from all Stockholders (including the
Disposing Stockholder or Stockholders) and the denominator of which is the
aggregate number of shares of Common Stock then outstanding. Such purchase shall
be made at the highest price per share and on such other terms and conditions as
the Proposed Purchaser has offered to purchase shares of Common Stock to be sold
by the Disposing Stockholder or Stockholders. Each such Stockholder shall have
20 calendar days from the date of receipt of the Purchase Offer in which to
accept such Purchase Offer, and the closing of such purchase shall occur within
30 calendar days after such acceptance or at such other time as such Stockholder
and the Proposed Purchaser may agree. The number of shares of Common Stock to be
sold to the Proposed Purchaser by the Disposing Stockholder or Stockholders
shall be reduced by the aggregate number of shares of Common Stock purchased by
the Proposed Purchaser from the other Stockholders pursuant to the acceptance by
them of Purchase Offers in accordance with the provisions of this Section
5.06(b). In the event that a sale or other transfer subject to this Section 5.06
is to be made to a Proposed Purchaser who is not a Stockholder, the Disposing
Stockholder shall notify the Proposed Purchaser that the sale or other transfer
is subject to this Section 5.06 and shall ensure that no sale or other transfer
is consummated without the Proposed Purchaser first complying with this Section
5.06. It shall be the responsibility of each Disposing Stockholder to determine
whether any transaction to which it is a party is subject to this Section 5.06.
SECTION 5.07. Take along. If at any time the Jordan Investors (such
Jordan Investors being referred to in this Section 5.07 as the "SELLING
INVESTORS") shall determine to sell or exchange (in a business combination or
otherwise) two-thirds or more of the fully diluted shares of Common Stock in a
bona fide arm's length transaction to an unaffiliated third party in which the
same price per share shall be payable in respect of all shares of any class of
the Common Stock, then, upon the written request of such Selling Investors, each
other Stockholder shall be obligated to, and shall, if so requested by such
third party, (a) exercise all DLJ Warrants held by such Stockholder, (b) sell,
transfer and deliver or cause to be sold, transferred and delivered to such
third party, all (but not less than all) of the shares of Common Stock owned by
them (including Common Stock issued upon
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such mandatory exercise of the DLJ Warrants) at the same price per share
(irrespective of class) and on the same terms as are applicable to the Selling
Investors, and (c) if stockholder approval of the transaction is required, vote
his, her or its shares of Voting Stock in favor thereof. The provisions of
Sections 5.01 through 5.06 (excluding Section 5.05(b)) shall not apply to any
transactions to which this Section 5.07 applies.
ARTICLE 6
REGISTRATION RIGHTS
SECTION 6,01. Piggyback Registrations. (a) If the Company at any time
proposes to register any of its equity securities under the Securities Act
(other than a registration on Form S-4 or S-8 or any successor or similar forms
thereto or a registration of Warrants under the Notes Registration Rights
Agreement (as defined in the DLJ Subscription Agreement)) whether or not for
sale for its own account, on a form and in a manner that would permit
registration of Registrable Securities for sale to the public under the
Securities Act, it will give written notice to all the holders of Registrable
Securities and DLJ Warrants promptly of its intention to do so, describing such
securities and specifying the form and manner and the other relevant facts
involved in such proposed registration (including, without limitation, (x)
whether or not such registration will be in connection with an Underwritten
Offering of Registrable Securities and, if so, the identity of the Managing
Underwriter and whether such offering will be pursuant to a "best efforts" or
"firm commitment" underwriting and (y) the price (net of any underwriting
commissions, discounts and the like) at which the Registrable Securities are
reasonably expected to be sold). Upon the written request of any such holder
delivered to the Company within 30 calendar days after the receipt of any such
notice (which request shall specify the Registrable Securities intended to be
disposed of by such holder and the intended method of disposition thereof), the
Company will use best efforts to effect the registration under the Securities
Act of all of the Registrable Securities that the Company has been so requested
to register; provided, however, that:
(i) If, at any time after giving such written notice of its
intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of
such determination to each holder who made a request as hereinabove
provided and thereupon the Company shall be relieved of its obligation
to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration
Expenses in connection therewith), without prejudice,
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however, to the rights, of the DLJ Investors to request that such
registration be effected as a registration under Section 6.02.
(ii) If such registration involves an Underwritten Offering,
all holders requesting to be included in the Company's registration
must sell their Registrable Securities to the underwriters selected by
the Company on the same terms and conditions as apply to the Company.
(b) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 6.01 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans.
(c) The Registration Expenses incurred in connection with each
registration of Registrable Securities requested pursuant to this Section 6.01
shall be paid by the Company.
(d) If a registration pursuant to this Section 6.01 involves an
Underwritten Offering and the managing underwriter advises the issuer that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, then the Company will
include in such registration (i) first, the securities the Company proposes to
sell and (ii) second, the number of Registrable Securities requested by holders
thereof to be included in such registration that, in the opinion of such
managing underwriter, can be sold, such amount to be allocated among all such
holders of Registrable Securities pro rata on the basis of the respective
number of Registrable Securities each such holder has requested to be included
in such registration.
(e) In connection with any Underwritten Offering with respect to which
holders of Registrable Securities shall have requested registration pursuant to
this Section 6.01, the Company shall have the right to select the managing
underwriter with respect to the offering; provided, that such managing
underwriter is reasonably acceptable to the holders of a majority of the
Registrable Securities requested to be sold in such Underwritten Offering.
Section 6.02. Demand Registration. (a) If the Company shall receive a
written request by DLJMB pursuant to this Section 6.02, on behalf of the DLJ
Investors (any such Person, a "SELLING DLJ STOCKHOLDER"), that the Company
effect the registration under the Securities Act of all or a portion of such
Selling DLJ Stockholder's Registrable Securities, and specifying the intended
method of disposition thereof, then the Company shall promptly give written
notice of such requested registration (a "DEMAND REGISTRATION") at least 5 days
prior to the anticipated filing date of the registration statement relating to
such Demand
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Registration to the other Stockholders and thereupon will use its best efforts
to effect, as expeditiously as possible, the registration under the Securities
Act of:
(i) the Registrable Securities which the Company has been so requested
to register by the Selling DLJ Stockholders; and
(ii) all other Registrable Securities of the same type as that to which
the request by the Selling DLJ Stockholders relates which any other
Stockholder entitled to request the Company to effect a registration
pursuant to Section 6.01 (all such Stockholders, together with the Selling
DLJ Stockholders, the "SELLING HOLDERS") has requested the Company to
register by written request received by the Company within 2 days (one of
which shall be a Business Day) after the receipt by such Selling Holders of
such written notice given by the Company,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; provided that, subject to Section 6.02(d) hereof, the Company shall
not be obligated to effect (A) more than two Demand Registrations for the DLJ
Investors pursuant to this Section 6.02, (B) any Demand Registration unless the
Registrable Securities to be sold (1) have an aggregate fair market value equal
to or in excess of $20 million or (2) represent at least 50% of the Registrable
Securities then held by the DLJ Investors, and (C) any Demand Registration until
the earlier of (x) the third anniversary of the date hereof and (y) six months
after an initial Public Offering (unless the underwriters thereof require a
longer period). In no event will the Company be required to effect more than
one Demand Registration within any 180-day period.
(b) Promptly after the expiration of the 2-day period referred to in
Section 6.02(a)(ii) hereof, the Company will notify all the Selling Holders to
be included in the Demand Registration of the other Selling Holders and the
number of Registrable Securities requested to be included therein. The Selling
DLJ Stockholders requesting a registration under Section 6.02(a) may, at any
time prior to the effective date of the registration statement relating to such
registration, revoke such request, without liability to any of the other Selling
Holders, by providing a written notice to the Company revoking such request, in
which case such request, so revoked, shall be considered a Demand Registration
unless such revocation arose out of the fault of the Company or an adverse
development in the Company's business or unless the participating Stockholders
reimburse the Company for the reasonable out-of-pocket expenses incurred by the
Company in connection with such registration, in which case such request shall
not be considered a Demand Registration.
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(c) The Company will pay all Registration Expenses in connection with
any Demand Registration.
(d) A registration requested pursuant to this Section 6.02 shall not be
deemed to have been effected (i) unless the registration statement relating
thereto (A) has become effective under the Securities Act and (B) has remained
effective for a period of at least 180 days (or such shorter period in which
all Registrable Securities of the Selling Holders included in such registration
have actually been sold thereunder); provided that if after any registration
statement requested pursuant to this Section 6.02 becomes effective (x) such
registration statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court and (y)
less than 75% of the Registrable Securities included in such registration
statement has been sold thereunder, such registration statement shall not be
considered a Demand Registration, or (ii) if the Maximum Offering Size (as
defined below) is reduced in accordance with Section 6.02(e) such that less
than 75% of the Registrable Securities of the Selling DLJ Stockholders sought
to be included in such registration are included.
(e) If a Demand Registration involves an Underwritten Offering and the
managing underwriter shall advise the Company and the Selling DLJ Stockholders
that, in its view, (i) the number of shares of Registrable Securities requested
to be included in such registration (including any securities which the Company
proposes to be included which are not Registrable Securities) or (ii) the
inclusion of some or all of the shares of Registrable Securities owned by the
Selling Holders, in any such case, exceeds the largest number of shares which
can be sold without having an adverse effect on such offering, including the
price at which such shares can be sold (the "MAXIMUM OFFERING SIZE"), the
Company will include in such registration, in the priority listed below, up to
the Maximum Offering Size:
(1) first, all Registrable Securities requested to be
registered by the parties requesting such Demand Registration;
(2) second, all Registrable Securities requested to be
included in such registration by any other Selling Holder (allocated,
if necessary for the offering not to exceed the Maximum Offering Size,
pro rata among such Selling Holders on the basis of the relative number
of Registrable Securities so requested to be included in such
registration); and
(3) third, any securities proposed to be registered by the
Company.
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(f) Upon written notice to each Selling DLJ Stockholder, the Company
may postpone effecting a registration pursuant to this Section 6.02 on one
occasion during any period of six consecutive months for a reasonable time
specified in the notice but not exceeding 90 days (which period may not be
extended or renewed), if (i) an investment banking firm of recognized national
standing shall advise the Company and the Selling DLJ Stockholders in writing
that effecting the registration would materially and adversely affect an
offering of securities of such Company the preparation of which had then been
commenced or (ii) the Company is in possession of material non-public
information the disclosure of which during the period specified in such notice
the Company believes, in its reasonable judgment, would not be in the best
interests of the Company.
(g) In connection with any Demand Registration, the Company shall
appoint the underwriter or underwriters chosen by DLJMB. The Company
acknowledges that such underwriters may include Donaldson, Lufkin & Jenrette
Securities Corporation.
SECTION 6.03. Registration Procedures. (a) If and whenever the Company
is required to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in Sections 6.01
and 6.02, the Company will, as expeditiously as possible:
(i) Prepare and, in any event within 90 calendar days after
the end of the period within which requests for registration may be
given to the Company, file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statements to become and remain effective;
provided, that in the case of a registration provided for in Section
6.01 or Section 6.02, before filing a registration statement or
prospectus or any amendments or supplements thereof, the Company will
furnish to counsel selected by the Jordan Investors and counsel
selected by the DLJ Investors (in each case, only if they are selling
Registered Securities) copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel;
and, provided, further, that the Company may discontinue any
registration of its securities that is being effected pursuant to
Section 6.01 at any time prior to the effective date of the
registration statement relating thereto.
(ii) Prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period as may be requested by the Jordan Investors or the DLJ Investors
(in each
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case, only if they are selling Registered Securities) not exceeding
nine months and to comply with the provisions of the Securities Act
with respect to the disposition of all Common Stock covered by such
registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement.
(iii) Furnish to each holder of Registrable Securities covered
by the registration statement and to each underwriter, if any, of such
Registrable Securities, such number of copies of a prospectus and
preliminary prospectus for delivery in conformity with the requirements
of the Securities Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities.
(iv) Use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition of the Registrable Securities
owned by such seller, in such jurisdictions, except that the Company
shall not for any such purpose be required (A) to qualify to do
business as a foreign corporation in any jurisdiction where, but for
the requirements of this Section 6.03(a)(iv), it is not then so
qualified, or (B) to subject itself to taxation in any such
jurisdiction, or (C) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction where
it is then so subject.
(v) Use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities.
(vi) Immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 6.03(a)(ii), if the
Company becomes aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, and, at the request of
any such seller, deliver a reasonable number
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of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally
available to its security holders, in each case as soon as practicable,
but not later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Company), an earnings statement of
the Company which will satisfy the provisions of Section 11(a) of the
Securities Act.
(viii) Use its best efforts in cooperation with the
underwriters to list such Registrable Securities on each securities
exchange as they may reasonably designate.
(ix) In the event the offering is an Underwritten Offering,
use its best efforts to obtain a "cold comfort" letter from the
independent public accountants for the Company in customary form and
covering such matters of the type customarily covered by such letters
as (i) the Jordan Investors or the DLJ Investors (in each case, only if
they are selling Registered Securities) or (ii) the sellers of a
majority of any class of such Registrable Securities (excluding shares
being sold by the Jordan Investors or the DLJ Investors) reasonably
request.
(x) Execute and deliver all instruments and documents
(including in an Underwritten Offering an underwriting agreement in
customary form) and take such other actions and obtain such
certificates and opinions as (i) the Jordan Investors or the DLJ
Investors (in each case, only if they are selling Registered
Securities) or (ii) sellers of a majority of any class of such
Registrable Securities (excluding shares being sold by the Jordan
Investors or the DLJ Investors) reasonably request in order to effect
an Underwritten Offering of such Registrable Securities.
(b) each holder of Registrable Securities will, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6.03(a)(vi), forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6.03(a)(vi).
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(c) If a registration pursuant to Section 6.01 or Section 6.02 involves
an Underwritten Offering, each holder of Registrable Securities agrees, whether
or not such holder's Registrable Securities are included in such registration,
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of any Registrable Securities, or of any
security convertible into or exchangeable or exercisable for any Registrable
Securities (other than as part of such Underwritten Offering), without the
consent of the managing underwriter, during a period commencing seven calendar
days before and ending 90 calendar days (or such lesser number as the managing
underwriter shall designate) after the effective date of such registration.
(d) If a registration pursuant to Section 6.01 or Section 6.02 involves
an Underwritten Offering, the Company agrees, if so required by the managing
underwriter, not to effect any public sale or distribution of any of its equity
or debt securities, as the case may be, or securities convertible into or
exchangeable or exercisable for any of such equity or debt securities, as the
case may be, during a period commencing seven calendar days before and ending
180 calendar days after the effective date of such registration, except for such
Underwritten Offering or except in connection with a stock option plan, stock
purchase plan, savings or similar plan, or an acquisition, merger or exchange
offer.
(e) If a registration pursuant to Section 6.01 involves an Underwritten
Offering, any holder of Registrable Securities requesting to be included in such
registration may elect, in writing, prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration, unless such
holder has agreed with the Company or the managing underwriter to limit its
rights under this Section 6.03.
(f) It is understood that in any Underwritten Offering in addition to
any shares of Common Stock (the "INITIAL SHARES") the underwriters have
committed to purchase, the underwriting agreement may grant the underwriters an
option to purchase up to a number of additional shares of authorized but
unissued shares of Common Stock (the "OPTION SHARES") equal to 15% of the
initial shares (or such other maximum amount as the NASD may then permit),
solely to cover over-allotments. Shares of Common Stock proposed to be sold by
the Company and the other sellers pursuant to Section 6.01 shall be allocated
between initial shares and option shares as agreed or, in the absence of
agreement, pursuant to Section 6.01(d). The number of initial shares and option
shares to be sold by requesting holders shall be allocated pro rata among all
such holders on the basis of the relative number of shares of Registrable
Securities each such holder has requested to be included in such registration.
SECTION 6.04. Indemnification. (a) In the event of any registration of
any securities of the Company under the Securities Act pursuant to Section 6.01
or
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Section 6.02, the Company will, and it hereby agrees to, indemnify and hold
harmless, to the extent permitted by law, each seller of any Registrable
Securities covered by such registration statement, its directors and officers
or general and limited partners, each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls such seller or any such underwriter within the meaning of the
Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or arising out of an untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense reasonably incurred by them
in connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information published to the Company by or on
behalf of any such seller or underwriter expressly for use in the preparation of
any registration statement (or any amendment thereto) or any preliminary
prospectus or prospectus (or any amendment or supplement thereto); and provided,
further, that the Company will not be liable to any Person who participates as
an
27
<PAGE> 31
underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, under the indemnity agreement in this Section 6.04(a) with
respect to any preliminary prospectus or final prospectus or final prospectus as
amended or supplemented, as the case may be, to the extent that any such loss,
claim, damage or liability of such underwriter or controlling Person results
from the fact that such underwriter sold Registrable Securities to a Person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the final prospectus or of the final prospectus as then
amended or supplemented, whichever is most recent, if the Company has previously
furnished copies thereof to such underwriter. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such seller or any such director, officer, general or limited partner,
investment advisor or agent, underwriter or controlling Person and shall survive
the transfer of such securities by such seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 6.01 or Section 6.02, that the Company shall have received an
undertaking reasonably satisfactory to it from the prospective seller of such
Registrable Securities or any underwriter, to indemnify and hold harmless (in
the same manner and to the same extent as set forth in Section 6.04(a)) the
Company with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such seller or underwriter specifically stating that
it is for use in the preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller. In that event, the
obligations of the Company and such sellers pursuant to this Section 6.04 are to
be several and not joint; provided, however, that with respect to each claim
pursuant to this Section, the Company shall be liable for the full amount of
such claim, and each such seller's liability under this Section 6.04 shall be
limited to an amount equal to the net proceeds (after deducting the underwriting
discount and expenses) received by such seller from the sale of Registrable
Securities held by such seller pursuant to this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 6.04, such indemnified party will, if a claim in
respect
28
<PAGE> 32
thereof is to be made against an indemnifying party, give written notice to such
indemnifying party of the commencement of such action; provided, however, that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Section 6.04,
except to the extent (not including any such notice of an underwriter) that the
indemnifying party is actually prejudiced any such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim (in
which case the indemnifying party shall not be liable for the fees and expenses
of more than one firm of counsel for a majority of the sellers of Registrable
Securities, one firm of counsel selected by the DLJ Investors and one firm of
counsel selected by the Jordan Investors, or more than one firm of counsel for
the underwriters in connection with any one action or separate but similar or
related actions), the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party similar
notified, to the extent that it may wish with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by such indemnifying party in connection
with the defense thereof.
(d) The Company and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any underwriting
agreement with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority.
SECTION 6.05. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
6.04 is for any reason not available, the parties required to indemnify by the
terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, any seller of Registrable Securities and one or more of
the underwriters, except to the extent that contribution is not permitted under
Section 11(f) of the Securities Act. In determining the amounts which the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to correct
and prevent any statement or omission and any other equitable considerations
appropriate under the circumstances. The Company and each Person selling
securities agree with each other that no seller of Registrable Securities shall
be required to contribute any
29
<PAGE> 33
amount in excess of the amount such seller would have been required to pay to
an indemnified party if the indemnity under Section 6.04(b) were available. The
Company and each such seller agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters' portion of such contribution to exceed the
percentage that the underwriting discount bears to the initial public offering
price of the Registrable Securities. For purposes of this Section 6.05, each
Person, if any, who controls an underwriter within the meaning of Section 15 of
the Securities Act shall have the same rights to contribution as such
underwriter, and each director and each officer of the Company who signed the
registration statement, and each Person, if any, who controls the Company or a
seller of Registrable Securities within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as the Company or a
seller of Registrable Securities, as the case may be.
SECTION 6.06. Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
SECTION 6.07. Other Provisions Regarding Registration Rights.
Notwithstanding anything to the contrary in any previous agreement or security,
the Company shall have no obligations to any Stockholder with respect to the
registration of any Stock, except as provided in this Agreement.
30
<PAGE> 34
ARTICLE 7
TERMINATION
SECTION 7.01. Certain Terminations.
(a) The provisions of Articles 3, 4 and 5 shall terminate on the date
on which any of the following events first occurs: (i) a Public Distribution,
(ii) a merger or consolidation of the Company with or into another Person that
is not an Affiliate of the Company, as a result of which the Stockholders own
less than 51% of the outstanding shares of Voting Stock of the surviving or
resulting corporation, or (iii) the sale or other disposition of all or
substantially all the assets of the Company to a Person that is not an Affiliate
of the Company.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to any Stockholder when such Stockholder no longer owns
any Stock.
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Successors and Assigns. Except as otherwise provided
herein, all of the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective
successors and assigns of the parties hereto. No Stockholder may assign any of
its rights hereunder to any Person other than a transferee that has complied
with the requirements of Sections 4.02 and 5.03 (if applicable) as provided
therein in all respects. The Company may not assign any of its rights hereunder
to any Person other than an Affiliate of the Company. Except as provided in this
Agreement, if any transferee of any Stockholder shall acquire any Stock, in any
manner, whether by operation of law or otherwise, such shares shall be held
subject to all of the terms of this Agreement, and by taking and holding such
shares such Person shall be entitled to receive the benefits of and be
conclusively deemed to have agreed to be bound by and to comply with all of the
terms and provisions of this Agreement.
SECTION 8.02. Amendment and Modification; Waiver of Compliance;
Conflicts. (a) This Agreement may be amended only by a written instrument duly
executed by (i) holders of a majority of the shares of Common Stock and Jordan
Warrants held by the Jordan Investors, (ii) holders of a majority of the DLJ
31
<PAGE> 35
Warrants (or the underlying shares of Common Stock) and (iii) the holders of a
majority of the shares of Voting Stock owned by the Existing Stockholders. In
the event of the amendment or modification of this Agreement in accordance with
its terms, the Stockholders shall cause the Board of Directors of the Company to
meet within 30 calendar days following such amendment or modification or as soon
thereafter as is practicable for the purpose of adopting any amendment to the
Articles of Incorporation and By-Laws of the Company that may be required as a
result of such amendment of modification to this Agreement, and, if required,
proposing such amendments to the Stockholders entitled to vote thereon, and the
Stockholders agree to vote in favor of such amendments.
(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail.
SECTION 8.03. Notices. Any notice, request, claim, demand, document and
other communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
telex or telecopy (with such telex or telecopy confirmed promptly in writing
sent By first class mail), or first class mail, or other similar means of
communication, as follows:
(i) If to the Company or any Jordan Investor (other than
MCIT), addressed to the Company or to such Jordan Investor c/o The
Jordan Company, 767 Fifth Avenue, New York, New York 10153, Attention:
Jonathan F. Boucher;
(ii) If to MCIT, addressed to MCIT, 767 Fifth Avenue, New
York, New York 10153, Attention: James E. Jordan;
(iii) If to any DLJ investor, addressed to such DLJ Investor
c/o DLJ Merchant Banking Partners II, L.P., 277 Park Avenue, New York,
New York 10172, Attention: Nicole Arnaboldi, Ivy Dodes;
(iv) If to any other Stockholder, to the address of such
Stockholder set forth in the stock records of the Company.
32
<PAGE> 36
or, in each case, to such other address or telex or telecopy number as such
party may designate in writing to each Stockholder and the Company by written
notice given in the manner specified herein.
All such communications shall be deemed to have been given, delivered
or made when so delivered by hand or sent by telex (answer back received) or
telecopy, or five business days after being so mailed.
SECTION 8.04. Entire Agreement. (a) Effective on the date hereof, this
Agreement shall amend and restate the 1997 Stockholders Agreement.
(b) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject matter. The
Company represents to the Stockholders that the rights granted to the holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted or obligations accepted under any other agreement (including the
Certificate of Incorporation) to which the Company is a party. Neither the
Company nor any Subsidiary of the Company will hereafter enter into any
agreement with respect to its equity or debt securities which is inconsistent
with the rights granted to the holders of Registrable Securities or any
Stockholder under this Agreement without obtaining the prior written consent of
the Stockholder or holder of Registrable Securities whose rights would be
thereby affected.
SECTION 8.05. Injunctive Relief. The Stockholders acknowledge and agree
that a violation of any of the terms of this Agreement will cause the
Stockholders irreparable injury for which an adequate remedy at law is not
available. Therefore, the Stockholders agree that each Stockholder shall be
entitled to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Stockholder from committing any
violations of the provisions of this Agreement.
SECTION 8.06. Inspection. For so long as this Agreement shall be in
effect, this Agreement shall be made available for inspection by any Stockholder
at the principal executive offices of the Company.
SECTION 8.07. Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
33
<PAGE> 37
SECTION 8.08. Recapitalizations, Exchanges, Etc., Affecting the Common
Stock; New Issuances. The provisions of this Agreement shall apply, to the full
extent set forth herein with respect to the Common Stock, to any and all equity
securities of the Company (or securities of any successor or assign of the
Company (whether by merger, consolidation, sale of assets, or otherwise) which
may be issued in respect of, in exchange for, or in substitution of, such equity
securities) and shall be appropriately adjusted for any stock dividends, splits.
reverse splits, combinations, reclassifications, recapitalizations,
reorganizations and the like occurring after the date hereof.
SECTION 8.09. Right to Negotiate. Subject to the terms of this
Agreement and approval of the Board of Directors, nothing in this Agreement
(apart from Article 5 hereof) shall be deemed to restrict or prohibit the
Company from purchasing Stock from any Stockholder at any time upon such terms
and conditions and at such price as may be mutually agreed upon between the
Company and such Stockholder, whether or not at the time of such purchase,
circumstances exist which specifically grant the Company the right to purchase,
or such Stockholder the right to sell, Stock pursuant to the terms of this
Agreement.
SECTION 8.10. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. EACH OF THE PARTIES HERETO ACKNOWLEDGES AND AGREES THAT IN THE EVENT OF
ANY BREACH OF THIS AGREEMENT, THE NONBREACHING PARTY WOULD BE IRREPARABLY HARMED
AND COULD NOT BE MADE WHOLE BY MONETARY DAMAGES, AND THAT, IN ADDITION TO ANY
OTHER REMEDY TO WHICH THEY MAY BE ENTITLED AT LAW OR IN EQUITY, THE PARTIES
SHALL BE ENTITLED TO SUCH EQUITABLE OR INJUNCTIVE RELIEF AS MAY BE APPROPRIATE.
SECTION 8.11. ARBITRATION. THE STOCKHOLDERS WAIVE THEIR RIGHTS, IF ANY,
TO JURY TRIAL IN RESPECT TO ANY DISPUTE OR CLAIMS BETWEEN OR AMONG THE PARTIES
TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION,
EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR
ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION ANY
CLAIM UNDER THE SECURITIES ACT, THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
ANY OTHER STATE OR FEDERAL LAW RELATING TO SECURITIES OR FRAUD OR BOTH, THE
RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT, AS AMENDED, OR FEDERAL OR
STATE COMMON LAW, AND ANY SUCH DISPUTE OR CLAIMS SHALL BE SUBMITTED TO, AND
RESOLVED
34
<PAGE> 38
EXCLUSIVELY PURSUANT TO, ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION
SHALL TAKE PLACE IN NEW YORK, NEW YORK, AND SHALL BE SUBJECT TO THE SUBSTANTIVE
LAW OF THE STATE OF NEW YORK. DECISIONS AS TO FINDINGS OF FACT AND CONCLUSIONS
OF LAW PURSUANT TO SUCH ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON
THE PARTIES, SUBJECT TO CONFIRMATION, MODIFICATION OR CHALLENGE PURSUANT TO 9
U.S.C. SECTIONS 1 ET SEQ. ANY FINAL AWARD SHALL BE ENFORCEABLE AS A JUDGMENT OF
A COURT OF RECORD.
SECTION 8.12. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
SECTION 8.13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
35
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written
W-H ENERGY SERVICES, INC.
By: /s/ JOHNATHAN BOUCHER
-----------------------------
Name: Johnathan Boucher
Title:
W-H INVESTMENT, L.P.
By: W-H INVESTMENT GP, L.L.C.
By: /s/ JOHNATHAN BOUCHER
-----------------------------
Name: Johnathan Boucher
Title:
W-H INVESTMENT II, L.P.
By: W-H INVESTMENT GP, L.L.C.
By: /s/
-----------------------------
Name:
Title:
DLJ MERCHANT BANKING PARTNERS II, L.P.
By: DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ REID S. PERPER
-----------------------------
Name: Reid S. Perper
Title: Principal
<PAGE> 40
DLJ MERCHANT BANKING PARTNERS
II-A, L.P.
By: DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ REID S. PERPER
-----------------------------
Name: Reid S. Perper
Title: Principal
DLJ OFFSHORE PARTNERS II, C.V.
By: DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ REID S. PERPER
-----------------------------
Name: Reid S. Perper
Title: Principal
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By: /s/ IVY DODES
-----------------------------
Name: IVY DODES
Title: Vice President
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ DIVERSIFIED PARTNERS, INC.,
Managing General Partner
By: /s/ IVY DODES
-----------------------------
Name: IVY DODES
Title: Vice President
<PAGE> 41
DLJMB FUNDING II, INC.
By: DLJMB Funding, Inc.
By: /s/ IVY DODES
-----------------------------
Name: IVY DODES
Title: Vice President
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ REID S. PERPER
-----------------------------
Name: Reid S. Perper
Title: Principal
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ MERCHANT BANKING II, INC.,
Managing General Partner
By: /s/ REID S. PERPER
-----------------------------
Name: Reid S. Perper
Title: Principal
DLJ EAB PARTNERS, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: /s/ IVY DODES
-----------------------------
Name: IVY DODES
Title: Vice President
<PAGE> 42
UK INVESTMENT PLAN 1997 PARTNERS
By: UK INVESTMENT PLAN 1997
PARTNERS, INC., General Partner
By: /s/ IVY DODES
-----------------------------------
Name: IVY DODES
Title: Vice President
DLJ ESC II L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, as General Partner
By: /s/ IVY DODES
-----------------------------------
Name: IVY DODES
Title: Vice President
DLJ FIRST ESC L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION, General Partner
By: /s/ IVY DODES
-----------------------------------
Name: IVY DODES
Title: Vice President
<PAGE> 43
EXISTING STOCKHOLDERS:
/s/ KENNETH T. WHITE, JR.
---------------------------------
Kenneth T. White, Jr.
WITHAM MANAGEMENT CORP.
By: /s/ CHRISTOPHER MILLS
-----------------------------
Name: Christopher Mills
Title:
BANK OF SCOTLAND NOMINEES LTD.
For The Account of NASCIT
By: /s/ CHRISTOPHER MILLS
-----------------------------
Name: Christopher Mills
Title:
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT by and between W-H Energy Services, Inc., a Texas corporation
("W-H"), and Kenneth T. White, Jr. of Sugar Land, Texas ("Employee").
IT IS HEREBY AGREED:
1. Employment.
----------
a. For a term commencing effective as of March 29, 1999,
and extending to March 29, 2002, unless sooner
terminated as hereinafter provided, W-H agrees to
retain Employee in its employ, and Employee agrees to
remain in the employ of W-H, as Chairman of the
Board, President and Chief Executive Officer of W-H.
Employee will carry out his duties as Chairman of the
Board, President and Chief Executive Officer of W-H
and all its divisions and subsidiaries, subject to
the direction of W-H's Board of Directors (the
"Board"). For as long as Employee is employed as
Chairman of the Board, President and Chief Executive
Officer of W-H, he will devote his full productive
time, energy and ability to his duties, except for
incidental attention to the management of his
personal investments. Employee shall be allowed to
serve on the Board of Directors of other companies or
organizations so long as such participation does not
conflict with the interests or business of W-H or
require such involvement as to interfere with the
performance of Employee's duties hereunder which
shall be at the sole determination of the Board.
b. If W-H completes a public offering of its common
stock or completes a merger or other business
combination with a third party in which there is a
change in control (i.e. more than a 50% change in
stock ownership and board control) or any other
corporate transaction giving rise to acceleration of
the option for 27,300 shares granted to Employee as
of March 29, 1999 prior to March 29, 2002, then the
term of this Agreement shall at the option of W-H be
extended for a new term of three (3) years from the
effective date of such event and Employee will
provide the services described on Section 1(a).
2. Base Compensation The base compensation to be paid to Employee
for his services under this Agreement shall be $250,000 per
year, payable in accordance with the normal payroll practices
of W-H commencing March 29, 1999 and shall increase to
$300,000 per year commencing March 29, 2000.
3. Incentive Compensation. Employee shall be entitled to receive
incentive compensation up to a maximum of 100% of his base
compensation each year as shall be determined in the sole
discretion of the Board of Directors of W-H.
<PAGE> 2
4. Fringe Benefits. W-H shall furnish Employee with all of the
fringe benefits made available by W-H to the executive
officers of W-H and its subsidiaries, recognizing that such
fringe benefits may be changed from time to time. In addition,
W-H will provide Employee with an automobile or automobile
allowance approved by the Board of Directors. W-H further
agrees to provide Employee the maximum insurance coverage
available under the life, accident and health insurance
programs of W-H now in effect or as amended in the future.
5. Death or Permanent Disability. In the event of Employees's
death or permanent disability, which disability in the opinion
of a physician selected by W-H renders him incapable of
performing the services contemplated under this Agreement, in
addition to the other provisions of this Agreement, the
following provisions shall apply:
a. W-H shall pay to Employee or the estate of Employee
the base compensation which would otherwise be
payable to Employee hereunder for a period of six (6)
months after such permanent disability or death
occurs.
b. The benefits provided for in paragraph (a) of this
Section 5 may, at Employee's selection, be paid to
his designated beneficiary or beneficiaries in lieu
of his personal representative.
c. Employee shall be entitled to all long-term
disability pay and death benefit protection provided
through W-H insurance programs in effect from time to
time.
6. Involuntary Termination. If W-H terminates Employee's
employment hereunder without Employee's consent, Employee
shall be entitled to receive only his base compensation
provided in Section 2 hereof for a period of twenty-four
months from the date of termination.
7. Termination Voluntary or for Cause.
Voluntary: In the event Employee voluntarily
terminates his employment hereunder he shall be entitled to
receive only his base compensation due on a pro rata basis to
the date of termination.
Termination for Cause: Any of the following events
shall be considered as cause for the immediate termination of
this Agreement by W-H;
a. Willful breach by Employee of any of his
duties hereunder resulting in materially
adverse consequences to W-H;
2
<PAGE> 3
b. Misappropriation of funds or property of W-H
or any of its Subsidiaries; and
c. Conduct on the part of Employee which would
be materially adverse to the interest of W-H
or any part of its Subsidiaries.
In the event of the termination of his employment for
cause, Employee shall be entitled to receive only his base
compensation due on a pro rata basis to the date of
termination.
8. Assets Owned by Employee. Employee owns all of the furniture
in his office, his secretary's office, the W-H conference room
and certain other office equipment including file cabinets and
a computer which Employee shall be allowed to remove and/or
retain possession of in the event of his termination for any
reason.
9. Noncompetition. Employee will not, during the term of this
Agreement and for a period of two (2) years after his
voluntary termination of this Agreement, engage, directly or
indirectly, in any type of business in which W-H or any
Subsidiary is actively engaged in the state of State and
Louisiana, or in owning, managing, operating, controlling or
being employed by or participating in the management,
ownership, operation or control of, or be connected in any
manner with, any business in the states of Texas or Louisiana
of the type and character engaged in by W-H or any Subsidiary,
except that Employee may hold up to 2% of the outstanding
shares of any publicly held company engaged in such
competitive activities.
10. Termination of Previous Agreement. This Agreement supersedes
the Amended and Restated Employment Agreement dated August 11,
1997 which is hereby terminated.
11. Successor Companies. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of W-H
whether by merger, sale of assets or otherwise.
IN WITNESS WHEREOF, the parties have caused these presents to be
executed effective as of the 27th day of March, 1999.
W-H ENERGY SERVICES, INC.
By:
-------------------------------
Vice President
----------------------------------
Kenneth T. White, Jr.
3
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made effective as of 26 March 1999 between
W-H ENERGY SERVICES, INC,. a Texas corporation (hereinafter called the "Company"
or "W-H") and Jeffrey Tepera (hereinafter called the "Employee").
WHEREAS, the parties hereto desire to enter into a contract to provide
for the employment of Employee by the Company;
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. The Company hereby employs the Employee and the Employee
hereby agrees to serve the Company as Vice President and
Treasurer or in such other capacity as may be mutually agreed.
Employee agrees to devote his full time, energy and ability to
his duties hereunder.
2. The employment of the Employee shall continue from the date
hereof for a period ending in three (3) years and shall be
automatically renewed for an additional three (3) year term
expiring on 26 March 2005, unless the Company notifies
Employee in writing on or before 25 January 2002 of the
Company's election not to renew this Employment Agreement or
Employee notifies the Company in writing on or before 25
January 2002 of Employee's election not to renew this
Employment Agreement.
3. The Company shall pay to the Employee during the term of his
employment, a salary at the annual rate of $85,000 payable in
accordance with the Company's usual payroll practices, plus
$7,800 car allowance and other benefits and incentive
compensation opportunities based on the Company's and the
Employee's performance as shall be established by the Company.
Employee's salary will be reviewed annually by the Company's
President for possible increases based on Employee's
performance.
4. In the event of Employee's death or permanent disability,
which disability in the opinion of a physician selected by the
Company renders him totally incapable of performing the
services contemplated under his Employment Agreement, while
in the employ of the Company, in addition to the other
provisions of this Employment Agreement, the Company shall pay
to Employee or the Estate of the Employee, as the case may be,
the base compensation which would otherwise be payable to
Employee hereunder for a period of two (2) months after such
permanent disability or death occurs. The Employee is entitled
to obtain a second opinion, at the Company's cost, regarding
his disability. If the physician chosen by the Employee
disagrees with the Company physician, the Parties will obtain
the opinion of a physician mutually agreeable to the first two
physicians, whose opinion will decide whether the Employee is
totally disabled and unable to perform under this Agreement.
5. In the event Employee voluntarily terminates his employment
hereunder, Employee shall be entitled to receive only his
salary to the date of such termination and shall not be
entitled to receive any incentive compensation he might
otherwise have been entitled to receive hereunder.
<PAGE> 2
6. Except as provided in paragraph 7 hereunder, in the event Employee's
employment is terminated by the Company, Employee shall be entitled to
receive his salary for one (1) year, however, Employee shall not be
entitled to receive any incentive compensation he might otherwise have
been entitled to receive hereunder.
7. The Company shall deem any of the following events as cause for the
termination of this Employment Agreement:
(a) Proven dishonesty by Employee or misappropriation of funds or
property of the Company by Employee;
(b) Willful breach by Employee of his duties hereunder; or
(c) Conduct on the part of Employee which would be materially adverse
to the interest of the Company.
In the event of termination of Employee's employment hereunder for
cause, Employee shall be entitled to receive only his salary to the
date of such termination and shall not be entitled to receive any
incentive compensation he might otherwise have been entitled to
receive hereunder.
8. The Employee shall not at any time hereafter divulge or disclose to
any person, firm or company, or make use of any confidential or other
information which constitutes special or exclusive knowledge connected
with the business or operations of the Company or with any of its
dealings, transactions or affairs and which he may acquire during the
period of this Employment Agreement.
9. During the term of this Employment Agreement, Employee shall be
entitled to reimbursement of all reasonable out-of-pocket expenses
incurred on behalf of the Company by reason of his employment and to
participate in the same employee benefits as all other employees of the
Company, consistent with past practices.
10. Employee agrees that for a period of one (1) year from the date of the
voluntary termination of this Employment Agreement or one (1) year
from the date of the involuntary termination pursuant to Paragraph 6
above if such involuntary termination occurs on or before the first
anniversary of this Employment Agreement, he will not be employed by
or associated with or own any entity which is engaged in Company
businesses, provided, however, the Employee may hold as an investment
up to 2% of the outstanding shares of any publicly held corporation
engaged in such competitive activities.
11. The rights and benefits of the Employee under this Employment
Agreement may not be assigned by the Employee.
12. This Employment Agreement shall be deemed to have been executed in,
governed by and construed in accordance with the laws of the State of
Texas.
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made effective as of May 1, 2000 between W-H
ENERGY SERVICES, INC., a Texas corporation (hereinafter called the "Company" or
"W-H") and William J. Thomas, III (hereinafter called the "Employee").
WHEREAS, the parties hereto desire to enter into a contract to provide for
the employment of Employee by the Company;
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. The Company hereby employs the Employee and the Employee hereby agrees
to serve the Company as Vice President of W-H Energy Services, Inc. or
in such other capacity as may be mutually agreed. Employee agrees to
devote his full time, energy and ability to the Company and its
subsidiaries, except for incidental attention to the management of his
personal affairs.
2. The employment of the Employee shall continue from the date hereof for
a period ending in three (3) years and shall be automatically renewed
for an additional three (3) year term expiring on April 30, 2006,
unless the Company notifies Employee in writing on or before March 1,
2003 of the Company's election not to renew this Employment Agreement
or Employee notifies the Company in writing on or before March 1, 2003
of Employee's election not to renew this Employment Agreement.
3. The Company shall pay to the Employee during the term of his
employment, a salary at the annual rate of $250,000 payable in
accordance with the Company's usual payroll practices plus an
automobile or automobile allowance. Employee shall be entitled to
receive incentive compensation up to a maximum of 100% of his base
compensation each year, as shall be determined by the W-H Compensation
Committee. W-H shall furnish Employee with all the fringe benefits made
available by W-H to the executive officers of W-H and its subsidiaries,
recognizing that such fringe benefits may be changed from time to time.
Employee's salary will be reviewed every two years by the W-H
Compensation Committee for possible increases based on Employee's
performance.
4. In the event of Employee's death or permanent disability, which
disability in the opinion of a physician selected by the Company
renders him totally incapable of performing the services contemplated
under his Employment Agreement, while in the employ of the Company, in
addition to the other provisions of this Employment Agreement, the
Company shall pay to Employee or the Estate of Employee, as the case
may be, the base compensation which would otherwise be payable to
Employee hereunder for a period of six (6) months after such permanent
disability or death occurs. The Employee is entitled to obtain a second
opinion, at the Company's cost, regarding his disability. If the
physician chosen by the Employee disagrees with the Company physician,
the Parties will obtain the opinion of a physician mutually agreeable
to the first two physicians, whose opinion will decide whether the
Employee is totally disabled and unable to perform under this
Agreement.
5. In the event Employee voluntarily terminates his employment hereunder,
Employee shall be entitled to receive only his salary to the date of
such termination and shall not be entitled to receive any incentive
compensation he might otherwise have been entitled to receive
hereunder.
6. Except as provided in paragraph 7 hereunder, in the event Employee's
employment is terminated by the Company, Employee shall be entitled to
receive his salary for two (2) years, however, Employee shall not be
entitled to receive any incentive compensation he might otherwise have
been entitled to receive hereunder.
7. The Company shall deem any of the following events as cause for the
termination of this Employment Agreement:
(a) Proven dishonesty by Employee or misappropriation of funds or
property of the Company by Employee;
<PAGE> 2
(b) Willful breach by Employee of his duties hereunder; or
(c) Conduct on the part of Employee which would be materially adverse
to the interest of the Company.
In the event of termination of Employee's employment hereunder for
cause, Employee shall be entitled to receive only his salary to the
date of such termination and shall not be entitled to receive any
incentive compensation he might otherwise have been entitled to receive
hereunder.
8. The Employee shall not at any time hereafter divulge or disclose to any
person, firm or company, or make use of any confidential or other
information which constitutes special or exclusive knowledge connected
with the business or operations of the Company or with any of its
dealings, transactions or affairs and which he may acquire during the
period of this Employment Agreement.
9. During the term of this Employment Agreement, Employee shall be
entitled to reimbursement of all reasonable out-of-pocket expenses
incurred on behalf of the Company by reason of his employment and to
participate in the same employee benefits as all other employees of the
Company, consistent with past practices.
10. The Employee will not, during the term of this Agreement and for a
period of one (1) year after his voluntary termination of this
Agreement, engage, directly or indirectly, in any type of business in
which W-H or any of its subsidiaries is actively engaged in the state
of Texas and Louisiana, or in owning, managing, operating, controlling
or being employed by or participating in the management, ownership,
operation or control of, or be connected in any manner with, any
business in the states of Texas and Louisiana of the type and character
engaged in by W-H or any of its subsidiaries, except that Employee may
hold up to 2% of the outstanding shares of any publicly held company
engaged in such competitive activities.
11. The rights and benefits of the Employee under this Employment Agreement
may not be assigned by the Employee.
12. This Employment Agreement shall be deemed to have been executed in,
governed by and construed in accordance with the laws of the State of
Texas.
13. If any term, provision, covenant, or restriction of this agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way
be affected, impaired or invalidated.
14. This Employment Agreement supersedes the Amended Employment agreement
originally dated June 14, 1994 and amended on September 30, 1996, which
is hereby terminated.
WITNESS THE EXECUTION HEREOF, effective as of the date herein before
indicated.
W-H ENERGY SERVICES, INC.
By:
-------------------------------------
Kenneth T. White, Jr., Chairman
By:
-------------------------------------
William J. Thomas, III
<PAGE> 1
EXHIBIT 10.4
W-H ENERGY SERVICES, INC.
1997 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The W-H ENERGY SERVICES, INC. 1997 STOCK OPTION PLAN (the "Plan") is
intended to provide a means whereby certain employees of W-H ENERGY SERVICES,
INC., a Texas corporation (the "Company"), and its subsidiaries may develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
grant to certain employees ("Optionees") the option ("Option") to purchase
shares of the common stock of the Company ("Stock"), as hereinafter set forth.
Options granted under the Plan will be options that do not constitute incentive
stock options within the meaning of section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
II. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of, and
appointed by, the Board of Directors of the Company (the "Board"). If a
Committee is not appointed by the Board, the Board shall act as the Committee
for purposes of the Plan. The Committee shall have sole authority to select
the Optionees from among those individuals eligible hereunder and to establish
the number of shares which may be issued under each Option. In selecting the
Optionees from among individuals eligible hereunder and in establishing the
number of shares that may be issued under each Option, the Committee may take
into account the nature of the services rendered by such individuals, their
present and potential contributions to the Company's success and such other
factors as the Committee in its discretion shall deem relevant. The Committee
is authorized to interpret the Plan and may from time to time adopt such rules
and regulations, consistent with the provisions of the Plan, as it may deem
advisable to carry out the Plan. All decisions made by the Committee in
selecting the Optionees, in establishing the number of shares which may be
issued under each Option and in construing the provisions of the Plan shall be
final.
<PAGE> 2
III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms and
conditions as may be approved by the Committee. The terms and conditions of the
respective Option Agreements need not be identical. Specifically, an Option
Agreement may provide for the surrender of the right to purchase shares under
the Option in return for a payment in cash or shares of Stock or a combination
of cash and shares of Stock equal in value to the excess of the fair market
value of the shares with respect to which the right to purchase is surrendered
over the option price therefor ("Stock Appreciation Rights"), on such terms and
conditions as the Committee in its sole discretion may prescribe; provided,
that, except as provided in Subparagraph VIII(c) hereof, the Committee shall
retain final authority (i) to determine whether an Optionee shall be permitted,
or (ii) to approve an election by an Optionee, to receive cash in full or
partial settlement of Stock Appreciation Rights. Moreover, an Option Agreement
may provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such option price.
(b) For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock (i) reported by the National Market System of NASDAQ on that
date or (ii) if the Stock is listed on a national stock exchange, reported on
the stock exchange composite tape on that date; or, in either case, if no prices
are reported on that date, on the last preceding date on which such prices of
the Stock are so reported. If the Stock is traded over the counter at the time
a determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low or closing bid and asked prices of Stock on the most
recent date on which Stock was publicly traded. In the event Stock is not
publicly traded at the time a determination of its value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
(c) Each Option and all rights granted thereunder shall not be transferable
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act if 1974, as amended, or the rules
thereunder, and shall be exercisable during the Optionee's lifetime only by the
Optionee or the Optionee's guardian or legal representative.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are key employees (including
officers and directors who are also key employees) of the Company or any parent
or subsidiary corporation (as defined in section 424 of the Code) of the Company
at the time the Option is granted.
2
<PAGE> 3
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options
granted under the Plan shall not exceed 40,000 shares of Stock. Such shares may
consist of authorized but unissued shares of Stock or previously issued shares
of Stock reacquired by the Company. Any of such shares which remain unissued and
which are not subject to outstanding Options at the termination of the Plan
shall cease to be subject to the Plan, but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to meet
the requirements of the Plan. Should any Option hereunder expire or terminate
prior to its exercise in full, the shares theretofore subject to such Option
may again be subject to an Option granted under the Plan. The aggregate number
of shares which may be issued under the Plan shall be subject to adjustment in
the same manner as provided in Paragraph VIII hereof with respect to shares of
Stock subject to Options then outstanding. Exercise of an Option in any manner,
including an exercise involving a Stock Appreciation Right, shall result in a
decrease in the number of shares of Stock which may thereafter be available,
both for purposes of the Plan and for sale to any one individual, by the number
of shares as to which the Option is exercised. Separate stock certificates shall
be issued by the Company for those shares acquired pursuant to the exercise of
an Incentive Stock Option and for those shares acquired pursuant to the exercise
of any Option which does not constitute an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be
determined by the Committee.
VII. TERM OF PLAN
The Plan was effective on August 11, 1997 (the "Effective Date"), the
date of its adoption by the Board. Except with respect to Options then
outstanding, if not sooner terminated under the provisions of Paragraph IX, the
Plan shall terminate upon and no further Options shall be granted after the
expiration of ten years from the date of its adoption by the Board.
3
<PAGE> 4
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization
or other change in the Company's capital structure or its business, any merger
or consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration
of an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be
the surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases or
exchanges all or substantially all of its assets to any other person or entity,
(iii) the Company is to be dissolved and liquidated, or (iv) any person or
entity, including a "group" as contemplated by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (but excluding, however, any person
or entity (or group including a person or entity) who is a shareholder of the
Company on the Effective Date) acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power, no
later than (a) ten days after the approval by the shareholders of the Company
of such merger, consolidation, reorganization, sale, lease or exchange of
assets or dissolution; (b) thirty days after a change of control of the type
described in Clause (iv), the Committee, acting in its sole discretion without
the consent or approval of any Optionee, shall act to effect one or more of the
following alternatives, which may vary among individual Optionees and which may
vary among Options held by any individual Optionee: (1) accelerate the time at
which Options then outstanding may be exercised so that such Options may be
4
<PAGE> 5
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Optionees thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Optionees of some or all of the outstanding Options held by such Optionees
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Corporate Change, specified by
the Committee, in which event the Committee shall thereupon cancel such Options
and the Company shall pay to each Optionee an amount of cash per share equal to
the excess, if any, of the amount calculated in Subparagraph (d) below (the
"Change of Control Value") of the shares subject to such Option over the
exercise price(s) under such Options for such shares, (3) make such adjustments
to Options then outstanding as the Committee deems appropriate to reflect such
Corporate Change (provided, however, that the Committee may determine in its
sole discretion that no adjustment is necessary to Options then outstanding) or
(4) provide that the number and class of shares of Stock covered by an Option
theretofore granted shall be adjusted so that such Option shall thereafter
cover the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution, the Optionee had been the holder of record of
the number of shares of Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be
the date of cancellation and surrender of such Options. In the event that the
consideration offered to shareholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above consists of
anything other than cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered which is other than cash.
(e) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required shareholder action.
(f) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair
5
<PAGE> 6
value, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Stock subject to Options theretofore granted
or the purchase price per share.
(g) Notwithstanding anything else herein to the contrary, if the Company
shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity) and such merger,
consolidation or other reorganization is to be accounted for as a pooling of
interests then the time at which all Options then outstanding may be exercised
shall be automatically accelerated and all such Options shall become exercisable
in full at the effective time of such merger, consolidation or reorganization."
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would impair the rights of the Optionee without the consent of such
Optionee.
X. SECURITIES LAWS
The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
6
<PAGE> 1
EXHIBIT 10.5
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of March 29, 1999, between W-H Energy Services, Inc.,
a Texas corporation (the "Company"), and Kenneth T. White, Jr. ("Employee").
To afford Employee the opportunity to purchase shares of common stock
of the Company ("Stock"), and in consideration of the mutual agreements and
other matters set forth herein, the Company and Employee hereby agree as
follows:
1. Grant of Option. The Company hereby irrevocably grants to
Employee the right and option ("Option") to purchase all or any part of an
aggregate of 27,300 shares of Stock, on the terms and conditions set forth
herein. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Purchase Price. The purchase price of Stock purchased pursuant
to the exercise of this Option shall be $150.00 per share.
3. Exercise of Option. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office (10370 Richmond, Suite 950,
Houston, Texas 77042) addressed to the attention of its Chief Executive
Officer, at any time and from time to time after the date of grant hereof, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Exercise Period Number of Shares Exercisable
--------------- ----------------------------
<S> <C>
As of March 29, 1999 8,190
As of March 29, 2000 6,370
As of March 29, 2001 6,370
As of March 29, 2002 6,370
</TABLE>
This Option is not transferable by Optionee otherwise than by will or
the laws of the descent and distribution, and may be exercised only while
Employee during his/her lifetime and while he/she remains an employee of the
Company or a subsidiary of the Company and will terminate, expire and cease to
be exercisable upon Employee's termination of employment with the Company or
a subsidiary of the Company for any reason, including involuntary and voluntary
termination, disability or death, except that this Option may be exercised by
Employee (or Employee's estate or the person who acquires this Option by will or
the laws of descent and distribution or otherwise by reason of the death of
Employee) at any time during the period of three months following such
termination, but only as to the number of shares Employee was entitled to
purchase hereunder as of the date of such termination.
This Option shall not be exercisable in any event after the expiration
of ten years from the date of grant hereof. Except as provided in Paragraph 4,
the purchase price of shares as to which this Option is exercised shall be paid
in full at the time of exercise (a) in cash (including
<PAGE> 2
check, bank draft or money order payable to the order of the Company), (b) by
delivering to the Company shares of Stock having a fair market value equal to
the purchase price, or (c) any combination of cash or Stock. No fraction of a
share of Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the purchase price thereof; rather,
Employee shall provide a cash payment for such amount as is necessary to effect
the issuance and acceptance of only whole shares of Stock. Unless and until a
certificate or certificates representing such shares have been issued by the
Company to Employee, Employee (or the person permitted to exercise this Option
in the event of Employee's death) shall not be or have any of the rights or
privileges of a shareholder of the Company with respect to shares acquirable
upon an exercise of this Option.
In the event of Employee's termination of employment with the Company
for any reason, death or permanent disability (as determined by Employee's
regular physician), then this Option shall terminate, but only as to the number
of shares Employee was not entitled to purchase pursuant to this paragraph 3 as
of the date of such termination, death or permanent disability and Employee (or
Employee's estate or the person who acquires this Option by Will or the laws of
descent and distribution or otherwise by reason of the death of Employee) shall
have the right to exercise the vested portion of the Option at any time during
the period of three (3) months following such termination, death or permanent
disability. If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by the Option theretofore granted shall be
adjusted so that the Option shall thereafter cover the number and class of
shares of stock and securities to which the Employee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Employee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases or
exchanges all or substantially all of its assets to any other person or entity,
(iii) the Company is to be dissolved and liquidated, or (iv) any person or
entity, including a "group" as contemplated by Section 13(b)(3) of Securities
Exchange Act of 1934, as amended, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power) no
later than (a) ten days after the approval by the shareholders of the Company of
such merger, consolidation, reorganization, sale, lease or exchange of assets or
dissolution or (b) thirty days after a change of control of the type described
in Clause (iv), the exercise term of the Option shall accelerate and this Option
shall become immediately exercisable in full.
4. Withholding of Tax. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation income to Employee for federal or state income tax
purposes, Employee shall deliver to the Company at the time of such exercise or
disposition such amount of money or shares of Stock as the Company may require
to meet its obligation under applicable tax laws or regulations, and, if
Employee fails to do so, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Employee any tax required to
be withheld by reason of such resulting compensation income. Upon an exercise
of this Option, the Company is further
-2-
<PAGE> 3
authorized in its discretion to satisfy any such withholding requirement out of
any cash or shares of Stock distributable to Employee upon such exercise.
5. Status of Stock. Employee understands that at the time of the execution
of this Agreement the shares of Stock to be issued upon exercise of this Option
have not been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities law, and that the Company does not currently
intend to effect any such registration. Until the shares of Stock acquirable
upon the exercise of the Option have been registered for issuance under the Act,
the Company will not issue such shares unless the holder of the Option provides
the Company with a written opinion of legal counsel, who shall be satisfactory
to the Company, addressed to the Company and satisfactory in form and substance
to the Company's counsel, to the effect that the proposed issuance of such
shares to such Option holder may be made without registration under the Act. In
the event exemption from registration under the Act is available upon an
exercise of this Option, Employee (or the person permitted to exercise this
Option in the event of Employee's death), if requested by the Company to do so,
will execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged or hypothecated in the absence of an effective registration
statement for the shares under the Act and applicable state securities laws or
an applicable exemption from the registration requirements of the Act and any
applicable state securities laws. Employee also agrees that the shares of Stock
which Employee may acquire by exercising this Option will not be sold or
otherwise disposed of in any manner which would constitute a violation of any
applicable securities laws, whether federal or state.
In addition, Employee agrees (i) that the certificates representing the
shares of Stock purchased under this Option may bear such legend or legends as
the Company deems appropriate in order to assure compliance with applicable
securities laws or any stockholders agreements in effect, (ii) that the Company
may refuse to register the transfer of the shares of Stock purchased under this
Option on the stock transfer records of the Company if such proposed transfer
would in the opinion of counsel satisfactory to the Company constitute a
violation to its transfer agent, if any, to stop registration of the transfer of
the shares of Stock purchased under this Option.
6. Employment Relationship. For purposes of this Agreement, Employee shall
be considered to be in the employment of the Company as long as Employee remains
an employee of either the Company, its parent or a subsidiary corporation of the
Company. Any question as to whether and when there has been a termination of
such employment, and the cause of such termination, shall be determined by the
Board of Directors of the Company, and its determination shall be final.
7. Recapitalization or Reorganization. This Agreement is subject to all the
terms and conditions set forth in the Company's Amended and Restated
Stockholders Agreement.
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<PAGE> 4
8. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming
under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
10. AMENDMENTS. This Agreement may not be amended or modified without the
prior written approval of the Company, Employee and W-H Investment L.P. and
W.H. Investment II, L.P.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its Vice President and CFO thereunto duly authorized, and Employee
has executed this Agreement, all as of the day and year first above written.
W-H ENERGY SERVICES, INC.
By: /s/ JONATHAN BOUCHER
--------------------------
Jonathan Boucher
Vice President
By: /s/ KENNETH T. WHITE, JR.
--------------------------
Kenneth T. White, Jr.
Employee
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<PAGE> 1
EXHIBIT 10.9
AGREEMENT AND PLAN OF RECAPITALIZATION
AMONG
W-H INVESTMENT, L.P.
AND
W-H HOLDINGS, INC.
AND
THE STOCKHOLDERS IDENTIFIED HEREIN
DATED AS OF AUGUST 11, 1997
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TABLE OF CONTENTS
RECITALS
ARTICLE I
THE RECAPITALIZATION
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SECTION 1.1 General Repurchase and Recapitalization Transactions .......................... 1
SECTION 1.2. Repurchases of Class A Common Stock by the Company ............................ 2
SECTION 1.3. Options ....................................................................... 2
SECTION 1.4. Warrants ...................................................................... 3
SECTION 1.5. Purchaser Investments ......................................................... 3
SECTION 1.6. Restructure of Indebtedness ................................................... 4
SECTION 1.7. Escrow ........................................................................ 4
SECTION 1.8. Securities Issued at Closing .................................................. 4
SECTION 1.9. Effect of the Recapitalization
................................................ 5
SECTION 1.10. Appointment of Stockholder Representative ..................................... 5
ARTICLE II
CLOSING
SECTION 2.1. Closing ....................................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification ................................................ 8
SECTION 3.2 Authorization ................................................................. 8
SECTION 3.3 No Violation .................................................................. 9
SECTION 3.4 Capitalization of the Company ................................................. 9
SECTION 3.5. Subsidiaries and Equity Investments ........................................... 10
SECTION 3.6 Consents and Approvals ........................................................ 11
SECTION 3.7 Financial Statements .......................................................... 11
SECTION 3.8. Absence of Undisclosed Liabilities ............................................ 11
SECTION 3.9. Absence of Certain Changes .................................................... 12
SECTION 3.10. Corporate Action; Charter and Bylaws .......................................... 13
SECTION 3.11. Litigation; Product Liability Claims .......................................... 13
SECTION 3.12. Real and Personal Property; Liens and Encumbrances ............................ 14
SECTION 3.13. Condition of Property ........................................................ 14
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SECTION 3.14. Compliance with Laws .......................................................... 15
SECTION 3.15. Environmental Matters ......................................................... 15
SECTION 3.16. Certain Agreements ............................................................ 17
SECTION 3.17. Employee Benefit Plans ........................................................ 18
SECTION 3.18. Labor Relations ............................................................... 20
SECTION 3.19. Insurance ..................................................................... 21
SECTION 3.20. Brokers' Fees and Commissions ................................................. 21
SECTION 3.21. Miscellaneous Other Information ............................................... 21
SECTION 3.22. Proprietary Rights ............................................................ 22
SECTION 3.23. Taxes ......................................................................... 22
SECTION 3.24. Inventory and Fixed Assets .................................................... 24
SECTION 3.25. Accounts Receivable ........................................................... 25
SECTION 3.26. Customers and Suppliers ....................................................... 25
SECTION 3.27. Material Facts ................................................................ 25
SECTION 3.28. Related Party Transactions .................................................... 25
SECTION 3.29. Closing ....................................................................... 26
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF STOCKHOLDERS
SECTION 4.1. Ownership of Shares ........................................................... 26
SECTION 4.2. Authorization ................................................................. 26
SECTION 4.3. No Violation .................................................................. 26
SECTION 4.4. Brokers' Fees and Commissions ................................................. 27
SECTION 4.5. Closing ....................................................................... 27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
SECTION 5.1. Organization and Qualification ................................................ 27
SECTION 5.2. Authorization ................................................................. 27
SECTION 5.3. No Violation .................................................................. 28
SECTION 5.4. Consents and Approvals ........................................................ 28
SECTION 5.5. Brokers' Fees and Commissions ................................................. 28
SECTION 5.6. Investment Intent ............................................................. 28
SECTION 5.7. Closing ....................................................................... 28
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ARTICLE VI
COVENANTS
SECTION 6.1. Conduct of Business ........................................................... 29
SECTION 6.2. Access to Information ......................................................... 31
SECTION 6.3. Cooperation ................................................................... 32
SECTION 6.4. Consents and Approvals ........................................................ 32
SECTION 6.5. Public Announcements .......................................................... 32
SECTION 6.6. Supplemental Financial Statements; Disclosure Supplements ..................... 33
SECTION 6.7. Escrow Agreement .............................................................. 33
SECTION 6.8. Best Efforts; Competing Bids .................................................. 33
SECTION 6.9. Employment Agreement; Management Stock Options ................................ 33
SECTION 6.10. Composition of Board of Directors ............................................. 34
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.1. Conditions to Obligations ..................................................... 34
SECTION 7.2. Conditions to Obligations of Purchaser ........................................ 35
SECTION 7.3. Conditions to Obligations of the Company ...................................... 37
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.1. Termination ................................................................... 38
SECTION 8.2. Procedure and Effect of Termination ........................................... 38
ARTICLE IX
SURVIVAL; INDEMNIFICATION
SECTION 9.1. Survival ...................................................................... 39
SECTION 9.2. Indemnification by Stockholders ............................................... 39
SECTION 9.3. Indemnification by Purchaser .................................................. 40
SECTION 9.4. Procedure for Indemnification ................................................. 40
SECTION 9.5. Dispute as to Right of Indemnification ........................................ 41
SECTION 9.6. Indemnification Cap and Deductible ............................................ 41
SECTION 9.7. Indemnification of Claims Covered by Insurance ................................ 42
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. Taking of Necessary Action .................................................... 42
SECTION 10.2. Successors and Assigns ........................................................ 43
SECTION 10.3. Entire Agreement; Third Party Beneficiaries ................................... 43
SECTION 10.4. Amendment and Modification .................................................... 43
SECTION 10.5. Waiver of Compliance; Consents ................................................ 43
SECTION 10.6. Validity ...................................................................... 43
SECTION 10.7. Expenses and Obligations ...................................................... 43
SECTION 10.8. Parties in Interest ........................................................... 43
SECTION 10.9. Notices ....................................................................... 44
SECTION 10.10. Governing Law ................................................................. 45
SECTION 10.11. Counterparts .................................................................. 45
SECTION 10.12. Headings ...................................................................... 45
SECTION 10.13. Certain Definitions; Interpretation ........................................... 45
SECTION 10.14. Entire Agreement .............................................................. 51
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AGREEMENT AND PLAN OF RECAPITALIZATION
THIS AGREEMENT AND PLAN OF RECAPITALIZATION (this "Agreement") is
entered into as of August 11, 1997 among W-H Investment, L.P., a Delaware
limited partnership ("Purchaser"), W-H Holdings, Inc., a Texas corporation (the
"Company"), and each of the persons identified on Schedule A to the Company
Disclosure Letter and set forth on the signature page hereto (the
"Stockholders").
RECITALS
A. The parties hereto desire to effect a recapitalization (the
"Recapitalization") of the Company.
B. The Stockholders and Board of Directors of the Company and the
general partner of the Purchaser have approved the Recapitalization.
C. Purchaser, the Company and the Stockholders desire to make certain
representations, warranties, agreements and indemnities in connection with the
Recapitalization and also desire to set forth various conditions precedent
thereto.
D. In connection with the Recapitalization, each of the optionholders
of the Company identified on Schedule B to the Company Disclosure Letter
("Optionholders") and each of the warrantholders of the Company identified on
Schedule C to the Company Disclosure Letter will surrender their Options and
Warrants as contemplated by this Agreement.
E. Certain capitalized terms used in this Agreement have the meanings
set forth in Section 10.13 hereof.
THEREFORE, the parties hereto agree as follows:
ARTICLE 1
THE RECAPITALIZATION
SECTION 1.1 General Repurchase and Recapitalization Transactions.
Subject to the terms and conditions set forth in this Agreement, and as more
specifically described in this Article I, (a) each of the holders of Class A
Common Stock will sell to the Company all or a substantial portion of their
Class A Common Stock and each of the Optionholders and
<PAGE> 7
Warrantholders will surrender to the Company all of their Options and Warrants
and underlying shares of Class A Common Stock, and in consideration thereof,
they will receive cash proceeds as more specifically described in Sections 1.2,
1.3 and 1.4 of this Article I. The maximum payments payable pursuant to Sections
1.2, 1.3 and 1.4 before Per Share Purchase Price Adjustments, if any, and any
withholding taxes would be $40,801,138, $13,453,500 and $857,850 respectively.
SECTION 1.2. Repurchases of Class A Common Stock by the Company.
(a) Subject to the terms and conditions set forth in this Agreement,
including, without limitation, that each of the other transactions provided for
in this Article I is completed concurrently, the Company shall repurchase from
each of the Stockholders holding its outstanding Class A Common Stock, and such
Stockholders each, severally and not jointly, hereby agree to sell to the
Company, an aggregate of 645,606 shares of Class A Common Stock, at a purchase
price per share equal to the difference of $73 minus the Per Share Purchase
Price Adjustment, if any, minus the Per Share Escrow Adjustment minus (only with
regard to the 45,300 restricted shares issued to certain of the Stockholders who
are employees for compensation purposes as restricted stock (the "Restricted
Shares")), any withholding or other taxes relating thereto. The foregoing
payment will be subject to the due completion, execution and delivery to the
Company of a Letter of Transmittal by the holder. Such shares shall be
repurchased from the Stockholders on a pro rata basis, such that each
Stockholder, as nearly as possible, taking into account the number of shares of
Class A Common Stock held by each Stockholder and that no fractional share
interests shall be repurchased, shall sell to the Company 645,606 of the 700,906
shares of Class A Common Stock outstanding immediately prior to the Closing
hereunder and held by such Stockholder, as specifically set forth in the
Stockholder Schedule.
(b) By his, her or its execution and delivery of this Agreement, each
Stockholder hereby agrees that, effective as of the Closing, such Stockholder
shall be deemed to have released and discharged the Company and the Purchaser,
and their respective stockholders, partners, directors, officers, employees,
agents and representatives, from and against any obligations, liabilities and
claims relating to this Agreement and the agreements and instruments
contemplated hereby and any transactions or circumstances relating to the
Company or their investment therein during any period prior to the Closing.
SECTION 1.3. Options. As soon as practicable after the date hereof, the
Company shall make appropriate arrangements to cause each outstanding Option
granted under the Option Plan, whether or not then exercisable, to become fully
exercisable at or prior to the Closing. Subject to the terms and conditions set
forth in this Agreement, including, without limitation, the condition that each
of the other transactions provided for in this Article I is completed
concurrently, each Option which remains outstanding immediately prior to the
Closing shall be surrendered and
2
<PAGE> 8
canceled and in consideration of such cancellation the Company shall pay to or
for the benefit of the holder of such Option at the Closing, in the manner
provided in this Agreement, an amount in respect thereof equal to the difference
of (a) the product of (i) the difference of $73 minus the Per Share Purchase
Price Adjustment, if any, minus the exercise price of such Option multiplied by
(ii) the number of shares of Class A Common Stock issuable upon surrender of
such Options, minus (b) any withholding or other taxes or charges associated
with such surrender, cancellation and payment (the "Closing Option
Consideration"). The foregoing payment will be subject to the due completion,
execution and delivery to the Company of a Letter of Transmittal by the holder.
SECTION 1.4. Warrants. As soon as practicable after the date hereof,
the Company shall make appropriate arrangements to cause each outstanding
Warrant, whether or not then exercisable, to become fully exercisable at or
prior to the Closing. Subject to the terms and conditions set forth in this
Agreement, including, without limitation, the condition that each of the other
transactions provided for in this Article I is completed concurrently, each
Warrant which remains outstanding immediately prior to the Closing shall be
surrendered and canceled and in consideration of such cancellation the Company
shall pay to or for the benefit of the holder of such Warrant at the Closing, in
the manner provided in this Agreement, an amount in respect thereof equal to the
difference of (a) the product of (i) the difference of $73 minus the Per Share
Purchase Price Adjustment, if any, minus the exercise price of such Warrant
multiplied by (ii) the number of shares of Class A Common Stock issuable upon
exercise of such Warrants, minus (b) any withholding or other taxes or charges
associated with such surrender, cancellation and payment (the "Closing Warrant
Consideration"). The foregoing payment will be subject to the due completion,
execution and delivery to the Company of a Letter of Transmittal by the holder.
SECTION 1.5. Purchaser Investments. Subject to the terms and conditions
set forth in this Agreement, including, without limitation, the condition that
each of the other transactions provided for in this Article I is completed
concurrently, Purchaser, or Purchaser's affiliates or designees, shall purchase
from the Company, and the Company shall issue and sell to it or them, at the
Closing (i) 220,000 shares of Class A Common Stock for an aggregate purchase
price of $12,045,000, (ii) $24,000,000 aggregate principal amount of New
Subordinated Debentures at an aggregate purchase price equal to such aggregate
principal amount and (iii) warrants to purchase 37,812.5 shares of Class A
Common Stock at an exercise price per share of $73 in connection with the
issuance of the foregoing securities. The respective purchase prices payable by
Purchaser or Purchaser's affiliates or designees for the securities described in
the preceding sentence shall be payable by Purchaser to the Company at the
Closing by wire transfer of federal or other immediately available funds against
delivery by the Company to Purchaser of appropriate certificates representing
and evidencing ownership of, respectively, the Class A Common Stock, the New
Subordinated Debentures and warrants to be purchased by Purchaser, free and
clear of any Liens or other ownership interests or rights of any type,
including, without
3
<PAGE> 9
limitation, preemptive rights, of any other Person. Without limiting the
generality of the foregoing, each Stockholder, Warrantholder and Optionholder
hereby waives any and all preemptive or other rights that such Stockholder might
otherwise have or claim to have with respect to the issuances and sales of
securities provided for in this Section 1.5.
SECTION 1.6. Restructure of Indebtedness.
(a) At or prior to the Closing, each holder of Subordinated Debentures
shall convert such holder's Subordinated Debentures and the Company shall have
canceled all such Subordinated Debentures and issued Class A Common Stock upon
conversion thereof in accordance with their terms and the Company shall have
received pay-off, release and discharge letters from each of the holders of the
Subordinated Debentures to the reasonable satisfaction of Purchaser.
(b) At or prior to the Closing, the Company shall pay in full and
discharge all Indebtedness of the Company and its Subsidiaries (other than the
Subordinated Debentures), and the Company shall have received pay-off, release
and discharge letters from each of the holders of such Indebtedness to the
reasonable satisfaction of Purchaser.
SECTION 1.7 Escrow. In addition to the payments under Sections 1.2, 1.3
and 1.4, Buyer will deposit the $6,350,000 of Escrow Funds subject to the Escrow
Agreement, which provided that such Escrow Funds (together with any interest
income thereon) will be paid, subject to claims and other provisions in this
Agreement and the Escrow Agreement, to the Stockholders according to their
percentage interest of Class A Common Stock (prior to surrender and cancellation
of the Warrants and Options) immediately prior to the Closing, and the
Optionholders and Warrantholders will have no right, claim or interest in and to
the Escrow Funds. The Escrow Agreement will provide for distribution of any
interest income on an annual basis.
SECTION 1.8 Securities Issued at Closing.
(a) At the Closing, the Stockholders will hold 55,000 Retained Shares.
(b) At the Closing, the Purchaser or its affiliates or designees will
hold 220,000 shares of Class A Common Stock and warrants to acquire 37,812.5
shares of Class A Common Stock.
(c) At the Closing, the Company will authorize and adopt the New
Management Option Plan and within 90 days thereafter will issue options
thereunder to acquire 30,937.5 shares of Class A Common Stock with an initial
exercise price of $73 per share.
4
<PAGE> 10
(d) In connection with retaining, purchasing and acquiring the
foregoing securities, each of the holders thereof will enter into a Company
Subscription Agreement and a Company Stockholder Agreement.
SECTION 1.9. Effect of the Recapitalization . The Recapitalization is
intended by the parties to this Agreement to result in the respective issuances
and cancellations of securities, restructuring of Indebtedness and respective
resignations and elections of directors provided for herein but is not intended
otherwise to affect the business or to affect the articles of incorporation or
bylaws of the Company, which shall remain in full force and effect and unchanged
from and after the Closing unless and until thereafter amended in accordance
with the requirements of applicable law and their respective terms.
SECTION 1.10. Appointment of Stockholder Representative. The Company
and the Stockholders hereby designate Kenneth T. White, Jr. (or in the event of
his death, incapacity or inability to serve as Stockholder Representative, then
David Eliff), to be the "Stockholder Representative" referred to elsewhere in
this Agreement and in the Escrow Agreement. The Stockholder Representative shall
have the authority to take all such action and to exercise such discretion as is
required of the Stockholder Representative pursuant to the terms of this
Agreement, all of which actions shall be binding on each of the Stockholders,
including, without limitation, the following:
(a) to receive, hold and deliver to the Company for cancellation the
share certificates representing the Class A Common Stock, the Conversion Shares,
the Restricted Shares, the Options and Warrants and any other documents relating
thereto;
(b) to execute, acknowledge, deliver, record and file all ancillary
agreements, certificates and documents which Purchaser deems necessary or
appropriate in connection with the consummation of the transactions contemplated
by this Agreement;
(c) to receive any payments due and to cause such payments to be
delivered to the Stockholders under this Agreement and the Escrow Agreement, and
to acknowledge receipt of such payments on behalf of the Stockholders;
(d) to convert the Subordinated Debentures;
(e) to waive any breach or default under this Agreement, or to waive
any condition precedent to the Closing under Article VII hereof;
(f) to terminate, extend, amend or modify this Agreement;
5
<PAGE> 11
(g) to receive service of process in connection with any claims under
this Agreement or the Escrow Agreement; and
(h) to perform the obligations and exercise the rights of the
Stockholder Representative on behalf of the Stockholders, under the Escrow
Agreement, including the settlement of any claims and disputes with Purchaser
arising thereunder.
ARTICLE II
CLOSING
SECTION 2.1. Closing. The respective payments, deliveries of
certificates and other documents, and other actions and proceedings necessary to
complete the transactions provided for in this Agreement (the "Closing") shall
take place at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, NY
10023-5820, on the later of August 11, 1997 or two business days after the
receipt of all requisite governmental approvals and the satisfaction of all
other conditions set forth in Article VII, or at such other time and place and
on such other date as Purchaser and the Company shall agree (the "Closing
Date"). At the Closing:
(a) The Company shall deliver to Purchaser the following:
(i) the certificate described in Section 7.2(b);
(ii) the Company Stockholder Agreement and the Management
Consulting Agreement duly executed by the Company; and
(iii) all other previously undelivered documents specified in
Article VII or otherwise required to be delivered by the Company to Purchaser at
or prior to the Closing pursuant to the terms of this Agreement and such other
certificates, documents and other papers as Purchaser shall reasonably request.
(b) The Stockholders shall deliver to Purchaser and the Company the
following:
(i) the Company Stockholder Agreement duly executed by each of
the Stockholders;
(ii) Letters of Transmittal relating to the Class A Common
Stock (including the Restricted Shares and the Conversion Shares) and such other
instruments of assignment as Purchaser shall request with respect thereto to be
delivered pursuant to Article I;
6
<PAGE> 12
(iii) a certificate from the Company in form satisfactory to
Purchaser that none of the Stockholders is a "foreign person" within the meaning
of Section 1445 of the Code; and
(iv) all other previously undelivered documents specified in
Article VII or otherwise required to be delivered by the Stockholders to
Purchaser at or prior to the Closing pursuant to the terms of this Agreement and
such other certificates, documents and other papers as Purchaser shall request.
(c) Purchaser shall deliver or cause to be delivered to the Company and
the Stockholders the following:
(i) the certificate described in Section 7.3(b); and
(ii) all other previously undelivered documents specified in
Article VII or otherwise required to be delivered by Purchaser to the Company or
the Stockholders at or prior to the Closing pursuant to the terms of this
Agreement and such other certificates, documents and other papers as the Company
shall reasonably request.
(d) The Company shall pay to the Stockholder Representative, for
distribution to the Stockholders entitled thereto the consideration and amount
provided in Article I hereto.
(e) The Company shall pay to the Stockholder Representative, for
distribution to the Optionholders entitled thereto, the consideration and amount
provided in Article I hereto.
(f) The Company shall pay to the Stockholder Representative, for
distribution to the Warrantholders entitled thereto, the consideration and
amount provided in Article I hereto
(g) The Company shall cause to be deposited with the Escrow Agent
$6,350,000 (collectively, the "Escrow Funds"), which amounts shall be held and
subsequently distributed by the Escrow Agent to the Stockholders depositing the
Escrow Funds in respect of their Class A Common Stock (but not in respect of the
Retained Shares), on a pro rata basis according to their ownership of such Class
A Common Stock pursuant to the provisions of the Escrow Agreement.
(i) The Company shall pay the Company and Stockholder Transaction
Costs, which shall be set forth on a schedule to be delivered to Purchaser at
least three days prior to the Closing, to the parties and in the amounts (up to
the limit specified in this Agreement) agreed by the Purchaser, the Company and
the Stockholder Representative.
(j) The Company shall repay all of its Indebtedness (other than the
Subordinated Debentures, which shall be converted into Class A Common Stock in
accordance with their terms as provided in Section 1.6(a)) that was outstanding
immediately prior to the Closing in
7
<PAGE> 13
accordance with the terms thereof and pursuant to duly executed pay-off, release
and discharge letters delivered to Purchaser prior to the Closing by the holders
thereof.
(k) Purchaser or its affiliates or designees shall pay to the Company
the purchase price for the Class A Common Stock and the New Subordinated
Debentures to be purchased as provided in Section 1.5.
(l) All payments to be made as described above shall be made by wire
transfer of federal or other immediately available funds or by Company check
against delivery, in the case of the payments specified in paragraphs (d), (e),
(f), and (j) above, of the certificates or other appropriate documents
representing the respective securities for which such payment is made,
accompanied, in the cases specified in paragraphs (d), (e) and (f) above, by the
Letters of Transmittal and other instruments required pursuant to paragraph (b)
above.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Letter, the Company
represents and warrants to Purchaser as follows:
SECTION 3.1 Organization and Qualification. Each of the Company and its
respective Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as it is now being
conducted and to own, operate and lease the properties and assets it currently
purports to own, operate or hold. Each of the Company and its Subsidiaries is
duly qualified or licensed to do business and is in good standing as a foreign
corporation in each other jurisdiction as to which the nature of the business
conducted by it or the properties owned or leased by it requires qualification
or licensure, except where a breach of the foregoing would not have a Material
Adverse Effect on the Company or its Subsidiaries, individually or taken as a
whole.
SECTION 3.2 Authorization. The Company has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement and the
performance of its obligations hereunder have been, and the execution, delivery
and performance of each instrument required hereby to be executed and delivered
by the Company at the Closing will, prior to the Closing, have been, duly
authorized by all requisite corporate action on the part of the Company. No
other corporate action on the part of the Company is necessary to authorize the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has
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been, and each instrument required hereby to be executed and delivered by the
Company at the Closing will then be, duly and validly executed and delivered by
it. This Agreement constitutes, and each instrument required hereunder to be
executed by the Company will constitute, the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
SECTION 3.3 No Violation. The execution and delivery of this Agreement
by the Company does not, and the performance by the Company of its obligations
hereunder and the consummation by the Company of the agreements and transactions
contemplated by this Agreement will not, (a) conflict with, or result in any
violation or breach of or default or loss of any benefit under, any provision of
the articles of incorporation or bylaws or comparable organizational documents,
as applicable, of the Company or any of its Subsidiaries; (b) violate any
permit, concession, grant, franchise, or any judgment, decree, order, writ,
injunction, statute, rule or regulation, of any court or Governmental Authority
to which the Company or any of its Subsidiaries is a party or to which the
Company or any of its Subsidiaries or any of their respective properties are
subject; or (c) conflict with, or result in a breach or violation of, or
constitute a default (with or without notice or the lapse of time or both) under
or accelerate the performance required by, the terms, conditions or provisions
of any agreement, contract, indenture, note, bond, mortgage or deed of trust, or
any license, lease or other instrument to which the Company or any of its
Subsidiaries is a party or to which any of their respective properties are
subject, except where a breach of the foregoing would not have a Material
Adverse Effect on the Company or its Subsidiaries, individually or taken as a
whole.
SECTION 3.4 Capitalization of the Company. The authorized capital stock
of the Company consists of 1,000,000 shares, of which 100,000 shares comprise a
class designated Class B Common Stock, par value $1.00 per share ("Class B
Common Stock"), and 900,000 shares comprise a class designated Class A Common
Stock, par value $1.00 per share ("Class A Common Stock"). The Company has no
shares of Class B Common Stock issued and outstanding and has, in the aggregate,
690,906 shares of Class A Common Stock issued and outstanding, which shares are
held of record by the Stockholders set forth in Schedule A to the Company
Disclosure Letter and all of which shares have been duly and validly issued, are
fully paid and non-assessable and were not issued in violation of any preemptive
rights. Other than the Subordinated Debentures (which are convertible into
10,000 shares of Class A Common Stock) and the Options and Warrants referred to
and described, respectively, in Schedules B and C to the Company Disclosure
Letter and in the Company Disclosure Letter, there are no outstanding options,
warrants, convertible securities, calls, rights, commitments, preemptive rights
or agreements or instruments or understandings of any character, to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound, obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of the Company or any of its Subsidiaries or any
securities or obligations convertible into, or exchangeable or evidencing the
right to
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subscribe for, such shares or to grant, extend or enter into any such option,
warrant, convertible security, call, right, commitment, preemptive right or
agreement. There are no outstanding obligations of the Company or any of its
Subsidiaries to purchase or otherwise acquire any capital stock of the Company
or any of its Subsidiaries or pay any additional amounts with respect to any
shares of capital stock of the Company or any of its Subsidiaries purchased.
Immediately after completion of and after giving effect to each of the
transactions contemplated by this Agreement, the Company will have outstanding
275,000 shares of Class A Common Stock (220,000 of which will be owned by
Purchaser and 55,000 of which will be owned by certain of the Stockholders), no
shares of Class B Common Stock, 30,937.5 options to purchase Class A Common
Stock at an exercise price per share of $73.00 issued pursuant to Section 6.9(b)
and warrants to purchase 37,812.5 shares of Class A Common Stock at an exercise
price per share of $73.00 issued pursuant to Section 1.5 (all of which will be
owned by Purchaser or Purchaser's designee, as the case may be). Other than as
described in the preceding sentence, the Company will, immediately after
completion of and after giving effect to each of the transactions contemplated
by this Agreement, have no outstanding options, warrants, convertible
securities, calls, rights, commitments, preemptive rights or agreements or
instruments or understanding of any character, to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound, obligating the Company or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of the Company or any of its Subsidiaries or any securities or obligations
convertible into, or exchangeable or evidencing the right to subscribe for, such
shares or to grant, extend or enter into any such option, warrant, convertible
security, call, right, commitment, preemptive right or agreement.
SECTION 3.5. Subsidiaries and Equity Investments.
(a) Schedule 3.5 of the Company Disclosure Letter sets forth (i) the
name of each Subsidiary of the Company, (ii) the jurisdiction of incorporation
or other organization, as applicable, of each Subsidiary, (iii) each
jurisdiction, other than the jurisdiction of incorporation or organization,
where each Subsidiary is qualified to conduct business, and (iv) the
capitalization thereof and the percentage of each class of voting stock or other
equity interests therein owned by the Company or by any of its Subsidiaries on
the date hereof.
(b) All of the outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued, are fully paid and non-assessable,
have not been issued in violation of any preemptive rights, and are owned of
record and beneficially, directly or indirectly, by the Company, free and clear
of any Liens.
(c) There are no options, warrants, calls, subscriptions, conversion or
other rights, agreements or commitments obligating any of the Subsidiaries to
issue any additional shares of
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capital stock of such Subsidiary or any other securities convertible into,
exchangeable for or evidencing any right to subscribe for any shares of such
capital stock.
SECTION 3.6 Consents and Approvals. The execution and delivery of this
Agreement and the consummation of the agreements and transactions contemplated
by this Agreement by the Company will not require the consent, approval, order
or authorization of any Governmental Authority, and no declaration, filing or
registration with, no notice to and no permit, authorization, consent or
approval of, any Governmental Authority is required by the Company in connection
with the execution and delivery of this Agreement and the consummation of such
agreements and transactions.
SECTION 3.7 Financial Statements. The Company has delivered to
Purchaser as part of the Company Disclosure Letter (i) copies of the audited
consolidated balance sheets of the Company as of September 30, 1992, 1993, 1994,
1995 and 1996 (the "Year-End Balance Sheets"), together with the related audited
consolidated statements of income, and stockholders' equity and cash flows for
each of the fiscal years of the Company ended on such dates and the respective
notes thereto, and (ii) copies of the unaudited consolidated balance sheet of
the Company, as of June 30, 1997 (the "Interim Balance Sheet"), together with
the related unaudited consolidated statement of income for the nine-month period
ended on such date (such audited and unaudited interim financial statements
being referred to herein as the "Financial Statements"). The Financial
Statements, including the notes thereto for the audited financial statements,
were prepared in accordance with the books and records of the Company and with
GAAP consistently applied throughout the periods covered thereby, except as
otherwise noted therein, and the Financial Statements present fairly in all
material respects the consolidated financial position and results of operations
and cash flows (as applicable) of the Company as of such dates and for the
periods then ended (subject, in the case of the unaudited interim Financial
Statements, to normal year-end audit adjustments).
SECTION 3.8. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.8 of the Company Disclosure Letter, the Company did not have at the
respective dates of the Financial Statements any liabilities or obligations of
any nature, whether accrued, absolute, fixed, contingent or otherwise and
whether due or to become due, that should have been included in such Financial
Statements in accordance with GAAP, except as and to the extent of the amounts
specifically reflected or reserved against in such Financial Statements or in
the notes thereto. Except as set forth in the Company Disclosure Letter and the
Financial Statements or as incurred in the usual and ordinary course of business
consistent with past practice, since the date of the Interim Balance Sheet
neither the Company nor any Subsidiary has incurred any liability of any nature
whatsoever, whether accrued, absolute, fixed, contingent or otherwise and
whether due or to become due. There are no pending claims for indemnification by
any Person against the Company or any of its Subsidiaries under any law or
agreement or pursuant to the articles of incorporation or bylaws or comparable
organizational documents, as applicable, of the Company
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or any of its Subsidiaries, and the Company has no knowledge of any existing
facts or circumstances that could give rise to such a claim against the Company
or any of its Subsidiaries.
SECTION 3.9. Absence of Certain Changes. Except as set forth in Schedule
3.9 of the Company Disclosure Letter, since May 31, 1997, there has not been:
(a) any change or any threatened change in the financial
condition of the Company or its Subsidiaries or in the properties,
assets, liabilities, business or prospects of the Company or its
Subsidiaries;
(b) any new method of management or operation introduced with
respect to the Company or its Subsidiaries;
(c) other than sales, transfers and retirements of
inventories, equipment and other fixed assets of the Company and its
Subsidiaries in the usual and ordinary course of business and
consistent with past practice, any sale, lease or other disposition of
any assets of the Company or any Subsidiary or any grant of a right to
sell, lease or otherwise dispose of any of such assets;
(d) any (i) change in the lines of business of the Company and
its Subsidiaries; (ii) change in the management or other operational
policies of the Company and its Subsidiaries; (iii) incurrence or
commitment to any capital expenditures, obligations or liabilities in
connection therewith, other than capital expenditures as set forth in
Schedule 3.9 of the Company Disclosure Letter, obligations or
liabilities that do not in the aggregate exceed $25,000; (iv) waiver of
any right or cancellation of any contract, debt or claim; or v)
acquisitions by merger, consolidation or purchase of assets of any
Person; (vi) other acquisition of any assets for a total consideration
in the aggregate in excess of $25,000, except as to the acquisition of
inventory, equipment and supplies for services, products and activities
of the Company and its Subsidiaries in the usual and ordinary course of
business and consistent with past practice;
(e) any change in the accounting methods or practices followed
by the Company and its Subsidiaries or the depreciation or amortization
policies or rates of the Company and its Subsidiaries;
(f) any debts, obligations or liabilities, absolute, accrued,
contingent or otherwise, whether due or to become due, incurred in an
amount in excess of $25,000 in the aggregate (other than Indebtedness
in the ordinary course of business);
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(g) any discharge, satisfaction or release of any Lien or the
payment of any obligation or liability in an amount in excess of
$25,000 in the aggregate;
(h) any mortgage, pledge or creation of any Lien, of or on any
of the assets, tangible or intangible, of the Company and its
Subsidiaries, other than in the usual and ordinary course of business;
(i) any declaration or payment of any dividends or other
distributions with respect to the outstanding capital stock of the
Company and its Subsidiaries;
(j) any bonus or incentive compensation awards or payments,
other than in the usual and ordinary course of business and consistent
with past practice;
(k) any change in compensation, including bonuses and
incentive awards or payments, other than in the usual and ordinary
course of business and consistent with past practice; or
(l) any payments or transactions involving Affiliates of the
Company.
SECTION 3.10. Corporate Action; Charter and Bylaws. The Company has
included in Schedule 3.10 of the Company Disclosure Letter to Purchaser true and
complete copies of the articles of incorporation and bylaws of the Company and
each of its Subsidiaries, as in effect on the date hereof. The Company has
heretofore made available to Purchaser true and complete copies of the minute
books and stock records of the Company and its Subsidiaries. Such minute books
and stock records correctly reflect all corporate actions taken at all meetings
or by written consents of, directors of the Company and its Subsidiaries
(including committees thereof) and their respective shareholders, including but
not limited to actions taken at such meetings relating to the organization of
the Company and its Subsidiaries, the issuance of shares of capital stock of the
Company and its Subsidiaries, and the incurrence by the Company and its
Subsidiaries of any indebtedness.
SECTION 3.11. Litigation; Product Liability Claims.
(a) Neither the Company nor any of its Subsidiaries is subject, and
during the five years immediately preceding the date hereof, neither the Company
nor any of its Subsidiaries was subject, to any judicial, governmental or
administrative order, judgment, injunction or decree, other than those of
general application. No suits, actions or proceedings of any character are
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any of their respective properties, assets or
business. Neither the Company nor any of its Subsidiaries is in default under
any judgment, decree, injunction or order of any court, or Governmental
Authority, outstanding against the Company or any of its Subsidiaries.
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(b) No product, warranty or service liability claim is pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries with respect to any products or services designed, manufactured or
marketed by the Company or any of its Subsidiaries (including any predecessor of
any thereof).
SECTION 3.12. Real and Personal Property; Liens and Encumbrances.
(a) The Company Disclosure Letter contains a true and complete summary
of all of the real and tangible operating assets owned (the "Owned Properties")
and leased (the "Leased Properties" and, collectively with the Owned Properties,
the "Properties") by the Company or any of its Subsidiaries.
(b) Except as set forth in the Company Disclosure Letter, the Company
has (i) good and indefeasible title to and the unrestricted right to sell the
Real Property Interest, in each case free and clear of all mortgages, liens,
security interests, charges, easements, covenants, rights-of-way and other
encumbrances or restrictions of any nature whatsoever ("Liens"); except (A)
mechanics', carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business; liens for taxes, assessments and
other governmental charges which are not due and payable or which may hereafter
be paid without penalty or which are being contested in good faith by
appropriate proceedings; and other imperfections of title or Encumbrances, if
any, that do not materially impair the use of assets to which they relate in the
business of the Company (collectively referred to herein as "Permitted Liens");
(B) all conditions that a physical inspection or survey would show; (C) all
Encumbrances of record: (D) all encumbrances for public utilities to provide
service to facilities located on such property or to provide service to adjacent
property, whether or not of record, (E) all zoning or other governmentally
imposed Encumbrances and (F) unrecorded easements, covenants, rights of way or
other restrictions, none of which unrecorded items materially impair the use of
the property to which they relate in the business of the Company as presently
conducted. The Company has good title to all personal property of any kind or
nature purported to be owned or used by it in its business, in each case free
and clear of all Encumbrances whatsoever except for (a) Permitted Liens and
Encumbrances of record, and (b) liens reflected on the Company Disclosure
Letter. The property and assets summarized on the Company Disclosure Letter
constitute all of the material tangible property and assets (real, personal or
fixed) used in the business operations of the Company as conducted prior to the
date of this Agreement.
SECTION 3.13. Condition of Property. The Properties, taken as a whole,
are in reasonably good working order and condition, normal wear and tear
excepted.
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SECTION 3.14. Compliance with Laws.
(a) The businesses of the Company and its Subsidiaries have been
conducted in accordance with applicable United States federal, state and, local,
and any applicable foreign, laws, regulations, judgments, orders, franchises,
permits and licenses and other governmental authorizations or approvals, except
where a breach of the foregoing would not have a Material Adverse Effect on the
Company or its Subsidiaries, individually or taken as a whole. No investigation
or review by any Governmental Authority (including without limitation any audit
or similar review by any United States federal, state or local, or foreign
taxing authority) with respect to the Company or any of its Subsidiaries is
pending or, to the knowledge of the Company, threatened.
(b) The Company and each of its Subsidiaries has all material licenses,
permits and certifications (United States federal, state, local and foreign)
required by law to conduct its businesses in the jurisdictions in which it
conducts its businesses, and such licenses, permits and certifications are in
full force and effect. Neither the Company nor any of its Subsidiaries has had
any such licenses, permits or certifications suspended or revoked. No proceeding
is pending or, to the knowledge of the Company, threatened seeking the
revocation or limitation of any of such licenses, permits and certifications.
SECTION 3.15. Environmental Matters.
(a) Each of the Company and its Subsidiaries has been and is in
compliance with all applicable Environmental Laws, except where a breach of the
foregoing would not have a Material Adverse Effect on the Company or its
Subsidiaries, individually or taken as a whole.
(b) Each of the Company and its Subsidiaries has obtained all licenses
and permits necessary (collectively, the "Environmental Permits") to conduct
their businesses and has filed all reports, notices, assessments, plans,
inventories and applications required by Environmental Laws (collectively, the
"Environmental Filings").
(c) No judicial or administrative proceedings or investigations are
pending or, to the knowledge of the Company, threatened against the Company or
its Subsidiaries and no written notice, citation, summons or order has been
delivered to the Company or its Subsidiaries by any Governmental Authority or
private entity pursuant to any applicable Environmental Laws (collectively,
"Environmental Claims").
(d) All real property that is currently or previously was owned,
operated or leased by the Company or its Subsidiaries is free from any
contamination, and there have been no releases of contaminants from, on, in,
under or above such real property, except where a breach of the
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foregoing would not have a Material Adverse Effect on the Company or its
Subsidiaries, individually or taken as a whole.
(e) There is and has been no leasehold provision or other contractual
impediment relating to any of the real property utilized by the Company or its
Subsidiaries which has prevented or would prevent the complete investigation of
environmental conditions including the right to take any steps necessary
including the implementation of an investigation to determine the extent of
contaminants in, or under such properties.
(f) No real property currently or formerly owned, operated or leased by
the Company and its Subsidiaries is listed or has been proposed for listing on
the National Priorities List, the Comprehensive Environmental Response
Compensation and Liability and Information System or any analogous state lists,
except where a breach of the foregoing would not have a Material Adverse Effect
on the Company or its Subsidiaries, individually or taken as a whole.
(g) None of the Company or its Subsidiaries is a "potentially
responsible party" for the costs of investigations, removal or remediation of
any real property listed on the National Priorities List or any analogous state
list, and neither the Company nor its Subsidiaries are aware of any facts which
may result in any of them being named such a potentially responsible party.
(h) Neither the Company nor its Subsidiaries nor any real property
currently or formerly owned, operated or leased by the Company or any of its
Subsidiaries is the subject of any pending United States federal, state or
local, or any foreign, investigation evaluating whether any remedial action is
needed or required or any fines or penalties are due under applicable
Environmental Laws, except where a breach of the foregoing would not have a
Material Adverse Effect on the Company or its Subsidiaries, individually or
taken as a whole.
(i) There are not now on, in or under any real property owned, leased
or operated by the Company or its Subsidiaries (i) to the knowledge of the
Company, any underground storage tanks, (ii) to the knowledge of the Company,
any asbestos-containing materials, (iii) any polychlorinated biphenyls, or (iv)
hazardous substances as defined by the Comprehensive Environmental Response
Corporation and Liability Act ("CERCLA"), 42U.S.C Section 9601(14), as amended.
(j) There are no claims pending, or, to the knowledge of the Company,
asserted or threatened by any private parties or entities which relate to the
operations of the Company or its Subsidiaries or the condition of the real
property whether currently owned, leased or operated upon.
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(k) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by the Company in relation to any
real property owned, operated or leased by the Company or its Subsidiaries that
have not been provided to Purchaser.
(l) None of the Company or its Subsidiaries, nor any of the real
property currently or formerly owned, operated, leased or utilized by the
Company or any of its Subsidiaries, is currently subject to any environmental
remediation, clean-up, penalty, or other environmental obligation arising under
applicable Environmental Laws, except where a breach of the foregoing would not
have a Material Adverse Effect on the Company or its Subsidiaries, individually
or taken as a whole..
(m) No capital expenditures in excess of $25,000 are required by the
Company or any of its Subsidiaries to achieve or maintain compliance with any
United States federal, state or local, or any foreign, Environmental Laws or
regulations now in effect or to the Company's knowledge, proposed.
SECTION 3.16. Certain Agreements.
(a) Except as set forth in Schedule 3.16 to the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries is party to any
agreement with any officer, director or employee of the Company or any of its
Subsidiaries (a) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of any of the transactions contemplated by this
Agreement or any other transaction involving the Company, (b) providing
severance benefits or other benefits upon the termination of employment,
regardless of the reason for such termination of employment, or (c) any of the
benefits of which will be increased, or the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement or any other
transaction involving the Company.
(b) The Company Disclosure Letter lists and describes all (a)
employment, consulting or other personal services agreements of the Company and
its Subsidiaries which may not be immediately terminated without penalty (or any
augmentation or acceleration of benefits); (b) leases, sales contracts and other
agreements with respect to any property, real or personal, of the Company and
its Subsidiaries which require annual payments of more than $25,000 (other than
master service contracts or purchase orders entered into in the usual and
ordinary course of the business of the Company and its Subsidiaries); (c)
contracts or commitments for capital expenditures or acquisitions in excess of
$50,000 for one project or set of related projects (other than contracts for the
acquisition of supplies in the usual and ordinary course of the business of the
Company and its Subsidiaries); (d) agreements, contracts, indentures or other
instruments relating to the borrowing of money, or the guarantee of any
obligation for the borrowing of
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money or otherwise; (e) contracts or agreements providing for any covenant not
to compete by the Company or any of its Subsidiaries or otherwise restricting in
any way the engaging in any business activity by the Company or any of its
Subsidiaries; (f) contracts or agreements relating to franchisees,
consultancies, professional retentions, agency, sales or distributorship
arrangements pertaining to the Company and its Subsidiaries or their products or
activities, none of which requires annual payments by the Company or its
Subsidiaries of more than $25,000; (g) contracts relating to the disposal of any
pollutant, toxic or hazardous material or waste generated by or relating to the
Company and its Subsidiaries or any of their properties; (h) material contracts,
agreements, arrangements, understandings or commitments between the Company or
any of its Subsidiaries and any employee, officer, director or shareholder of
the Company involving payments in excess of $25,000 and not otherwise disclosed
in the Company Disclosure Letter; (i) contracts, agreements, arrangements or
commitments, other than the foregoing, which are material to the business,
assets, earnings, properties, operations or financial condition of the Company
and its Subsidiaries taken as a whole; and (j) consents required under any
document listed in clauses (a) through (i) above, and any other third-party
consent, required in order to complete the transactions contemplated by this
Agreement without penalty.
(c) The Company and its Subsidiaries are not in default and no third
party is in default, under any of the agreements, contracts or obligations
described in the Company Disclosure Letter. Each of such agreements, contracts
and obligations is in full force and effect and has been complied with by the
Company or its Subsidiaries, as the case may be, in all respects.
SECTION 3.17. Employee Benefit Plans.
(a) General. Except as set forth in the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries is a party to, participates in
or has any liability, contingent or otherwise, with respect to (i) any "employee
welfare benefit plan" or "employee pension benefit plan" (as those terms are
respectively defined in Sections 3(1) and 3(2) of ERISA), other than a
"multiemployer plan" (as defined in Section 3(37) of ERISA); (ii) any retirement
plan, incentive compensation plan, insurance program or any other fringe benefit
arrangements for any current or former employee, director, consultant or agent
that does not constitute an employee benefit plan (as defined in Section 3(3) of
ERISA); or (iii) any employment agreement.
(b) Plan Documents and Reports. The Company Disclosure Letter contains
a true and complete list and description of all pension and welfare plans as
defined in Sections 3(l) and 3(2) of ERISA and all other pension plans, welfare
plans, profit-sharing plans, deferred compensation plans, stock option plans,
severance pay plans, and other similar plans, agreements and arrangements that
are currently in effect or were maintained within three years of the Closing
Date and that are subject to ERISA, or have been approved before the date hereof
and will take effect after the date hereof, for the benefit of directors,
officers or employees or former
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employees (or beneficiaries thereof) of the Company or any of its Subsidiaries
(collectively, the "Employee Benefit Plans"). The Company has delivered to
Purchaser, as to each such Employee Benefit Plan, a true and complete copy or
description of (i) such Employee Benefit Plan, (ii) the annual report for the
last two years (one of the series of Form 5500, including attachments) for each
Employee Benefit Plan that is required to file such a form with the IRS, (iii)
each trust agreement and group annuity contract, if any, relating thereto, (iv)
the most recent actuarial report or valuation, if any, relating thereto that was
delivered to the Company by the actuaries for any Employee Benefit Plan, (v) the
most current summary plan description for each Employee Benefit Plan required to
have such a description, (vi) the most recent IRS determination letter for each
Employee Benefit Plan that is represented to be qualified under Section 401(a)
of the Code, and (vii) a current schedule of assets held with respect to any
funded Employee Benefit Plan. There have been no changes in the financial
condition of the respective Employee Benefit Plans from that stated in the
annual reports and actuarial reports so supplied. All reports and disclosures
relating to such Employee Benefit Plans required to be filed with or furnished
to Governmental Authorities, plan participants or plan beneficiaries have been
filed or furnished in accordance with applicable law, and each Employee Benefit
Plan has been administered in all respects in accordance with its governing
documents. The Company is not currently a member of a controlled group or
affiliated service group as defined in Sections 414(b), (c), (m), (n) and (o) of
the Code.
(c) Compliance with Laws; Liabilities. All Employee Benefit Plans
comply in all material respects, and have been administered in form and in
operation in compliance in all material respects with all requirements of
applicable law and regulations, and no event has occurred which will or could
cause any such Employee Benefit Plan to fail to comply with such requirements
and no notice has been issued by any Governmental Authority questioning or
challenging such compliance. There have been no "prohibited transactions" (as
described in Section 406 of ERISA or section 4975 of the Code) with respect to
any Employee Benefit Plan which could reasonably subject the Company or any
Subsidiaries to any tax or penalty under section 4975 of the Code. There have
been no acts or omissions by the Company or by any Subsidiaries which have given
rise to or could give rise to any fines, penalties, taxes or related charges
under section 502 of ERISA or Chapters 43, 47 or 68 of the Code for which the
Company or any Subsidiary may be liable. There are no actions, suits or claims
(other than routine claims for benefits) pending or threatened involving any
Employee Benefit Plan or the assets thereof and no facts exist which could give
rise to any such actions, suits or claims (other than routine claims for
benefits). Neither the Company nor any Subsidiary has any liability, contingent
or otherwise, for providing, under any Employee Benefit Plan or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
lability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and section 4908B of the Code. Actuarially adequate accruals
for all obligations under the Employee Benefit Plans subject to the requirements
of Title IV of ERISA or Section 412 of the Code are reflected in the Financial
Statements and such obligations include a pro rata amount of the contributions
and
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Pension Benefit Guarantee Corporation premiums which would otherwise have been
made in accordance with past practices and applicable law for the plan years
which include the Closing Date. There has been no act or omission that would
impair the ability of the Company and its Subsidiaries (or any successor
thereto) unilaterally to amend or terminate any Employee Benefit Plan.
(d) Multiemployer Plans. The Company has not been a sponsor of or an
adopting or contributing employer to a multiemployer plan, within the meaning of
Section 3(37) of ERISA, now or in the past six years. Neither the Company nor
any Subsidiary contributes to, has contributed to, or has any liability or
contingent liability with respect to any multiemployer plan that is subject to
Title IV of ERISA.
(e) Post Retirement. The Company does not provide employee
post-retirement medical or health coverage, other than as required by
applicable law.
(f) Claims. There are no claims, pending or, to the knowledge of the
Company, threatened, involving any pension or welfare plans or other plans or
arrangements listed on the Disclosure Letter by a current or former employee
(or beneficiary thereof) of the Company, other than claims under the Company's
medical insurance plan.
SECTION 3.18. Labor Relations.
(a) A list of each collective bargaining agreement or other labor
agreement to which the Company or any Subsidiary is a party (and the expiration
date thereof) is set forth on the Company Disclosure Letter. Each of the
Company and its Subsidiaries is in compliance with all Federal, state, local
and other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice, except where a breach of the
foregoing would not have a Material Adverse Effect on the Company or its
Subsidiaries, individually or taken as a whole.
(b) No unfair labor practice complaint against the Company or any of
its Subsidiaries is pending before the National Labor Relations Board.
(c) There is no labor strike, dispute, slowdown or stoppage actually
pending or, to the knowledge of the Company, threatened against or involving
the Company or any of its Subsidiaries.
(d) No representation question exists respecting the employees of the
Company or any of its Subsidiaries.
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(e) No claim or grievance has been made, no arbitration proceeding
arising out of or under any collective bargaining or other labor agreement is
pending and no claim therefor has been asserted.
(f) Except as listed on the Company Disclosure Letter, no collective
bargaining agreement or other labor agreement is currently being negotiated by
the Company or any of its Subsidiaries.
(g) Neither the Company nor any of its Subsidiaries has experienced
any labor difficulty during the last five years. To the knowledge of the
Company, there has not been any change in relations with employees of the
Company or any of its Subsidiaries as a result of any announcement of the
transactions contemplated by this Agreement.
SECTION 3.19. Insurance. Each of the Company and its Subsidiaries has
in effect policies of insurance with respect to their property, assets,
operations and business (collectively, "Insurance Policies"). All of the
Insurance Policies are listed and described in the Company Disclosure Letter
and are in full force and effect. There are no pending claims against the
Insurance Policies by the Company or any of its Subsidiaries as to which the
insurers have denied liability and no event relating to the Company or its
Subsidiaries has occurred which can reasonably be expected to result in a
retroactive upward adjustment in premiums under any of the Insurance Policies.
SECTION 3.20. Brokers Fees and Commissions. Except for Ardshiel, Inc.
and Growth Capital Partners, Inc., neither the Company nor any of its
directors, officers, stockholders, employees or agents, has employed any
investment banker, broker, or finder in connection with the transactions
contemplated hereby, and there is no factual basis upon which any Person other
than Ardshiel, Inc. or Growth Capital Partners, Inc. could claim entitlement to
any compensation for the provision of any such services
SECTION 3.21. Miscellaneous Other Information. The Company Disclosure
Letter sets forth the following information:
(a) the name and current annual salary of each officer,
employee and agent of the Company and any of its Subsidiaries to whom
the Company or any of such Subsidiaries paid in 1996 or will pay in
1997 as annual compensation for the current year of at least $100,000
(exclusive of discretionary bonuses), and any employment agreement with
respect to each such person, and the name and compensation of each
person to whom the Company or any of its Subsidiaries paid consulting
fees in 1996 and 1997; and
(b) the name of each bank in which the Company or any of its
Subsidiaries has an account or safe deposit box, the number of any such
accounts, the name in which
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the account or box is held and the names of all persons authorized to
draw thereon or to have access thereto.
SECTION 3.22. Proprietary Rights. The Company Disclosure Letter
contains a true and complete list of all trademarks, patents, know-how, trade
names, service marks, copyrights, registrations or applications with respect
thereto, renewals, assignments, or expectancies, and all rights in, to or
respecting such renewals and licenses or rights under the same currently owned
or being used by the Company or any of its Subsidiaries in connection with its
business, and to the extent indicated therein, the same have been duly
registered in the offices as are indicated therein. The Company is the owner of
its trademarks, patents, trade names, service marks, copyrights, renewals and
related rights, and the holder of the full record title to the trademark
registrations that it purports to own, which registrations are in full force
and effect and are free and clear of any Liens, of whatever kind or character.
Except as set forth on the Company Disclosure Letter, there are no claims or
demands of any other Person pertaining to any of such rights; and no
proceedings have been instituted, are pending or, to the knowledge of the
Company, are threatened which challenge any of the right of the Company in
respect thereto. None of the trademarks, patents, trade names, service marks,
copyrights, or renewals or related rights listed in the Company Disclosure
Letter infringe upon or otherwise violate the rights of others or are being
infringed upon by others, and none are subject to any outstanding order,
decree, judgment or stipulation. No licenses, sublicenses or agreements
pertaining to any such trademarks, patents, trade names, service marks,
copyright or renewals or related rights are in effect. Neither the Company nor
any of its Subsidiaries during the past five years has been charged with or
received written notice of infringement of any adversely held copyright,
trademark, service mark, trade name, or patent used in connection with the
operation of its business. Notwithstanding any disclosures set forth in the
Company Disclosure Letter pursuant to this Section 3.22, any liability incurred
by the Company as a result of any claim of infringement by a third party shall
be deemed a breach of this representation and warranty and thereby covered by
the Escrow Agreement.
SECTION 3.23. Taxes.
(a) All income Tax Returns and all other Tax Returns required to be
filed by the Company and its Subsidiaries for all taxable periods or portions
thereof ending on or before the Closing Date have been or will be timely filed,
and all such Tax Returns are or will be true, complete and correct in all
respects. Each of the Company and its Subsidiaries has paid (or, in the case of
liabilities for Taxes that have not yet become due and payable as of the
Closing Date, has provided adequate reserves for the payment of) (i) all Taxes
that are shown to be due on such Tax Returns and (ii) all Taxes for which the
Company or its Subsidiaries have liability (whether directly or contingently
and whether in its own right or as a transferee of the assets of, or as
successor to, any Person) for any taxable year or other period ending on or
before the Closing Date and Taxes that are due and payable on or before the
Closing Date..
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(b) All Taxes due and owing from the Company or assessed and due and
owing against the Company on or before the Closing have been or will be timely
paid in full on or before the Closing.
(c) All withholding Tax and Tax deposit requirements imposed on the
Company for any and all periods ending on or before the Closing have been or
will be timely satisfied in full on or before the Closing;
(d) Each of the Company and its Subsidiaries has properly withheld all
Taxes (including, without limitation, payroll and sales and use Taxes) required
to be withheld by it on or prior to the Closing Date.
(e) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment of, Taxes due from the Company or its Subsidiaries
for any taxable period and neither the Company or any subsidiary has granted or
been requested to grant any such waivers.
(f) No audit or other proceeding by any court or Governmental
Authority is pending with respect to any taxable period of, or any Taxes due
from or with respect to the Company or its Subsidiaries. No issues have been
raised in any examination by any taxing authority with respect to the
businesses and operations of the Company or any Subsidiary which, by
application or similar principles, reasonably could be expected to result in a
proposed adjustment to the liability for Taxes for any other period not so
examined.
(g) None of the Stockholders is a "foreign person" within the meaning
of Section 1445 of the Code.
(h) Neither the Company nor any Subsidiary is required to make any
adjustment under Section 481(a) of the Code by reason of a change or proposed
change in accounting method or otherwise.
(i) Neither the Company nor any Subsidiary is liable for the Taxes of
any Person other than the Company and its Subsidiaries pursuant to Treasury
Regulation Section 1.1502-6 or any similar provision under state, local or
foreign law or otherwise for any taxable period ending on or before the Closing
Date.
(j) Neither the Company nor any Subsidiary has made or become
obligated to make, and will not as a result of any event connected with the
transactions contemplated by this Agreement, become obligated to make, any
"excess parachute payment" within the meaning of Section 280G of the Code
(determined without regard to subsection (b)(4) thereof).
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(k) Neither the Company nor any Subsidiary is a party to and is
otherwise subject to any arrangement having the effect of or giving rise to the
recognition of a deduction or loss in a taxable period ending on or before the
Closing Date, and a corresponding recognition of taxable income or gain in a
taxable period ending after the Closing Date, or any other arrangement that
would have the effect of or give rise to the recognition of taxable income or
gain in a taxable period ending after the Closing Date without the receipt of
or entitlement to a corresponding amount of cash.
(l) Neither the Company nor any Subsidiary is subject to any joint
venture, partnership or other arrangement or contract which is treated as a
partnership for Federal income tax purposes. Neither the Company nor any
Subsidiary is a party to any tax sharing agreement.
(m) None of the assets of the Company or any Subsidiary constitutes
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Code, and none of the assets of the Company or any
Subsidiary is subject to a lease, safe harbor lease or other arrangement as a
result of which the Company or any such Subsidiary is not treated as the owner
for Federal income tax purposes.
(n) The basis of all depreciable or amortizable assets, and the
methods used in determining allowable depreciation or amortization (including
cost recovery) deductions of the Company or any Subsidiary, are correct and in
compliance with the Code and the regulations thereunder.
(o) Each of the balance sheets included in the Company Financial
Statements reflect and include adequate charges, accruals, reserves and
provisions for the payment in full of any and all Taxes for any and all periods
ending on or before June 30, 1997, and the Company has made adequate charges,
accruals, reserves and provisions on the books of the Company for the payment
in full of any and all Taxes for the period June 30, 1997 through the Closing
Date.
SECTION 3.24. Inventory and Fixed Assets. All inventory and fixed
assets of the Company and its Subsidiaries used in the conduct of its business,
including, without limitation, raw materials, work in progress and finished
goods, reflected on the Interim Balance Sheet or acquired since the date
thereof (a) was acquired and has been maintained in the ordinary course of
business; (b) is of good and merchantable quality; and (c) consists
substantially of a quality, quantity and condition useable, leasable or
saleable in the ordinary course of the business of the Company or the
Subsidiary owning the same, as applicable. The reserve for excess and obsolete
inventory on the Interim Balance Sheet has been determined in accordance with
GAAP consistent with past practice and such reserve is adequate, taking into
account all of such inventory currently held by the Company and its
Subsidiaries.
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SECTION 3.25. Accounts Receivable. The accounts receivable of the
Company and its Subsidiaries as set forth on the Interim Balance Sheet or
arising since the date thereof (a) are valid and genuine; (b) have arisen
solely out of bona fide sales and deliveries of goods, performance of services
and other business transactions in the ordinary course of business; and (c) are
collectible at the full recorded amount thereof less, in the case of accounts
receivable appearing on the Interim Balance Sheet, the recorded allowance for
collection of doubtful accounts on the Interim Balance Sheet. The allowance for
collection of doubtful accounts on the Interim Balance Sheet has been
determined in accordance with GAAP consistent with past practice.
SECTION 3.26. Customers and Suppliers. The Company Disclosure Letter
contains a complete and accurate list of the Company's (including its
Subsidiaries') (a) ten largest customers and the sales to such customers in
respect of the business of each subsidiary of the Company during the
twelve-month period ended September 30, 1996, and (b) five largest suppliers
and the purchases by each subsidiary of the Company from such suppliers during
such period. Since September 30, 1996 there has not been any material adverse
change in the business relationship of the Company or any of its Subsidiaries
with any of its customers or suppliers, taken as a whole as to each Subsidiary
individually, and the Company has no knowledge that any such changes will occur
in the future, whether as a result of the consummation of the transactions
contemplated by this Agreement or otherwise.
SECTION 3.27. Material Facts. No representation or warranty by the
Company included in this Agreement or any other written statement, information,
material or certificate in connection with the transactions contemplated hereby
contains any untrue statement of a material fact necessary to make the
statements contained therein or herein not misleading, when all are taken
together as a whole (it being understood that, in the event of any
inconsistency between this Agreement and any other writings, this Agreement
shall control). The Company knows of no information or fact which has had or
could reasonably be expected to have a Material Adverse Effect on the financial
condition, business or prospects of the Company which has not been disclosed to
Purchaser.
SECTION 3.28. Related Party Transactions. Except as set forth on the
Disclosure Schedule and except for compensation arrangements with the Company's
and its Subsidiaries' officers and employees involving services rendered in the
ordinary course of business, no stockholder, director, officer or employee of
the Company or any of its Subsidiaries, or its Subsidiaries, including their
respective predecessors of the Company or any such Subsidiary, is, directly or
indirectly, or through his, her or its affiliation with any other person or
entity, a party to any agreement, understanding or transaction with the Company
or any of its Subsidiaries, providing for the furnishing of services by or to,
or rental of real or personal property from or to, otherwise requiring cash
payments to or by any such Person.
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SECTION 3.29. Closing. The representations and warranties set forth in
this Article III will be true and correct as of the Closing with the same
effect as if made at the Closing.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby represents and
warrants to Purchaser as follows:
SECTION 4.1. Ownership of Shares. Such Stockholder is, and with
respect to the shares of Class A Common Stock issuable upon the Conversion
Shares and the Restricted Shares, will be, the sole record and beneficial owner
of the number of shares of Class A Common Stock set forth opposite such
Stockholder's name on Schedule A hereto. Such Stockholder owns, and, with
respect to the Conversion Shares and the Restricted Shares, will own, the
shares set forth on such Schedule A free and clear of any Lien or other
ownership interests or rights of any type, including without limitation,
preemptive rights, of any other Person. Such Stockholder is not a party to any
voting trust, proxy or other agreement with respect to the voting of any shares
of Class A Common Stock.
SECTION 4.2. Authorization. Such Stockholder has the full legal
capacity to enter into this Agreement and to perform the obligations of such
Stockholder hereunder. This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing will
then be, duly and validly executed and delivered by such Stockholder. This
Agreement constitutes, and each instrument required hereunder to be executed by
such Stockholder will constitute, the legal, valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with its
terms. Each consent, authorization, order or approval of, or filing or
registration with, any Governmental Authority, or any other Person required by
applicable law on or before the Closing Date for or in connection with the
execution and delivery by such Stockholder of this Agreement, or the
performance by such Stockholder of this Agreement or such Stockholder's
obligations hereunder, will have been obtained or made on or before the Closing
Date.
SECTION 4.3. No Violation. The execution and delivery of this
Agreement by such Stockholder does not, and the performance by such Stockholder
of its obligations hereunder and the consummation by such Stockholder of the
agreements and transactions contemplated by this Agreement will not, (a)
violate any permit, concession, grant, franchise, or any judgment, decree,
order, writ, injunction, statute, rule or regulation, of any court or
Governmental Authority to which such Stockholder is a party or to which such
Stockholder or any of such Stockholder's
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properties are subject; or (b) conflict with, or result in a breach or
violation of, or constitute a default (with or without notice or the lapse of
time or both) under or accelerate the performance required by, the terms,
conditions or provisions of any agreement, contract, indenture, note, bond,
mortgage or deed of trust, or any license, lease or other instrument to which
such Stockholder is a party or to which any of such Stockholder's properties
are subject.
SECTION 4.4. Brokers Fees and Commissions. Such Stockholder has not
employed any investment banker, broker or finder in connection with the
transactions contemplated hereby and there is no factual basis upon which any
other Person could claim entitlement to any compensation for the provision of
any such services.
SECTION 4.5. Closing. The representations and warranties set forth in
this Article IV will be true and correct as of the Closing with the same effect
as if made at the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
SECTION 5.1. Organization and Qualification. Purchaser is a limited
partnership duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has full power and authority to
conduct its business as it is now being conducted and to own, operate and lease
the properties and assets it currently purports to own, operate or hold.
Purchaser is qualified or licensed to do business and is in good standing in
each other jurisdiction as to which the nature of the business conducted by it
or the properties owned or leased by it requires qualification or licensure.
SECTION 5.2. Authorization. Purchaser has all requisite power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Purchaser of this Agreement and the
performance of its obligations hereunder have been, and the execution, delivery
and performance of each instrument required hereby to be executed and delivered
by Purchaser at the Closing will, prior to the Closing, have been, duly
authorized by all requisite partnership action on the part of Purchaser. No
other partnership action on the part of Purchaser is necessary to authorize the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been, and each instrument
required hereby to be executed and delivered by Purchaser at the Closing will
then be, duly and validly executed and delivered by it. This Agreement
constitutes, and each instrument required hereunder to be executed by Purchaser
will constitute, the legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms.
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SECTION 5.3. No Violation. The execution and delivery of this
Agreement by Purchaser does not, and the performance by Purchaser of its
obligations hereunder and the consummation by Purchaser of the agreements and
transactions contemplated by this Agreement will not, (a) conflict with, or
result in any violation or breach of or default or loss of any benefit under,
any provision of the certificate or agreement of limited partnership of
Purchaser; (b) violate any permit, concession, grant, franchise, or any
judgment, decree, order, writ, injunction, statute, rule or regulation, of any
court or Governmental Authority to which Purchaser is a party or to which
Purchaser or any of its properties are subject; or (c) conflict with, or result
in a breach or violation of, or constitute a default (with or without notice or
the lapse of time or both) under or accelerate the performance required by, the
terms, conditions or provisions of any agreement, contract, indenture, note,
bond, mortgage or deed of trust, or any license, lease or other instrument to
which Purchaser is a party or to which any of its properties are subject.
SECTION 5.4. Consents and Approvals. The execution and delivery of
this Agreement and the consummation of the agreements and transactions
contemplated by this Agreement by Purchaser will not require the consent,
approval, order or authorization of any Governmental Authority, and no
declaration, filing or registration with, no notice to and no permit,
authorization, consent or approval of, any Governmental Authority is required
by Purchaser in connection with the execution and delivery of this Agreement
and the consummation of such agreements and transactions.
SECTION 5.5. Brokers Fees and Commissions. Except for The Jordan
Company, neither Purchaser nor any of its directors, officers, employees or
agents, has employed any investment banker, broker or finder in connection with
the transactions contemplated hereby and, to the knowledge of Purchaser, there
is no factual basis upon which any other Person could claim entitlement to any
compensation for the provision of any such services.
SECTION 5.6. Investment Intent. The Class A Common Stock, New
Subordinated Debentures and Warrants to be acquired by Purchaser, or
Purchaser's designee, from the Company pursuant to this Agreement are being
acquired for Purchaser's or such designee's own account for investment and with
no intention of distributing or reselling the same or any part thereof or
interest therein in any transaction that would be in violation of the
securities laws of the United States of America or any State.
SECTION 5.7. Closing. The representations and warranties set forth in
this Article V will be true and correct as of the Closing with the same effect
as if made at the Closing.
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ARTICLE VI
COVENANTS
SECTION 6.1. Conduct of Business. Until the first to occur of the
Closing or the termination of this Agreement pursuant to Section 8.1 hereof,
the Company (including, in each case referred to in this Section 6.1, each of
its Subsidiaries) agrees (except as contemplated by this Agreement or as set
forth on the Disclosure Schedule or unless Purchaser shall otherwise consent in
writing) that:
(a) Ordinary Course. Except as provided in this Section 6.1, the
Company shall, and shall cause each of its Subsidiaries to, (i) carry on its
business in the usual, regular and ordinary course in a mariner consistent with
past practices and in compliance with all applicable laws, rules and
regulations, except with respect to the transactions contemplated by this
Agreement, (ii) not introduce any new method of management or operation and (c)
preserve intact its business organization, properties and assets, maintain its
rights and franchises, and preserve its goodwill and its relationships with
customers, suppliers and others having business dealings with it. The Company
shall, and shall cause each of its Subsidiaries to, preserve in full force and
effect all of leases, operating agreements, easements, rights-of-way, permits,
licenses, contracts and other agreements which relate to the business,
properties or assets of the Company (other than those expiring by their terms)
and to perform or cause to be performed all obligations of the Company and its
Subsidiaries in or under any of such leases, agreements or contracts relating
to such assets.
(b) Dividends; Changes in Stock. The Company shall not (i) declare or
pay any dividend on or make any other distribution in respect of any of its
capital stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of, its capital stock, (iii) purchase, redeem
or otherwise acquire for cash or property any shares of its capital stock or
(iv) take any preliminary action with respect to the foregoing.
(c) Issuance of Securities. The Company shall not (a) issue, deliver,
sell or authorize the issuance, delivery or sale of any stock appreciation
rights or of any shares of its capital stock of any class or any securities
convertible into or exchangeable for, or rights, warrants or options to
acquire, any such shares or convertible or exchangeable securities or (b) enter
into any agreement or understanding or take any preliminary action with respect
to the foregoing.
(d) Governing Documents; Inconsistent Agreements. The Company shall
not (a) amend its articles of incorporation or bylaws or comparable
organizational documents or (b) enter into any agreement or incur any
obligation, the terms of which would be violated by the consummation of the
transactions contemplated by this Agreement.
(e) Indebtedness. The Company shall not incur any indebtedness (other
than Indebtedness in the ordinary course of business) for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities
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or other obligations of others, or enter into or modify any contract,
agreement, commitment or arrangement with respect to the foregoing.
(f) Employee Contracts and Benefit Plans. The Company shall not adopt
or amend any Employee Benefit Plan or enter into any employment, severance,
consulting or similar contract with any person or amend any such existing
contracts to increase any amounts payable thereunder or benefits provided
thereunder. The Company shall not grant any increase in compensation to any of
its employees or pay any bonus, except as set forth on the Company Disclosure
Letter. Neither the Company, nor any Employee Benefit Plan and any trust
created thereunder, will (a) engage in any "prohibited transactions" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of the Code), (b)
incur any "accumulated funding deficiency" (as such term is defined in Section
302 of ERISA) whether or not waived, (c) terminate any plan in a manner that
could result in the imposition of a Lien on any property of the Company
pursuant to Section 4068 of ERISA or (d) take any action that could adversely
affect the qualification of any Employee Benefit Plan or its compliance with
the applicable requirements of ERISA or that might result in any "reportable
event" (as such term is defined in Section 4043(b) of ERISA). The Company shall
file, on a timely basis, all reports and forms required by federal regulations
with respect to any Employee Benefit Plan or agreement described in the Company
Disclosure Letter or any schedule hereto.
(g) Prohibited Dispositions. Other than sales of the Company's
equipment in the ordinary course of business, the Company shall not (a) sell,
lease or otherwise dispose of any of its tangible assets having a book or
market value in excess of $25,000 in the aggregate or intangible assets that
are material individually or in the aggregate, to the business, results of
operations, financial condition, assets or prospects of the Company or (b)
enter into, or consent to the entering into, any agreement granting a right to
sell, lease or otherwise dispose of any of such assets.
(h) Lines of Business and Capital Expenditures. The Company shall not
(a) enter into any new line of business; (b) change its investments, management
or other policies in any material respect; (c) incur or commit to any capital
expenditures, obligations or liabilities in connection therewith other than
capital expenditures, obligations or liabilities that do not exceed in the
aggregate $25,000; (d) acquire or agree to acquire by merging or consolidating
with, or acquire or agree to acquire by purchasing any assets of, or in any
manner, any Person; or (e) otherwise, except as to the acquisition of materials
and supplies for its products and activities in the usual and ordinary course
of business consistent with past practice, acquire or agree to acquire any
assets for a total consideration in the aggregate in excess of $25,000. The
Company shall not make any investment in any Person.
(i) Accounting Methods; Tax Matters. The Company shall not change its
methods, practices or policies of accounting in effect at September 30, 1996,
or change any of its methods
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of accounting for federal or state income Tax purposes from those employed in
the preparation of the United States federal and state income Tax Returns of
the Company for the taxable year ended September 30, 1996, except as required
by changes in law. The Company shall not change its fiscal year. The Company
shall not make any Tax election or settle or compromise any Tax liability.
(j) Acquisitions. Except as set forth in Schedule 8.1 of the Company
Disclosure Letter, the Company will not enter into any letters of intent,
understanding, agreements or commitments relating to any acquisitions or sales
of any companies, businesses or assets.
(k) Compensation. The Company will not modify the compensation,
including bonuses and incentive payments, of any officer, employee or
consultant.
(l) Agreements. The Company shall not agree to do any of the
foregoing.
SECTION 6.2. Access to Information. At all times during the Company's
normal business hours from and after the date hereof until the first to occur
of the Closing or the termination of this Agreement the Company shall afford
Purchasers and their counsel and other authorized representatives such access
to the properties, employees and officer of the Company and to all books,
accounts, tax returns, financial and other records and contracts of every kind
of the Company as the party making such request may reasonably request. The
Company shall also furnish to Purchaser as promptly as practicable (a) all
supplemental financial information regarding the Company prepared hereafter by
the Company and (b) all other financial and operating data and other
information concerning the Company's business, properties and personnel as
Purchaser may reasonably request. Before the closing, the Company will, as
requested, make available on a reasonable basis the officers and other
appropriate employees of the Company, as the case may be, to discuss with
representatives of Purchaser the condition, operation, business and prospects
of the Company. The Company shall cause its officers to furnish Purchaser such
financial and operating data, including, without limitation, monthly financial
statements and board of directors reports, and other information with respect
to the business and properties of the Company as Purchaser may from time to
time request, including but not limited to, documents and information required
in connection with financing commitments from lenders in connection with the
Recapitalization. Purchaser may, at the Company's expense, engage an
environmental consulting firm selected by Purchaser to undertake a "Phase I"
environmental assessment of real property and facilities owned, leased or
operated by the Company or any of its Subsidiaries in accordance with
assessments generally followed by nationally recognized environmental
consulting firms (the "Phase I Study"). The Company shall, and shall cause each
of its Subsidiaries to, cooperate with and assist Purchaser and such consulting
firm in performing such Phase I Study, including, without limitation, providing
such information as it may have concerning the current and prior owners and
uses of
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any such real property and facilities, and permitting test samples, borings and
other commonly accepted investigative procedures to be utilized for such
purposes.
SECTION 6.3. Cooperation. Each of the parties hereto shall cooperate
and use all best efforts to take, or cause to be taken, all such action, and to
do, or cause to be done as promptly as practicable, all such things as are
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, (i) each of the parties hereto shall use best efforts to execute and
deliver each of the documents and instruments required to be delivered by such
party pursuant to Article II, and (ii) the Company shall execute and deliver in
trust such documents as may reasonably be requested in connection with
financing commitments from lenders in connection with the Recapitalization. If
at any time after the Closing Date any further action is necessary or desirable
to carry out or to evidence the completion of the transactions provided for in
this Agreement, including, without limitation, the execution of additional
instruments, the proper officers and directors of each party to this Agreement
shall take all such necessary or desirable action to effectuate the
transactions contemplated hereby.
SECTION 6.4. Consents and Approvals. The parties hereto each will
cooperate with one another and use all reasonable efforts to prepare all
necessary documentation, to effect promptly all necessary filings and to obtain
all necessary permits, consents, approvals, orders and authorizations of or any
exemption by, all third parties and Governmental Authorities necessary or
desirable to consummate the transactions contemplated by this Agreement, it
being agreed that the Company shall have primary responsibility to obtain any
approvals, consents or waivers that may be required under any leases,
indentures or other agreements to which the Company or any Subsidiary is a
party or to which the Company, any Subsidiary, or any of their respective
assets is subject. Each party will keep the other parties apprised of the
status of any inquires made of such party by any Governmental Authority,
including members of their staffs, with respect to this Agreement and the
transactions contemplated hereby.
SECTION 6.5. Public Announcements. Purchaser and the Company will
consult with each other and will mutually agree (the agreement of each party
not be unreasonably withheld) upon the content and timing of any press release
or other public statements with respect to the transactions contemplated by
this Agreement, and shall not issue any such press release or make any such
public statement prior to such consultation and agreement, and except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any securities exchange or any stock exchange regulations; provided,
however, that Purchaser and the Company will give prior notice to each other of
the content and timing of any such press release or other public statements so
required.
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SECTION 6.6. Supplemental Financial Statements; Disclosure
Supplements.
(a) As necessary prior to the Closing Date, the Company shall
supplement or amend the Company Disclosure Letter delivered in connection
herewith to describe any matter which, if existing or occurring at or prior to
the date of this Agreement, would have been required under the terms of this
Agreement to be set forth or described in such the Company Disclosure Letter or
which is necessary to correct any information in such the Company Disclosure
Letter which has been rendered inaccurate thereby.
(b) The Company shall promptly inform Purchaser in writing of any
litigation, or of any claim or controversy or contingent liability that will
become the subject of litigation, against the Company or affecting any of its
business, properties or assets.
SECTION 6.7. Escrow Agreement. At the Closing Date, Purchaser, the
Stockholder Representative and the Escrow Agent shall enter into the Escrow
Agreement.
SECTION 6.8. Best Efforts; Competing Bids.
(a) From and after the date hereof, the Company shall not, nor shall
it permit or authorize any of its Subsidiaries, or any officers, directors or
employees of, investment bankers, attorneys, accountants or other
representatives to, solicit, initiate or encourage submission of any proposal
or offer from any person which constitutes, or may reasonably be expected to
lead to, any proposal for a merger or other business combination involving the
Company or any of its Subsidiaries or any proposal or offer to acquire in any
manner a substantial equity interest in the Company or any of its Subsidiaries
or a substantial portion of the assets of the Company or any of its
Subsidiaries.
(b) The Company will use its best efforts to take or cause to be taken
all other actions necessary, proper or advisable to consummate this Agreement,
including such actions, as Purchaser may reasonably consider necessary, proper
or advisable in connection with filing applications with, or obtaining
approvals of, governmental bodies for the transactions contemplated by this
Agreement.
SECTION 6.9. Employment Agreement; Management Stock Options.
(a) Concurrently with the execution and delivery of this Agreement by
the parties hereto, the Company and Mr. Kenneth T. White, Jr. shall enter into
the Employment Agreement pursuant to which Mr. White shall serve as President
and Chief Executive Officer of the Company for a period of two years, after
which Mr. White, subject to Purchaser's satisfaction with a proposed
replacement for Mr. White in such positions, shall serve solely as Chairman of
the Board of Directors of the Company for an additional three years.
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(b) At or prior to the Closing, the Company will adopt a New
Management Option Plan. Within 90 days of the Closing, the Company will issue
to employees under such New Management Option Plan an aggregate of 30,937.5
options to purchase Class A Common Stock at an exercise price per share of
$73.00 pursuant to Section 1.8(c).
SECTION 6.10. Composition of Board of Directors. The Company shall
take all action necessary or reasonably requested by Purchaser to cause the
board of directors of the Company, as of and after the Closing, to consist
solely of four persons selected by Purchaser and three persons selected by the
Company, as further provided in the Stockholders Agreement.
ARTICLE VII
CLOSING CONDITIONS
SECTION 6.1. Conditions to Obligations of All Parties. The obligations
of all the parties to this Agreement to close the Recapitalization shall be
subject to the fulfillment of the following conditions:
(a) As of the Closing, no temporary restraining order, preliminary or
permanent injunction or other order or restraint issued by any court of
competent jurisdiction, no order, decree, restraint or pronouncement by any
Governmental Authority, and no other legal restraint or prohibition that would
prevent or have the effect of preventing the consummation of the
Recapitalization shall be in effect.
(b) All material permits, approvals, filings and consents required to
be obtained or made and all waiting periods required or contemplated to expire,
prior to the consummation of Recapitalization under applicable federal laws of
the United States and applicable laws of any state having jurisdiction over the
Recapitalization shall have been obtained, made or expired, as the case may be,
and all such regulatory approvals shall be in full force and effect.
(c) Purchaser, the Company and the Stockholders shall have received
all consents, approvals and waivers from third parties necessary to permit the
transactions contemplated by this Agreement, and such approvals and the
transactions contemplated hereby shall not have been contested by any third
party by formal proceeding. It is understood that, if any contest as aforesaid
is brought by formal proceedings, Purchaser may, but shall not be obligated to,
answer and defend such contest or otherwise pursue this transaction over such
objection.
(d) Each of Purchaser and the Company shall have received a solvency
opinion, reasonably satisfactory in form and substance to them, as to the
solvency of the Company in connection with the Recapitalization.
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(e) Each of Purchaser and the Company shall have received letters from
Arthur Andersen, reasonably satisfactory in form and substance to them, as to
(i) the recapitalization accounting treatment of the Recapitalization, and (ii)
the deductibility for federal income tax purposes of the payments to the
holders of Options and Restricted Shares which aggregate before adjustment
$16,760,400 pursuant to this Agreement.
SECTION 7.2. Conditions to Obligations of Purchaser. The obligations
of Purchaser under this Agreement to consummate the Recapitalization are
subject to the fulfillment at or prior to the Closing, or, if an earlier date
is expressly provided below, at or prior to such earlier date, of the following
conditions, any of which may be waived by Purchaser in writing:
(a) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and at as of the
Closing and the Company shall have duly performed and complied in all material
respects with the covenants and agreements required by this Agreement to be
performed by or complied with by it prior to or at the Closing.
(b) Purchaser shall have received a certificate from the Company as to
compliance with the matters set forth in paragraph (a) of this Section 7.2.
(c) The representations and warranties of the Stockholders shall be
true and correct as of the date when made and as of the Closing and the
Stockholders shall have duly performed and complied with the covenants and
agreements required by this Agreement to be performed by or complied with by
the Stockholders prior to or at the Closing.
(d) Purchaser shall have received an opinion from counsel for the
Company, dated as of the Closing, and subject to reasonable assumptions and
exceptions, to the effect that:
(i) The Company is a corporation duly incorporated and
validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power and
corporate authority to carry on its business as now being conducted.
(ii) The authorized and outstanding capital stock of the
Company is as represented by the Company in this Agreement and each
share of such stock has been duly and validly authorized and issued,
is fully paid and non-assessable and was not issued in violation of
the preemptive rights of any stockholder.
(iii) This Agreement and all other agreements and instruments
required to be executed by the Company pursuant hereto or in
connection herewith on or before the Closing Date have been duly
authorized, executed and delivered by the Company.
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(iv) Neither the execution and delivery of this Agreement or
any of the documents to be executed and delivered in connection
herewith, nor the consummation of the transactions herein or therein
contemplated, nor the compliance with and fulfillment of the terms,
conditions or provisions hereof or thereof shall conflict with, or
result in a breach of the terms, conditions or provisions of, or
constitute a default under, the articles of incorporation or bylaws of
the Company, any applicable law or regulation, or, to such counsel's
knowledge, any material agreement of the Company.
(v) No consent, waiver, authorization, approval or order of
any court or governmental agency or body that has not been obtained is
required for the execution, delivery and performance of this Agreement
and the transactions contemplated hereby.
(e) Any and all permits, consents, waivers, clearances, approvals and
authorizations of all third parties and Governmental Authorities which
Purchaser believes to be necessary or advisable in connection with the
consummation of the transactions provided for herein shall have obtained.
(f) There shall have been no change in the business, assets, financial
condition or prospects of the Company since the date of this Agreement which,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect on the Company.
(g) The mix and composition of the Company' current and other assets
and current and other liabilities as of the Closing Date shall not materially
differ from such mix and composition as of June 30, 1997.
(h) The Subordinated Debentures shall have been converted in
accordance with their terms into Common Stock as contemplated by this Agreement
and to the reasonable satisfaction of Purchaser.
(i) The Company's Indebtedness (other than the Subordinated
Debentures) shall have been discharged and released to the reasonable
satisfaction of Purchaser, and Purchaser shall have received pay-off, discharge
and release letters reasonably satisfactory in form and substance to Purchaser
as to such payment, discharge and release.
(j) The Employment Agreement entered into between the Company and
Kenneth T. White, Jr. pursuant to Section 6.9(a) shall be executed and be in
full force and effect at the Closing.
(k) The Stockholder Representative shall have been appointed and
authorized to act as such in writing by each and all of the Stockholders,
(which appointment and authorization
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shall be accomplished through execution of this Agreement by each of such
persons, or through such other means as shall be approved by Purchaser) and
each such appointment and authorization shall remain in full force and effect.
(l) The respective resignations and elections of members of the board
of directors of the Company contemplated by Section 6.10 shall be effective as
of the Closing.
(m) The Financial Advisory Services Agreement between The Jordan
Company and the Company shall have been executed and delivered by the parties
thereto and shall be in full force and effect.
(n) Purchaser, the Stockholder Representative and the Escrow Agent
shall have entered into the Escrow Agreement and the Escrow Agreement shall be
in full force and effect.
(o) Each of the individual steps in the Recapitalization provided for
in Article I shall be completed in their entirety and concurrently as a single
integrated transaction and the completion of each shall be subject to and
conditioned upon the completion of each of the other such steps.
(p) Purchaser shall have received such other agreements, instruments,
opinions and documents reasonably requested by Purchaser in connection with the
Recapitalization.
SECTION 7.3. Conditions to Obligations of the Company. The obligations
of the Company and the Stockholders under this Agreement to consummate the
Recapitalization are subject to the fulfillment of the following conditions at
or prior to the Closing:
(a) The representations and warranties of Purchaser shall be true and
correct as of the date when made and at as of the Closing and the Purchaser
shall have duly performed and complied with the covenants and agreements
required by this Agreement to be performed by or complied with by it prior to
or at the Closing.
(b) The Company shall have received a certificate from the Purchaser
as to compliance with the matters set forth in paragraph (a) of this Section
7.3.
(c) The Employment Agreement entered into between the Company and
Kenneth T. White, Jr. pursuant to Section 6.9(a) shall be executed and be in
full force and effect at the Closing.
(d) Each of the individual steps in the Recapitalization provided for
in Article I shall be completed in their entirety concurrently as a single
integrated transaction and the completion of each shall be subject to and
conditioned upon the completion of each of the other such steps.
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ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of the Company and Purchaser; or
(b) by either the Company or Purchaser, if a court of competent
jurisdiction or Governmental Authority shall have issued an order, decree or
ruling or taken any other action (which order, decree or ruling the parties
hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement, and such order, decree, ruling or other action shall have
become final and nonappealable, provided, that the right to terminate this
Agreement shall not be available to any party whose breach of this Agreement
has been the cause of, or has resulted in, the failure of the transactions
contemplated hereby to occur on or before such date.
SECTION 8.2. Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby pursuant to
Section 8.1, written notice thereof shall forthwith be given to the other
parties to this Agreement and this Agreement shall terminate and such
transactions shall be abandoned, without further action by any of the parties
hereto. If this Agreement is terminated as provided herein:
(a) upon request therefor, each party shall return all documents, work
papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing the same; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement resulting from such termination except (i)
that the provisions of this Section 8.2 shall remain in full force and effect
and (ii) no party waives any claim or right against a breaching party to the
extent that such termination results from the breach by a party hereto of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
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ARTICLE IX
SURVIVAL; INDEMNIFICATION
SECTION 9.1. Survival. All representations, warranties, covenants and
agreements of the parties hereto contained in this Agreement or in any
certificates, instruments or documents delivered pursuant hereto, other than
the representations and warranties of the Stockholders set forth in Article IV
(the "Stockholder Warranties"), shall survive the Closing, and continue in full
force and effect until the eighteen month anniversary of the Closing Date (the
"Survival Date"), regardless of any investigation or "due diligence" performed
or made by or on behalf on any Indemnified Party prior to the Closing Date or
any actual knowledge of an Indemnified Party prior to the Closing Date with
respect to any matter as to which indemnification is sought, (such survival
date being referred to as the "Survival Date"). The Stockholder Warranties
shall survive the Closing without limit. From and after the Survival Date, no
party hereto shall be under any liability whatsoever pursuant to this Article
IX with respect to any matter for which indemnification may be sought, except
with respect to the Stockholder Warranties and to matters for which notice has
been received in accordance with the provisions of this Article IX. No party
hereto shall have any indemnification obligation pursuant to this Article IX
with respect to any matter for which indemnification may be sought unless
before the applicable Survival Date, it (the "Indemnifying Party") shall have
received from the party seeking indemnification (an "Indemnified Party")
written notice as to the matter or matters for which indemnification is sought.
The notice (a "Notice of Claim") to be provided by the Indemnified Party to the
Indemnifying Party in notifying the Indemnifying Party will relieve the
Indemnifying Party from any obligation hereunder unless, and then solely to the
extent that, the Indemnifying Party is materially prejudiced thereby.
SECTION 9.2. Indemnification by Stockholders. Subject to the terms and
provisions of this Article IX, the Stockholders shall, to the extent of the Cap
Amount (as defined in Section 9.6(b)) in the case of any claim not relating to
or arising under the Stockholder Warranties, and to the extent of the Stock
Consideration in the case of claims relating to or arising out of the
Stockholder Warranties or the obligation of the Stockholders to indemnify
Purchaser pursuant to Article IV, defend, indemnify and hold Purchaser and its
successors and assigns (collectively the "Purchaser Group") harmless at all
times from and after the Closing Date immediately on demand against and in
respect of any Damages, as incurred, which Damages are incurred, sustained,
suffered by or resulting to the Purchaser Group, or any of them, arising out
of, resulting from, incurred in connection with, or sustained as a result of:
(a) any inaccurate representation made by or on behalf of the
Company or the Stockholders in, or pursuant to this Agreement or any
certificate, instrument or document delivered pursuant hereto or
thereto; or
(b) any breach of any warranty made by or on behalf of the
Company or the Stockholders in or pursuant to this Agreement or any
certificate, instrument or document delivered pursuant hereto or
thereto; or
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(c) any breach, default, nonfulfillment, nonperformance or
nonobservance in the performance, fulfillment, or observance of any of
the obligations, covenant or agreements which are to be performed,
fulfilled or observed by the Company or the Stockholder in or pursuant
to this Agreement or any certificates, instruments or documents
delivered pursuant hereto.
SECTION 9.3. Indemnification by Purchaser. Subject to the terms and
conditions of this Article IX, Purchaser agrees to defend, indemnify and hold
the Stockholders harmless at all times from and after the Closing date
immediately on demand, against and in respect of any Damages, as incurred,
which Damages are incurred, sustained, suffered by or result to the
Stockholders, or any of them, arising out of, resulting from, incurred in
connection with or sustained as a result of:
(a) any inaccurate representation made by or on behalf of
Purchaser in, or pursuant to this Agreement or any certificate,
instrument or document delivered pursuant hereto or thereto; or
(b) any breach of any warranty made by or on behalf of
Purchaser in or pursuant to this Agreement or any certificate,
instrument or document delivered pursuant hereto or thereto; or
(c) any breach, default, nonfulfillment, nonperformance or
nonobservance by Purchaser in the performance, fulfillment, or
observance of any of the obligations, covenants or agreements (other
than those set forth in Section 6.8) which are to be performed,
fulfilled or observed by or on behalf of Purchaser in or pursuant to
this Agreement or any certificates, instruments or documents delivered
pursuant hereto or thereto;
SECTION 9.4. Procedure for Indemnification. If and whenever an
Indemnified Party desires to claim indemnification for any of the matters for
which indemnification may be sought pursuant to the provisions of this Article
IX, such Indemnified Party shall deliver to the Indemnifying party a Notice of
Claim specifying each of the matters for which indemnification is sought. Upon
receiving the Notice of Claim, the Indemnifying Party shall have the right,
exercisable at any time during a ten-day period from the day of the receipt of
the Notice of Claim, to elect to compromise or defend against any of the
matters for which indemnification is sought through counsel of its own choosing
and at its expense, or at the election of the Indemnifying Party, exercisable
at any time within such ten-day period, the Indemnified Party shall have the
right to compromise or defend against any of the matters for which
indemnification is sought, through counsel of its own choosing and at the
expense of the Indemnifying Party. If the Indemnifying Party does not make
either of the elections called for by this Section 9.4 within such ten-day
period, or to the extent the Indemnifying Party fails to make such election,
then and in that event, the Indemnified Party shall have the right to
compromise or
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defend against any of the matters for which indemnification is sought through
counsel of its own choosing and at the expense of the Indemnifying Party. If
any action or claim for which indemnification is sought is asserted both
against the Indemnifying Party and the Indemnified Party, and in good faith it
is determined there is a conflict of interest which renders it inappropriate
for the same counsel to represent both the Indemnifying Party and the
Indemnified Party, the Indemnifying Party shall be responsible for paying for
separate counsel for the Indemnified Party; provided, however, that if there is
more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to
represent the Indemnified Party, regardless of the number of Indemnified
Parties. The Indemnified Party will not consent to the entry of a judgment or
enter into any agreement with respect to any matter for which indemnification
is sought without the written consent of the Indemnifying Party. The
Indemnifying Party shall not consent to the entry of a judgement with respect
to any matter for which indemnification is sought or enter into any settlement
with respect thereto which does not include a provision whereby the plaintiff
or claimant in the matter releases the Indemnified Party from all liability
with respect thereto, without the written consent of the Indemnified Party. All
attorneys and other representatives employed by the Indemnifying Party shall be
subject to approval by the Indemnified Party, which approval shall not be
unreasonably withheld or delayed.
SECTION 9.5. Dispute as to Right of Indemnification. In the event the
question of the right to indemnification is submitted to a court of competent
jurisdiction for determination, all attorneys' fees and other costs and
expenses in litigating the question of the right of an Indemnified Party to
indemnification shall be awarded to the prevailing party against the party
against whom such determination is rendered.
SECTION 9.6. Indemnification Cap and Deductible.
(a) Stockholders and Purchasers shall not be liable for any claim for
indemnification pursuant to the provisions of this Article IX for any matter
for which indemnification is sought unless and until, and only to the extent
that, the aggregate amount of Damages exceeds $150,000 (the "Deductible").
Except for the Stockholder Warranties, the Stockholders and the Purchaser will
not be liable for indemnification pursuant to this Article IX in excess of the
Cap Amount., after which the Stockholders shall be liable for the full amount
of the indemnification without reduction for the Deductible up to the Cap
Amount.
(b) At the Closing, Purchaser shall deposit the Escrow Funds with the
Escrow Agent pursuant to the Escrow Agreement. The initial amount of the Escrow
Funds is also herein referred to as the "Cap Amount". The Stockholders shall
not be liable for Damages with respect to any matter for which indemnification
may be sought in excess of the Cap Amount, except that each Stockholder shall
be severally liable up to the full amount of the portion of the Stock
Consideration paid to or for the benefit of such Stockholder in the manner
provided in this
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Agreement in respect of any Damages resulting from an inaccuracy or breach of
any Stockholder Warranty made by such Stockholder. At such time as the Damages
of the Purchaser Group with respect to any matter for which indemnification may
be sought by the Purchaser Group under this Article IX is agreed upon by the
Stockholder Representative or is finally determined by a court of competent
jurisdiction, the Escrow Agent shall pay to the Purchaser Group the portion or
portions of the Cap Amount to which the Purchaser Group is entitled.
(c) Immediately following the Survival Date, the remaining portion of
the Cap Amount not theretofore paid or distributed to or for the benefit of a
member of the Purchaser Group, together with any interest accrued on the Escrow
Funds, shall be distributed by the Escrow Agent to the Stockholder
Representative for distribution to the Stockholders in accordance with the
ownership interests therein; provided, however, that the Escrow Agent shall
continue to hold and not distribute to the Stockholder Representative such
remaining portion of the Cap Amount as shall be sufficient to cover damages of
the Purchaser Group with respect to any amount for which indemnification may be
sought and for which notice was given prior to the Survival Date, if such
damage amount is then determinable, or the entire remaining portion of the Cap
Amount if such damage amount is not then determinable.
SECTION 9.7. Indemnification of Claims Covered by Insurance.
Notwithstanding any provision to the contrary contained herein, to the extent
any potential claim is covered by insurance or otherwise indemnified by third
parties, neither the Stockholders nor Purchaser shall have any obligation to
each other and accordingly no subrogation right shall accrue to the benefit of
any insured or any third party, as a result of any indemnification covenant
given by either the Stockholders or Purchaser herein. This Section 9.7 shall
not apply to the extent such insurance coverage or indemnify is limited due to
the insolvency of any third party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. Taking of Necessary Action. Subject to the terms and
conditions of this Agreement each of the parties hereto agrees, subject to
applicable laws, to use all reasonable efforts promptly to take or cause to be
taken all action and promptly to do or cause to be done all things necessary,
proper or advisable under applicable laws and regulations and this Agreement to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the foregoing, the Parties shall use reasonable efforts to
obtain and to make all consents, approvals, assurances and filing of or with
third parties and Governmental Authorities necessary or, in the opinion of the
Purchaser of the Company reasonably advisable for the consummation of the
transactions contemplated by this Agreement, including but not limited to those
contemplated by Sections 3.6 and 3.16.
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SECTION 10.2. Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors, permitted assigns, heirs and legal representatives, as the case may
be. The Company may not assign this Agreement or any of its rights, interests
or obligations hereunder to any other party. Prior to the Closing, Purchaser
may not assign this Agreement or any of its rights, interests or obligations
hereunder to any party (other than its affiliate) without the prior written
consent of the Company which shall not be unreasonably withheld. After the
Closing, Purchaser may assign this Agreement and any of its rights, interests
and obligations hereunder to any other party.
SECTION 10.3. Entire Agreement; Third Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) contains
the entire agreement among the parties hereto with respect to the Merger and
neither this nor any document delivered in connection with this Agreement
confers upon any person not a party hereto any rights or remedies hereunder.
SECTION 10.4. Amendment and Modification. The parties may, by mutual
written agreement, extend the time for the performance of any of the
obligations or other acts of any other party hereto, or waive such other
party's performance of any of the obligations set out in this Agreement or
amend this Agreement. Any agreement on the part of any party hereto for any
such extension, waiver or amendment shall be validly and sufficiently
authorized officer or representative of Purchase or, if given by the Company,
by a duly authorized officer or representative of the Company.
SECTION 10.5. Waiver of Compliance; Consents. Any failure of
Purchaser, on the one hand, or of the Company or the Stockholders, on the other
hand, to comply with any obligation, covenant, agreement or condition contained
herein may be waived in writing by the Stockholder Representative or Purchaser,
respectively, but such waiver or failure to insist upon strict compliance with
such obligations, covenant, agreement or condition shall not operate as a
wavier of, or estoppel with respect to, any other failure.
SECTION 10.6. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 10.7. Expenses and Obligations. If this Agreement is
terminated for any reason, each of the Parties shall pay their own expense.
Upon consummation of this Agreement all expenses of the Company and
Stockholders shall be paid by the Company as Company and Stockholder
Transaction Costs and all expenses of the Purchaser shall be paid by the
Company.
SECTION 10.8. Parties in Interest. This Agreement shall be binding upon
and, except as provided below, inure solely to the benefit of each party
hereto, and, nothing in this Agreement,
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except as set forth below, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement. This Agreement is solely an obligation of the parties
hereto, and no stockholder, director, officer employee, partner or affiliate of
the Company or Purchaser will have any obligation or liability hereunder,
except as expressly provided herein or otherwise expressly agreed by them.
SECTION 10.9. Notices. All notices and other communication hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or on the second next business
day after deposit if sent by a recognized overnight delivery service or upon
transmission if sent by telecopy or facsimile transmission (with request of
assurance of receipt in a manner customary for communication of such type) as
follows:
(a) If to Purchaser, to:
The Jordan Company
9 West 57th Street
New York, New York 10019
Attention: Jonathan F. Boucher
Facsimile No.: (212) 755-5263
with a copy to:
Mayer, Brown, & Platt
1675 Broadway
New York, New York 10019-5820
Attention: James B. Carlson
Facsimile No.: (212) 849-5515
(b) If to the Company, to:
W-H Holdings, Inc.
10370 Richmond Avenue, Suite 650
Houston, Texas 77042
Attention: Kenneth T. White, Jr.
Facsimile No.: (713) 974-7029
with a copy to:
Vinson & Elkins
1001 Fannin
Houston, Texas 77002
Attention: Robert H. Whilden, Sr.
Facsimile No.: (713) 758-2346
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(c) If to the Stockholders, the Optionholders, the Warrantholders or
the Stockholder Representative, to:
W-H Holdings, Inc.
10370 Richmond Avenue, Suite 650
Houston, Texas 77042
Attention: Kenneth T. White, Jr.
Facsimile No.: (713) 974-7029
SECTION 10.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to the conflicts-of-laws rules thereof.
SECTION 10.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.12. Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.13. Certain Definitions; Interpretation.
(a) As used in this Agreement, the following terms shall have the
meanings indicated below:
"Affiliate" shall mean a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, another person.
"Company Disclosure Letter" shall mean the letter together with the
attachments thereto, delivered by the Company pursuant to Article III prior to
the execution and delivery of this Agreement by the parties hereto and updated
pursuant to Section 6.6, which letter and attachments thereto sets forth any
and all exceptions to the representations and warranties made by the Company in
Article III and provides certain additional information as specified in Article
III.
45
<PAGE> 51
"Company Stockholder Agreement" shall mean the Stockholder Agreement
in form and substance reasonably acceptable to Purchaser, the Company and the
Stockholder Representative.
"Company and Stockholder Transaction Costs" shall mean all fees,
charges, costs disbursements, commissions, or other expenses of or attributable
to the Company, its Subsidiaries, the Stockholders, the Optionholders, the
Warrantholders or the Stockholder Representative pursuant to this Agreement and
the transactions contemplated hereby, including their respective financial
advisory, legal, and accounting fees and expense, whether paid or payable prior
to, at or after the Closing.
"Conversion Shares" shall mean the 10,000 shares of Class A Common
Stock issuable upon conversion of the Subordinated Debentures.
"Damages" shall mean any and all losses (net of realized tax
benefits), costs, damages, claims, fines, taxes, interest, penalties, expenses,
including, without limitation, attorneys' fees and expenses, amounts paid in
settlement, court costs, fees and expenses of accountants, investment bankers,
environmental consultants and other experts, and other expenses of litigation
and investigation.
"EBITDA" shall mean the consolidated earnings of the Company and its
Subsidiaries as determined in accordance with GAAP, but before any
extraordinary items and before reduction for expenses relating to interest,
taxes, depreciation and amortization.
"Employment Agreement" shall mean that certain Employment Agreement to
be entered into between the Company and Mr. Kenneth T. White, Jr., in form and
substance reasonably acceptable to the Purchaser, the Company and the
Stockholder Representative.
"Environmental Laws" shall mean all applicable federal, state or local
statutes, codes, rules, regulations or permits relating to the environment,
natural resources, pollution or contamination or toxic or hazardous substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" shall mean the escrow agent appointed and acting as
such under the Escrow Agreement.
"Escrow Agreement" shall mean that certain Escrow Agreement dated the
date of this Agreement, among Purchaser, the Stockholder Representative and
Republic Bank, N.A., as Escrow Agent, in form and substance reasonably
satisfactory to Purchaser, the Company and the Stockholder Representative.
46
<PAGE> 52
"Fully Diluted Basis" shall mean the number of shares of Class A
Common Stock outstanding immediately prior to the Closing, assuming all of the
Subordinated Debentures are converted, all of the Restricted Shares are issued.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions.
"Indebtedness" shall mean all liabilities, whether contingent or
otherwise, of the Company and its Subsidiaries on a consolidated basis (i) for
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the Company or any Subsidiary or only to a portion thereof), or
(ii) evidenced by bonds, notes, debentures, or deferred purchase price of
property (other than as represents an account payable in the ordinary course of
business consistent with past practice to a trade creditor in connection with
obtaining goods, materials or services), or (iii) for the payment of money
related to any capitalized lease obligation (as determined in accordance with
GAAP), or (iv) for repayment obligations with respect to any letter of credit
or (v) arising in connection with the guaranty of any liability or obligation
of any other Person, in each case, together with all interest, premium, fees,
expenses, costs and other obligations and liabilities relating thereto,
including, for purposes of Article I, in connection with the pay-off, discharge
and release thereof.
"Letter of Transmittal" shall mean the letter of transmittal to be
delivered by the Stockholders, the Optionholders and Warrantholders with
respect to the Class A Common Stock, the Options and the Warrants substantially
in form and substance reasonably acceptable to the Purchaser, the Company and
the Stockholder Representative.
"Management Consulting Agreement" shall mean that certain Management
Consulting Agreement to be entered into between the Company and The Jordan
Company as of the Closing Date in form and substance reasonably acceptable to
the Purchaser, the Company and the Stockholder Representative providing for (i)
a fee payable at Closing equal to $1.7 million, and (ii) an annual management
and consulting fee equal to 2.5% of EBITDA, (iii) other customary investment
banking, sponsorship and advisory fees, and (iv) such other terms, conditions,
indemnities and reimbursements as the Company and The Jordan Company shall
agree.
"Material Adverse Effect" shall mean any of (i) an obligation,
liability or circumstance involving or which could reasonably be expected to
involve the expenditure of $50,000 or more, (ii) a material adverse effect on
the business, operations, liabilities, properties, assets, financial condition
or prospects of, in the case of the Company, the Company and its Subsidiaries
taken
47
<PAGE> 53
individually or as a whole, or (iii) in the case of Purchaser, solely of, or in
the ability of the Company or Purchaser, as applicable, to perform its
obligations under this Agreement.
"New Management Option Plan" shall mean the Management Incentive
Option Plan to purchase 30,937.5 shares of Class A Common Stock in form and
substance reasonably acceptable to the Purchaser, the Company and the
Stockholders Representative.
"New Subordinated Debentures" shall mean the subordinated debentures
that are to be purchased by Purchaser or its affiliates from the Company as
provided in Section 1.2.
"Options" shall mean employee stock options to purchase 251,500 shares
of Class A Common Stock granted pursuant to the Stock Option Plan.
"Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or, as applicable, any other entity.
"Per Share Escrow Adjustment" shall mean the result obtained by
dividing (a) $6,350,000 by (b) 645,606, or $9.83572.
"Per Share Purchase Price Adjustment" shall mean the result obtained
by dividing the (a) sum of (i) the Company and Stockholder Transaction Costs of
the Company and its Subsidiaries as of the Closing in excess of $1 million,
plus (ii) Indebtedness (other than in respect of the Subordinated Debentures)
of the Company and its Subsidiaries as of the Closing in excess of $16.5
million (net of cash or cash equivalents); provided, that in calculating such
$16.5 million (net of cash and cash equivalents), Indebtedness of the type
referred to in clause (iv) of the definition thereof will be ignored; divided
by (b) 912,456. In connection with such determination, (x) Company and
Stockholder Transaction Costs will be as set forth in final invoices delivered
at Closing and will be reasonably acceptable to the Company and Purchaser, and
(y) such Indebtedness will be as set forth in pay-off, discharge and release
letters delivered at Closing from the holders of such Indebtedness and will be
reasonably acceptable to the Company and Purchaser.
"Purchasers Warrants" shall mean the Warrants for purchase 37,812.5
shares of Class A Common Stock.
"Restricted Shares" shall mean the 45,300 shares of Class A Common
Stock issuable to Management.
"Retained Shares" shall mean the 55,000 shares of Class A Common Stock
retained by the Stockholders pursuant to Section 1.2.
48
<PAGE> 54
"Stockholder Schedule" shall mean the stockholder schedule included in
the Company Disclosure Letter.
"Subordinated Debentures" shall mean the 12% Subordinated Debentures
due December 1997 issued by the Company prior to the date of this Agreement.
"Subsidiary" or "Subsidiaries" shall mean any corporation and other
entity of which The Company directly or indirectly owns shares of capital stock
or other equity interests having in the aggregate 50% or more of the total
combined voting power of the issued and outstanding shares of capital stock
entitled to vote generally in the election of directors or equity interests of
such corporation or other entity
"Taxes" shall mean all taxes, charges, fees, duties, levies or other
assessments, including (without limitation) income, gross receipts, net
proceeds, ad valorem, turnover, real and personal property (tangible and
intangible), sales, use, franchise, excise value added, stamp, leasing, lease,
user, transfer, fuel, excess profits, occupational, interest equalization,
windfall profits, severance and employees; income withholding, unemployment and
Social Security taxes, which are imposed by the United States or any state,
local or foreign government or subdivision or agency thereof, including any
interest, penalties or additions to tax related thereto.
"Tax Returns" shall mean any report, return statement, schedule or
other filings (including any related or supporting information) required to be
supplied to a taxing authority in connection with Taxes.
"Warrants" shall mean the warrants to purchase 15,050 Class A Common
Stock issued by the Company prior to the date of this Agreement.
(b) The following terms used in this Agreement are defined in the
respective Sections of this Agreement indicated opposite each such term below:
<TABLE>
<S> <C>
Agreement............................................................................... Preamble
Cap Amount........................................................................ Section 9.6(b)
Class A Common Stock................................................................. Section 3.4
Class B Common Stock................................................................. Section 3.4
Closing ............................................................................. Section 2.1
Closing Date......................................................................... Section 2.1
Closing Date Period................................................................. Section 3.23
Closing Option Consideration......................................................... Section 1.3
Closing Warrant Consideration........................................................ Section 1.4
Deductible........................................................................ Section 9.6(a)
Employee Benefit Plans........................................................... Section 3.17(b)
</TABLE>
49
<PAGE> 55
<TABLE>
<S> <C>
Environmental Claims ............................................................ Section 3.15(c)
Environmental Filings ........................................................... Section 3.15(b)
Environmental Permits............................................................ Section 3.15(b)
Escrow Funds...................................................................... Section 2.1(f)
Financial Statements ................................................................ Section 3.7
The Company ............................................................................ Preamble
Indemnified Party.................................................................... Section 9.1
Indemnifying Party................................................................... Section 9.1
Information ........................................................................ Section 3.27
Insurance Policies ................................................................. Section 3.19
Interim Balance Sheet................................................................ Section 3.7
IP Rights........................................................................ Section 3.17(b)
Leased Properties ............................................................... Section 3.12(b)
Liens ........................................................................... Section 3.12(b)
Notice of Claim...................................................................... Section 9.1
Option Consideration ................................................................ Section 1.2
Optionholders .......................................................................... Preamble
Owned Properties................................................................. Section 3.12(b)
Phase I Study ...................................................................... Section 6.2
Properties....................................................................... Section 3.12(b)
Purchaser............................................................................... Preamble
Purchaser Group...................................................................... Section 9.2
Recapitalization....................................................................... Recital A
Stockholders............................................................................ Preamble
Stockholder Representative........................................................... Section 1.6
Stockholder Warranties............................................................... Section 9.1
Survival Date ....................................................................... Section 9.1
Warrant Consideration................................................................ Section 1.2
Warrantholders.......................................................................... Preamble
Year-End Balance Sheets.............................................................. Section 3.7
</TABLE>
(c) When a reference is made in this Agreement to an
"Article" or "Section" such reference shall be to an Article or a Section of
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for ease of reference only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation", whether or not so stated. Any
singular term in this Agreement shall be deemed to include the plural, and any
plural term the singular.
50
<PAGE> 56
SECTION 10.14. Entire Agreement. This Agreement and the Company
Disclosure Letter embody the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein or therein. There are
no agreements, representations, warranties or covenants other than those
expressly set forth herein or therein. This Agreement and the Company
Disclosure Letter supersede all prior or contemporaneous agreements and
understandings between the parties with respect to such subject matter.
51
<PAGE> 57
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or has caused this Agreement to be executed on its behalf by its
duly authorized officers, in one or more counterparts, all as of the day and
year first above written.
<TABLE>
<S> <C>
W-H HOLDINGS, INC.
By: /s/ KENNETH T. WHITE, JR.
------------------------------------------
Kenneth T. White, Jr.
Chairman of the Board
W-H INVESTMENT, L.P.
By: W-H Investment Corp.,
general partner
Its: /s/ JOHNATHAN BOUCHER
-----------------------------------------
Johnathan Boucher
Vice President
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS: ELECTION TO
RETAIN SHARES
(Indicate by check
mark if you elect
to retain your
Retained Shares)
<S> <C>
KENNETH T. WHITE, JR. [ ]
/s/ KENNETH T. WHITE, JR
------------------------------------------
RALPH DERUBBO [ ]
/s/ RALPH DERUBBO
------------------------------------------
</TABLE>
52
<PAGE> 58
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
S. TEVIS GRINSTEAD [ ]
/s/ S. TEVIS GRINSTEAD
------------------------------------------
WYATT MADDUX [ ]
/s/ WYATT MADDUX
------------------------------------------
NUTMEG VOTING TRUST [ ]
/s/ NUTMEG VOTING TRUST
------------------------------------------
Trustee
WITHAM MANAGEMENT [ ]
CORPORATION
/s/ JAMES MORTON
------------------------------------------
Director
EDWARD C. OSTERBERG [ ]
/s/ EDWARD C. OSTERBERG
------------------------------------------
</TABLE>
53
<PAGE> 59
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
JANIS E. ST. ONGE [X]
/s/ JANIS E. ST. ONGE
------------------------------------------
R. H. WHILDEN, JR [X]
/s/ R. H. WHILDEN, JR
------------------------------------------
THOMAS P. WHITE [ ]
/s/ THOMAS P. WHITE
------------------------------------------
CHARLES A. HOLSTON [ ]
/s/ CHARLES A. HOLSTON
------------------------------------------
CRAIG A. HOLSTON [ ]
/s/ CRAIG A. HOLSTON
------------------------------------------
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
MARIAN C. JAMAIL [ ]
/s/ MARIAN C. JAMAIL
------------------------------------------
CHERYL HOLSTON MAGGIORE [X]
/s/ CHERYL HOLSTON MAGGIORE
------------------------------------------
RHONDA HOLSTON WATKINS [X]
/s/ RHONDA HOLSTON WATKINS
------------------------------------------
HARTSON NOMINEES LIMITED [X]
/s/ HARTSON NOMINEES LIMITED
------------------------------------------
VINSON & ELKINS [ ]
By: /s/ R.H. WHILDERN, JR.
------------------------------------------
Partner
DAVID ELIFF [X]
/s/ DAVID ELIFF
------------------------------------------
</TABLE>
55
<PAGE> 61
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
JAKE W. BROUSSARD [X]
/s/ JAKE W. BROUSSARD
------------------------------------------
ISAAC H. SMITH [X]
/s/ ISAAC H. SMITH
------------------------------------------
DANIEL SPILLER [X]
/s/ DANIEL SPILLER
------------------------------------------
LAWRENCE J. THOMPSON [X]
/s/ LAWRENCE J. THOMPSON
------------------------------------------
TRUSTEES OF EVESWISE [X]
/s/ CHRISTOPHER MILLS
------------------------------------------
Trustee
ANDREW J. QUARTAPELLA [X]
/s/ ANDREW J. QUARTAPELLA
------------------------------------------
</TABLE>
56
<PAGE> 62
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
VALERIE WHITE [ ]
/s/ VALERIE WHITE
------------------------------------------
RAYMOND H. ELLISON [X]
/s/ RAYMOND H. ELLISON
------------------------------------------
GLENN J. CHAMPEAUX [X]
/s/ GLENN J. CHAMPEAUX
------------------------------------------
W. J. THOMAS III [X]
/s/ W. J. THOMAS III
------------------------------------------
BANK OF SCOTLAND LONDON [X]
NOMINEES LIMITED
/s/ [illegible]
------------------------------------------
Director
Director/Secretary
F&C NOMINEES LTD A/C VEN [ ]
(Record Holder)
/s/ [illegible]
------------------------------------------
</TABLE>
57
<PAGE> 63
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
SECOND CONSOLIDATED TRUST PLC [ ]
(Beneficial Owner)
/s/ [illegible]
--------------------------------------------
ALEXANDER REID [ ]
/s/ CHRISTOPHER MILLS
--------------------------------------------
As attorney for Alexander Reid
BANK OF SCOTLAND NOMINEES LTD [ ]
--------------------------------------------
DRAYTON, ENGLISH AND INTL. [ ]
TRUST PLC
/s/ W.R. [illegible]
--------------------------------------------
Director
ELAINE WHITE [ ]
/s/ ELAINE WHITE
------------------------------------------
</TABLE>
58
<PAGE> 64
<TABLE>
<CAPTION>
ELECTION TO
RETAIN SHARES
<S> <C>
KENNETH T. WHITE III [X]
/s/ KENNETH T. WHITE III
------------------------------------------
KENNON L. WATKINS [X]
/s/ KENNON L. WATKINS
------------------------------------------
</TABLE>
59
<PAGE> 1
EXHIBIT 10.10
[EXECUTION COPY]
================================================================================
U.S. $173,500,000
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of March 24, 2000
(amending and restating the Credit Agreement
dated as of August 11, 1997)
among
PERF-O-LOG, INC.,
as the Borrower,
W-H ENERGY SERVICES, INC.,
as the Parent,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
and
DLJ CAPITAL FUNDING, INC.
as the Syndication Agent for the Lenders.
----------------------------------------------
LEAD ARRANGED BY
DLJ CAPITAL FUNDING, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms.......................................................................................3
1.2. Use of Defined Terms...............................................................................38
1.3. Cross-References...................................................................................38
1.4. Accounting and Financial Determinations............................................................38
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
2.1. Commitments........................................................................................39
2.1.1. Term Loan Commitments.................................................................39
2.1.2. Revolving Loan Commitment and Swing Line Loan Commitment..............................41
2.1.3. Letter of Credit Commitment...........................................................41
2.1.4. Lenders Not Permitted or Required To Make Loans.......................................42
2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit...........................43
2.2. Reduction of Commitment Amounts....................................................................43
2.2.1. Optional..............................................................................43
2.2.2. Mandatory.............................................................................43
2.3. Borrowing Procedures and Funding Maintenance.......................................................44
2.3.1. Term Loans and Revolving Loans........................................................44
2.3.2. Swing Line Loans......................................................................44
2.4. Continuation and Conversion Elections..............................................................45
2.5. Funding............................................................................................46
2.6. Issuance Procedures................................................................................46
2.6.1. Other Lenders' Participation..........................................................46
2.6.2. Disbursements; Conversion to Revolving Loans..........................................47
2.6.3. Reimbursement.........................................................................47
2.6.4. Deemed Disbursements..................................................................47
2.6.5. Nature of Reimbursement Obligations...................................................48
2.7. Notes..............................................................................................49
2.8. Registered Notes...................................................................................49
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments; Application............................................................49
3.1.1. Repayments and Prepayments............................................................49
3.1.2. Application...........................................................................51
3.2. Interest Provisions................................................................................52
3.2.1. Rates.................................................................................52
3.2.2. Post-Maturity Rates...................................................................52
3.2.3. Payment Dates.........................................................................52
</TABLE>
<PAGE> 3
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
3.3. Fees...............................................................................................53
3.3.1. Commitment Fee........................................................................53
3.3.2. Agents' and Lead Arranger's Fees......................................................53
3.3.3. Letter of Credit Face Amount Fee......................................................53
3.3.4. Letter of Credit Issuing Fee..........................................................53
3.3.5. Amendment Fee.........................................................................54
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful.........................................................................54
4.2. Deposits Unavailable...............................................................................54
4.3. Increased LIBO Rate Loan Costs, etc................................................................54
4.4. Funding Losses.....................................................................................55
4.5. Increased Capital Costs............................................................................55
4.6. Taxes..............................................................................................55
4.7. Payments, Computations, etc........................................................................57
4.8. Sharing of Payments................................................................................57
4.9. Setoff.............................................................................................58
4.10. Replacement of Lenders.............................................................................58
4.11. Use of Proceeds....................................................................................59
ARTICLE V
CONDITIONS PRECEDENT
5.1. Conditions to the extension of Additional Term F Loans.............................................59
5.1.1. Resolutions, etc......................................................................59
5.1.2. Delivery of Additional Term F Notes...................................................59
5.1.3. Affirmation and Consent...............................................................59
5.1.4. Additional Term F Funding Date Certificates...........................................59
5.1.5. Solvency, etc.........................................................................60
5.1.6. Litigation............................................................................60
5.1.7. Material Adverse Effect...............................................................60
5.1.8. Opinions of Counsel...................................................................60
5.1.9. Fees, Expenses, etc...................................................................60
5.2. All Credit Extensions..............................................................................60
5.2.1. Compliance with Warranties, No Default, etc...........................................60
5.2.2. Credit Extension Request..............................................................61
5.2.3. Satisfactory Legal Form...............................................................61
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc. ................................................................................61
6.2. Due Authorization, Non-Contravention, etc. ........................................................62
6.3. Government Approval, Regulation, etc. .............................................................62
6.4. Validity, etc. ....................................................................................62
6.5. Financial Information..............................................................................63
6.6. No Material Adverse Effect.........................................................................63
6.7. Litigation, Labor Controversies, etc. .............................................................63
6.8. Subsidiaries; Investments..........................................................................63
6.9. Ownership of Properties............................................................................64
6.10. Taxes..............................................................................................64
6.11. Pension and Welfare Plans..........................................................................64
6.12. Environmental Warranties...........................................................................64
6.13. Regulations U and X................................................................................66
6.14. Accuracy of Information............................................................................66
6.15. Solvency...........................................................................................66
6.16. Mobile Assets; Leasehold Mortgages, etc. ..........................................................66
6.17. Year 2000..........................................................................................67
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants..............................................................................67
7.1.1. Financial Information, Reports, Notices, etc. ........................................67
7.1.2. Compliance with Laws, etc. ...........................................................69
7.1.3. Maintenance of Properties.............................................................69
7.1.4. Insurance.............................................................................69
7.1.5. Books and Records.....................................................................70
7.1.6. Environmental Covenant................................................................70
7.1.7. Future Subsidiaries...................................................................70
7.1.8. Future Leased Property and Future Acquisitions of Real Property; Future
Acquisition of Other Property.........................................................71
7.1.9. Hedging Obligations...................................................................72
7.1.10. Use of Proceeds, etc. ................................................................72
7.1.11. Mortgages, etc. ......................................................................73
7.1.12. Mobile Assets, etc. ..................................................................73
7.1.13. Wells Fargo LC........................................................................73
7.1.14. Perfection of Foreign Subsidiary Pledge...............................................74
7.2. Negative Covenants.................................................................................74
7.2.1. Business Activities...................................................................74
7.2.2. Indebtedness..........................................................................74
7.2.3. Liens.................................................................................76
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
7.2.4. Financial Covenants...................................................................77
7.2.5. Investments...........................................................................78
7.2.6. Restricted Payments, etc. ............................................................79
7.2.7. Capital Expenditures, etc. ...........................................................81
7.2.8. Consolidation, Merger, etc. ..........................................................82
7.2.9. Asset Dispositions, etc. .............................................................82
7.2.10. Modification of Certain Agreements....................................................82
7.2.11. Transactions with Affiliates..........................................................83
7.2.12. Negative Pledges, Restrictive Agreements, etc. .......................................83
7.2.13. Sale and Leaseback....................................................................83
7.2.14. Accounting Changes....................................................................83
7.2.15. Subsidiaries..........................................................................83
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default.......................................................................84
8.1.1. Non-Payment of Obligations............................................................84
8.1.2. Breach of Warranty....................................................................84
8.1.3. Non-Performance of Certain Covenants and Obligations..................................84
8.1.4. Non-Performance of Other Covenants and Obligations....................................84
8.1.5. Default on Other Indebtedness.........................................................84
8.1.6. Judgments.............................................................................84
8.1.7. Pension Plans.........................................................................85
8.1.8. Control of the Borrower...............................................................85
8.1.9. Bankruptcy, Insolvency, etc. .........................................................85
8.1.10. Impairment of Security, etc. .........................................................86
8.1.11. Subordinated Debt.....................................................................86
8.2. Action if Bankruptcy...............................................................................86
8.3. Action if Other Event of Default...................................................................86
ARTICLE IX
THE AGENTS
9.1. Actions............................................................................................87
9.2. Funding Reliance, etc. ............................................................................87
9.3. Exculpation........................................................................................87
9.4. Successor..........................................................................................88
9.5. Loans or Letters of Credit Issued by the Issuer....................................................88
9.6. Credit Decisions...................................................................................88
9.7. Copies, etc. ......................................................................................88
</TABLE>
-iv-
<PAGE> 6
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Waivers, Amendments, etc. .........................................................................89
10.2. Notices............................................................................................90
10.3. Payment of Costs and Expenses......................................................................90
10.4. Indemnification....................................................................................91
10.5. Survival...........................................................................................92
10.6. Severability.......................................................................................92
10.7. Headings...........................................................................................92
10.8. Execution in Counterparts, Effectiveness, etc. ....................................................92
10.9. Governing Law; Entire Agreement....................................................................92
10.10. Successors and Assigns.............................................................................92
10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes............................93
10.11.1. Assignments...............................................................93
10.11.2. Participations............................................................94
10.11.3. Assignment of Registered Notes............................................95
10.12. Other Transactions.................................................................................95
10.13. Parent Guaranty....................................................................................95
10.13.1. Guaranty..................................................................95
10.13.2. Acceleration of Parent Guaranty...........................................96
10.13.3. Guaranty Absolute, etc. ..................................................96
10.13.4. Reinstatement, etc. ......................................................97
10.13.5. Waiver, etc. .............................................................97
10.13.6. Postponement of Subrogation, etc. ........................................97
10.13.7. Successors, Transferees and Assigns; Transfers of Notes, etc. ............98
10.14. Independence of Covenants..........................................................................98
10.15. Forum Selection and Consent to Jurisdiction........................................................98
10.16. Waiver of Jury Trial...............................................................................99
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C> <C>
ANNEX I - Scheduled Principal Repayments
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Notice Information; Lending Offices; Percentages Relating to Additional Term F
Loans
EXHIBIT A-1 - Form of Revolving Note
EXHIBIT A-2 - Form of Swing Line Note
EXHIBIT B-1 - Form of Term A Note
EXHIBIT B-2 - Form of Term B Note
EXHIBIT B-3 - Form of Delayed Term Note
EXHIBIT B-4 - Form of Term C Note
EXHIBIT B-5 - Form of Term D Note
EXHIBIT B-6 - Form of Term E Note
EXHIBIT B-7 - Form of Existing Term F Note
EXHIBIT B-8 - Form of Additional Term F Note
EXHIBIT B-9 - Form of Registered Note
EXHIBIT C - Form of Borrowing Request
EXHIBIT D - Form of Issuance Request
EXHIBIT E - Form of Continuation/Conversion Notice
EXHIBIT F-1 - Form of Borrower Additional Term F Funding Date Certificate
EXHIBIT F-2 - Form of Parent Additional Term F Funding Date Certificate
EXHIBIT G - Form of Compliance Certificate
EXHIBIT H - Form of Affirmation and Consent of Obligors
EXHIBIT I - Form of Solvency Certificates
EXHIBIT J - Form of Lender Assignment Agreement
</TABLE>
-vi-
<PAGE> 8
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March
24, 2000, among PERF-O-LOG, INC., a Texas corporation (the "Borrower"), W-H
ENERGY SERVICES, INC., a Texas corporation (the "Parent"), the various financial
institutions as are or may become parties hereto (each individually, a "Lender"
and collectively, the "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as
syndication agent (the "Syndication Agent"), and BNY ASSET SOLUTIONS LLC, as
administrative agent (the "Administrative Agent") for the Lenders.
W I T N E S S E T H:
WHEREAS, the Parent is primarily engaged through its various
Subsidiaries (including the Borrower) in the business of providing rental
equipment and specialized services and products in the oil and gas exploration
and production and the refining/petrochemical industries; and
WHEREAS, pursuant to an Agreement and Plan of Recapitalization, dated
as of August 11, 1997 (as so originally executed and delivered, the "Stock
Purchase Agreement"), among the Parent, the stockholders of the Parent named
therein and W-H Investment, L.P. (the "Purchaser"), and a Subscription
Agreement, dated as of August 11, 1997 (as so originally executed and delivered,
the "Subscription Agreement"), between the Parent and the Purchaser, (a) the
Parent was recapitalized (the "Recapitalization") and (b) in connection
therewith, the Purchaser (i) acquired (the "Acquisition") 92.1% of the issued
and outstanding shares of Capital Stock of the Parent, and (ii) redeemed all
outstanding warrants and stock options of the Parent, for an aggregate cash
consideration (exclusive of assumed indebtedness of the Parent) equal to
$61,500,000; and
WHEREAS, on the date (the "Initial Closing Date") of the initial Credit
Extension under the Existing Credit Agreement (as defined below), in connection
with the Acquisition, the Parent refinanced certain existing indebtedness of the
Parent of an amount not exceeding $17,000,000 (the "Refinancing"); and
WHEREAS, on the Initial Closing Date, in connection with the
Transaction (as defined below), the Parent (i) issued $24,000,000 of 12.5%
senior subordinated notes due September 15, 2007 (the "Parent Senior
Subordinated Notes") to MCIT PLC (whose successor is JZ Equity Partners plc)
("MCIT") (the "Parent Note Issuance"), (ii) issued to the Borrower a $46,500,000
promissory note (the "Parent Promissory Note"), including a $500,000 promissory
note (the "LC Promissory Note"), each of which is senior to the Parent Senior
Subordinated Notes (the issuance of the Parent Promissory Note and the LC
Promissory Note, collectively, the "Promissory Notes Issuance") and (iii) issued
220,000 shares of common stock for an aggregate value of $12,045,000 (the "Stock
Issuance"); and
WHEREAS, the aggregate amount necessary to consummate the Transaction,
and to pay related reasonable fees and expenses, excluding cash support for the
Wells Fargo LC as contemplated hereby, did not exceed $84,000,000; and
WHEREAS, on the Initial Closing Date the Borrower intended to make
certain capital expenditures and/or Targeted Acquisitions; and
<PAGE> 9
WHEREAS, pursuant to the Credit Agreement, dated as of August 11, 1997
(as originally executed, the "Original Credit Agreement" and, as amended by
Amendment No. 1, as amended and restated pursuant to the Amended and Restated
Credit Agreement, dated as of April 15, 1998 (the "First Amended and Restated
Credit Agreement"), as amended and restated by the Second Amended and Restated
Credit Agreement, dated as of July 24, 1998 (the "Second Amended and Restated
Credit Agreement"), as amended by the First Amendment and the Second Amendment,
and as amended and restated by the Third Amended and Restated Credit Agreement,
dated as of March 26, 1999 (the "Third Amended and Restated Credit Agreement")
and as amended, supplemented or otherwise modified prior to the date hereof, the
"Existing Credit Agreement"), among the Borrower, the Parent, certain financial
institutions from time to time parties thereto (collectively, the "Existing
Lenders"), the Syndication Agent and the Administrative Agent, in order to
consummate the Acquisition, the Refinancing and the Recapitalization (the
Acquisition, the Refinancing, the Recapitalization, the Parent Note Issuance,
the Promissory Notes Issuance, Stock Issuance, the initial Credit Extension on
the Initial Closing Date and any and all transactions related thereto are
collectively referred to as the "Transaction"), and to provide for the ongoing
working capital and general corporate needs of the Borrower and its Subsidiaries
(after giving effect to the Transaction) (including Capital Expenditures,
Permitted Acquisitions and the Funded Acquisitions), the Borrower obtained from
the Existing Lenders, on the terms and conditions set forth in the Existing
Credit Agreement, (a) a Term A Loan Commitment; (b) a Term B Loan Commitment;
(c) a Term C Loan Commitment; (d) a Term D Loan Commitment; (e) a Term E Loan
Commitment; (f) an Existing Term F Loan Commitment; (g) a Delayed Term Loan
Commitment; (h) a Revolving Loan Commitment (to include availability for
Revolving Loans, Letters of Credit and Swing Line Loans); (i) a Letter of Credit
Commitment (which is a sub-facility of the Revolving Loan Commitment); and (j) a
Swing Line Loan Commitment (which is a sub-facility of the Revolving Loan
Commitment); and
WHEREAS, the Borrower has requested that the Existing Credit Agreement
be amended and restated in its entirety to become effective and binding on the
Borrower pursuant to the terms of this Agreement, and the Lenders that are
required to give their consent in connection with such amendment and restatement
pursuant to Section 10.1 of the Existing Credit Agreement have agreed (subject
to the terms of this Agreement) to amend and restate the Existing Credit
Agreement in its entirety to read as set forth in this Agreement, and it has
been agreed by the necessary parties to the Existing Credit Agreement that (a)
the commitments which the Existing Lenders have agreed to extend to the Borrower
under the Existing Credit Agreement shall be extended or advanced upon the
amended and restated terms and conditions contained in this Agreement, and (b)
any outstanding credit extensions made and other Obligations outstanding under
the Existing Credit Agreement shall be governed by and deemed to be outstanding
under the amended and restated terms and conditions contained in this Agreement,
with the intent that the terms of this Agreement shall supersede the terms of
the Existing Credit Agreement (which shall hereafter have no further effect upon
the parties thereto, other than for accrued fees and expenses, and
indemnification provisions, accrued and owing under the terms of the Existing
Credit Agreement on or prior to the date hereof or arising under the terms of
the Existing Credit Agreement);
WHEREAS, all Loans and other Obligations shall continue to be and shall
be fully guaranteed pursuant to the Parent Guaranty and the Subsidiary Guaranty
and fully secured by, among other things, the Borrower Security Agreement, the
Subsidiary Security Agreement, the Borrower Pledge Agreement, the Subsidiary
Pledge Agreement and the Parent Pledge Agreement;
-2-
<PAGE> 10
WHEREAS, in connection with the Pathfinder Acquisition, the Borrower
made Borrowings of Existing Term F Loans on March 26, 1999, April 20, 1999 and
May 26, 1999 in an aggregate principal amount of $15,000,000 which loans shall
continue to remain outstanding hereunder in accordance with the terms hereof
(including such terms relating to the amortization thereof (including Section
3.1.1));
WHEREAS, in connection with the Pathfinder Acquisition, the Borrower
issued $35,000,000 of senior subordinated notes due April 1, 2006, (the
"Borrower Senior Subordinated Notes") to DLJ Merchant Banking Partners II, L.P.
and/or its Affiliates ("DLJMB");
WHEREAS, in connection with the ongoing working capital and general
corporate needs of the Borrower, the Borrower desires to obtain Additional Term
F Loan Commitments from the Fourth Amended and Restated Effective Date to the
Term F Loan Commitment Termination Date pursuant to which Borrowings of
Additional Term F Loans will be made to the Borrower on or after the Fourth
Amendment Effective Date to the Term F Loan Commitment Termination Date in an
aggregate original principal amount not to exceed $18,500,000, with the proceeds
of such Additional Term F Loans to be used for the purposes set forth in Section
7.1.10;
NOW, THEREFORE, the parties hereto hereby agree to amend and restate
the Existing Credit Agreement, and the Existing Credit Agreement is hereby
amended and restated, as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Acquisition" is defined in the second recital.
"Acquisition Arrangements" means with respect to the Transaction, any
Targeted Acquisition or any Permitted Acquisition, (i) any non-recurring
compensation expense related to repurchase options, warrants and restricted
shares associated therewith or (ii) any deferred or contingent acquisition
consideration (including stock appreciation rights, phantom stock,
non-competition agreements and earn-out agreements and other equity incentive or
bonus arrangements); provided, however, that for purposes of calculating Excess
Cash Flow on any date, "Acquisition Arrangement" shall not exceed $3,000,000 in
the aggregate after taking into account all other Acquisition Arrangements
included in calculating Excess Cash Flow on any prior date.
"Additional Term F Funding Date" means each date (including the
Additional Term F Initial Funding Date) that a Borrowing of Additional Term F
Loans shall occur, which Borrowing shall occur on a Business Day occurring on or
after the Fourth Amended and Restated Effective Date but prior to the Additional
Term F Loan Commitment Termination Date.
-3-
<PAGE> 11
"Additional Term F Initial Funding Date" means the date of the initial
Borrowing of Additional Term F Loans, which Borrowing shall occur on a Business
Day occurring on or after the Fourth Amended and Restated Effective Date but
prior to the Additional Term F Loan Commitment Termination Date.
"Additional Term F Loan" is defined in clause (g)(v) of Section 2.1.1.
"Additional Term F Loan Commitment" means, relative to any Lender, such
Lender's obligation to make Additional Term F Loans pursuant to clause (g)(v) of
Section 2.1.1.
"Additional Term F Loan Commitment Amount" means an amount not
exceeding $18,500,000.
"Additional Term F Loan Commitment Termination Date" means the earliest
of
(a) March 31, 2000; and
(b) the date on which any Commitment Termination Event occurs.
"Additional Term F Note" means a promissory note of the Borrower
payable to the order of any Lender, in the form of Exhibit B-8 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrower to such Lender
resulting from outstanding Additional Term F Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal
thereof.
"Administrative Agent" means BNY Asset Solutions LLC, and each other
Person as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 9.4.
"AEI Acquisition" means the acquisition by Drill Motor Services, Inc.,
a direct, wholly-owned Subsidiary of the Borrower of all of the issued and
outstanding shares of Capital Stock of Agri-Empresa, Inc., a Texas corporation,
Agri-Empresa Transportation, Inc., a Texas corporation, Lonestar Distribution,
Inc., a Texas corporation, and Superior Packaging & Distribution, Inc., a Texas
corporation (collectively, "AEI").
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power (i)
to vote 10% or more of the securities (on a fully diluted basis) having ordinary
voting power for the election of directors or managing general partners; or (ii)
to direct or cause the direction of the management and policies of such Person
whether by contract or otherwise; provided, however, that neither MCIT nor DLJMB
shall be deemed to be an "Affiliate" of the Parent, the Borrower or any of its
Subsidiaries for purposes of this Agreement and the other Loan Documents.
"Agents" means, collectively, the Syndication Agent and the
Administrative Agent.
"Agreement" means, on any date, this Fourth Amended and Restated Credit
Agreement as originally in effect on the Fourth Amended and Restated Effective
Date and as thereafter from time to time amended, supplemented, amended and
restated, or otherwise modified and in effect on such date.
-4-
<PAGE> 12
"Alternate Base Rate" means, on any date and with respect to all Base
Rate Loans, a fluctuating rate of interest per annum equal to the higher of (i)
the rate of interest in effect for such day as publicly announced or established
from time to time by the Administrative Agent or if not so publicly announced or
established by the Administrative Agent, the prime rate as set forth in The Wall
Street Journal on such date, and (ii) the Federal Funds Rate most recently
determined by the Administrative Agent plus 1/2 of 1%.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by the Administrative Agent in connection with extensions of
credit. Changes in the rate of interest on that portion of any Loans maintained
as Base Rate Loans will take effect simultaneously with each change in the
Alternate Base Rate. The Administrative Agent will give notice promptly to the
Borrower and the Lenders of changes in the Alternate Base Rate.
"Amendment No. 1" means the First Amendment to the Credit Agreement,
dated as of November 26, 1997, among the Borrower, the Lenders signatory
thereto, and the Agents.
"Annualized" means, (i) with respect to the end of the first full
Fiscal Quarter of the Borrower to occur after the Initial Closing Date, the
applicable amount for such Fiscal Quarter multiplied by four, (ii) with respect
to the second Fiscal Quarter of the Borrower to occur after the Initial Closing
Date, the sum of the applicable amount for such Fiscal Quarter and the
immediately preceding Fiscal Quarter multiplied by two, and (iii) with respect
to the third Fiscal Quarter of the Borrower to occur after the Initial Closing
Date, the sum of the applicable amount for such Fiscal Quarter and the
immediately preceding two Fiscal Quarters multiplied by 1.3333.
"Applicable Commitment Fee" means, (i) in respect of the Delayed Term
Loan Commitment, at all times, a fee which shall accrue at a rate of 1/2 of 1%
per annum; and (ii) in respect of the Revolving Loan Commitment (a) at all times
from the Initial Closing Date through (but excluding) the date upon which the
Compliance Certificate for the second full Fiscal Quarter following the Initial
Closing Date is delivered or required to be delivered by the Borrower to the
Administrative Agent pursuant to clause (c) of Section 7.1.1, a fee which shall
accrue at a rate of 1/2 of 1% per annum, and (b) for each day thereafter, a fee
which shall accrue at a rate per annum determined by reference to the Leverage
Ratio for the Fiscal Quarter last ended and the applicable percentage per annum
set forth below under the column entitled "Applicable Commitment Fee":
<TABLE>
<CAPTION>
Applicable
Leverage Ratio Commitment Fee
- -------------- --------------
<S> <C>
greater than or
equal to 4.5:1 0.500%
greater than or
equal to 3.5:1 and
less than 4.5:1 0.425%
greater than or
equal to 2.75:1 and
less than 3.5:1 0.375%
greater than or
equal to 2.25:1 and
less than 2.75:1 0.300%
less than 2.25:1 0.250%
</TABLE>
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<PAGE> 13
The Leverage Ratio used to compute the Applicable Commitment Fee shall be the
Leverage Ratio set forth in the Compliance Certificate most recently delivered
by the Borrower to the Administrative Agent pursuant to clause (c) of Section
7.1.1. Changes in the Applicable Commitment Fee resulting from a change in the
Leverage Ratio shall become effective as of the end of the Fiscal Quarter
immediately preceding the delivery by the Borrower to the Administrative Agent
of a new Compliance Certificate pursuant to clause (c) of Section 7.1.1;
provided, however, that if the Borrower fails to deliver a Compliance
Certificate within the number of days required pursuant to clause (c) of Section
7.1.1, the Applicable Commitment Fee for the period from and including the first
day after the date on which such Compliance Certificate as required to be
delivered to, but not including the date of the delivery thereof shall
conclusively be equal to 0.500%; provided, further, however, that in the event
such Compliance Certificate indicates a Leverage Ratio that would result in an
Applicable Commitment Fee which is less than the Applicable Commitment Fee that
is then in effect pursuant to the immediately preceding proviso, then (A) such
lesser Applicable Commitment Fee shall be deemed to be in effect for all
purposes of this Agreement for such period and (B) if the Borrower shall have
made any payment in respect of fees during such period, then, on the next
Quarterly Payment Date, an amount shall be deducted from the fees then otherwise
payable in an amount which equals the difference between the amount of fees so
paid and the amount of fees that would otherwise have been paid based on such
new Leverage Ratio.
"Applicable Margin" means at all times during the applicable periods
set forth below,
(a) with respect to the unpaid principal amount of each Term B
Loan, Term C Loan and Delayed Term Loan maintained as (i) a Base Rate
Loan, 2.50% per annum and (ii) a LIBO Rate Loan, 3.75% per annum;
(b) with respect to the unpaid principal amount of each Term D
Loan and each Term E Loan maintained as (i) a Base Rate Loan, 3.00%
per annum and (ii) a LIBO Rate Loan, 4.25% per annum;
(c) with respect to the unpaid principal amount of each Term F
Loan maintained as (i) a Base Rate Loan, 3.25% per annum and (ii) a
LIBO Rate Loan, 4.50% per annum; and
(d) with respect to the unpaid principal amount of each Revolving
Loan, each Swing Line Loan (each of which shall be borrowed and
maintained only as a Base Rate Loan) and each Term A Loan maintained
as (i) a Base Rate Loan, (x) from the Initial Closing Date through
(but excluding) the date upon which the Compliance Certificate for the
second full Fiscal Quarter following the Initial Closing Date is
delivered or required to be delivered by the Borrower to the
Administrative Agent pursuant to clause (c) of Section 7.1.1, 1.50%
per annum, and (y) thereafter, by reference to the Leverage Ratio and
at the applicable percentage per annum set forth below under the
column entitled "Applicable Margin for Base Rate Loans", and (ii) a
LIBO Rate Loan, (x) from the Initial Closing Date through (but
excluding) the date upon which the Compliance Certificate for the
second full Fiscal Quarter following the Initial Closing Date is
delivered or required to be delivered by the Borrower to the
Administrative Agent pursuant to clause (c) of Section 7.1.1, 2.75%
per annum, and (y) thereafter, by reference to the Leverage Ratio and
at the applicable percentage per annum set forth below under the
column entitled "Applicable Margin for LIBO Rate Loans":
-6-
<PAGE> 14
APPLICABLE MARGIN FOR REVOLVING LOANS, SWING LINE LOANS AND
TERM A LOANS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Applicable Applicable
Margin For Base Margin For LIBO
Leverage Ratio Rate Loans Rate Loans
- ------------------------------------------ ---------------- ---------------
<S> <C> <C>
greater than or equal to 4.50:1 2.00% 3.25%
less than 4.50:1 and greater than or equal
to 3.50:1 1.50% 2.75%
less than 3.50:1 and greater than or equal
to 2.75:1 1.00% 2.25%
less than 2.75:1 and greater than or equal
to 2.25:1 0.50% 1.75%
less than 2.25:1 0.0% 1.25%
</TABLE>
The Leverage Ratio used to compute the Applicable Margin for Revolving Loans,
Swing Line Loans and Term A Loans shall be the Leverage Ratio set forth in the
Compliance Certificate most recently delivered by the Borrower to the
Administrative Agent pursuant to clause (c) of Section 7.1.1. Changes in the
Applicable Margin for Revolving Loans, Swing Line Loans or Term A Loans
resulting from a change in the Leverage Ratio shall become effective as of the
end of the Fiscal Quarter immediately preceding the delivery by the Borrower to
the Administrative Agent of a new Compliance Certificate pursuant to clause (c)
of Section 7.1.1; provided, however, that if the Borrower fails to deliver a
Compliance Certificate within the number of days required pursuant to clause (c)
of Section 7.1.1, the Applicable Margin for the period from and including the
first day after the date on which such Compliance Certificate as required to be
delivered to, but not including the date of the delivery thereof shall
conclusively be equal to, in the case of the Applicable Margin for Base Rate
Loans, 2.00% and, in the case of the Applicable Margin for LIBO Rate Loans,
3.25%; provided further, however, that in the event such Compliance Certificate
indicates a Leverage Ratio that would result in an Applicable Margin which is
less than the Applicable Margin that is then in effect pursuant to the
immediately preceding proviso, then (A) such lesser Applicable Margin shall be
deemed to be in effect for all purposes of this Agreement for such period and
(B) if the Borrower shall have made any payment in respect of interest during
such period, then, on the next date that interest in respect of the applicable
Loan is due pursuant to Section 3.2.3, an amount shall be deducted from the
interest then otherwise payable in an amount which equals the difference between
the amount of interest so paid and the amount of interest that would otherwise
have been paid based on such new Leverage Ratio.
Notwithstanding anything in this definition to the contrary, the Applicable
Margin for all Loans will increase by 0.25% on each of (x) October 1, 2000 and
(y) April 1, 2001, until the consummation by the Parent of an Initial Public
Offering resulting in gross proceeds of at least $50,000,000.
"Approved Fund" means, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Assignee Lender" is defined in Section 10.11.1.
-7-
<PAGE> 15
"Authorized Officer" means, relative to any Obligor, those of its
officers whose signatures and incumbency shall have been certified to the Agents
and the Lenders pursuant to Section 5.1.1.
"Base Financial Statements" means, collectively, (a) the audited
consolidated income and cash flow statements and balance sheets of the Parent
and its Subsidiaries for each of the Fiscal Years ended September 30, 1994,
September 30, 1995, September 30, 1996 and December 31, 1997 and (b) the
unaudited consolidated income and cash flow statements and balance sheets of the
Parent and its Subsidiaries for the nine Fiscal Months ended September 30, 1998,
in each case, as delivered to the Agents from time to time as required by this
Agreement.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrower" is defined in the preamble.
"Borrower 2000 PIK Notes" means the senior subordinated notes issued
pursuant to Section 7.2.6(b), in substantially the form described in the
Borrower Senior Subordinated Notes Waiver, which shall be non-cash interest
bearing, payment-in-kind promissory notes, including any further payment-in-kind
notes issued as interest thereon, having a final maturity date equal to or later
than any existing Borrower Senior Subordinated Notes.
"Borrower Additional Term F Funding Date Certificate" means a
certificate of an Authorized Officer of the Borrower substantially in the form
of Exhibit F-1 hereto, delivered pursuant to Section 5.1.4.
"Borrower Note Purchase Agreement" means the subscription agreement,
dated as of March 26, 1999, between the Borrower, the Parent and DLJMB, as
amended through the date hereof in compliance with Section 7.2.10.
"Borrower Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of the Borrower pursuant to the Original
Credit Agreement, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"Borrower Security Agreement" means the Security Agreement executed and
delivered by an Authorized Officer of the Borrower pursuant to the Original
Credit Agreement, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"Borrower Senior Subordinated Debt" means the Borrower Senior
Subordinated Notes, together with the principal amount of all "PIK Notes" (as
defined in the Borrower Note Purchase Agreement) and Borrower 2000 PIK Notes
issued by the Borrower.
"Borrower Senior Subordinated Debt Documents" means the Borrower Note
Purchase Agreement, the Indenture relating to the Borrower Senior Subordinated
Debt, the Registration Rights Agreement, the Subscription Agreement, and each
other document or instrument executed and delivered from time to time pursuant
thereto by the Borrower, the Parent or any Subsidiary, whether or not
specifically mentioned therein.
"Borrower Senior Subordinated Notes" is defined in the eleventh recital
and includes, without limitation, the Borrower Senior Subordinated Notes Waiver.
-8-
<PAGE> 16
"Borrower Senior Subordinated Notes Waiver" means the Amendment and
Waiver to Senior Subordinated Notes due 2006 of Perf-O-Log, Inc., dated as of
March 24, 2000.
"Borrowing" means Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period made by the relevant Lenders on the same
Business Day and pursuant to the same Borrowing Request in accordance with
Section 2.1.
"Borrowing Request" means a loan request and certificate duly executed
by an Authorized Officer of the Borrower, substantially in the form of Exhibit C
hereto.
"Business Day" means
(a) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in New
York, New York or Houston, Texas; and
(b) relative to making, continuing, converting into, Interest
Periods with respect to and payments of principal and interest in
respect of, LIBO Rate Loans, any day on which dealings in Dollars are
carried on in the London interbank market.
"Capital Expenditures" means, with respect to any Person for any
period, the sum (without duplication) of
(a) the aggregate amount of all expenditures of such Person
and its Subsidiaries for fixed or capital assets made during such
period which, in accordance with GAAP, would be classified as capital
expenditures; and
(b) the aggregate amount of all Capitalized Lease
Liabilities incurred during such period;
provided, however, that "Capital Expenditures" shall not include for any period
(without duplication), (i) if expended within one year of receipt of the
applicable proceeds, expenditures for the purchase of replacement assets using
the proceeds of insurance or condemnation; (ii) if expended within one year of
receipt of the applicable proceeds the amount of expenditures for the purchase
of replacement assets relating to "lost-in-hole" assets or damaged beyond
repair or not returned, in each case using proceeds received in respect of such
loss; and (iii) with respect to the trade-in of replaced assets, the trade-in
value of such assets.
"Capital Stock" means, with respect to any Person, (i) any and all
shares, interests, participations or other equivalents of or interests in
(however designated) corporate or capital stock, including, without limitation,
shares of preferred or preference stock of such Person, (ii) all partnership
interests (whether general or limited) in such Person, (iii) all member
interests or other limited liability company interests in such Person, and (iv)
all other equity or ownership interests in such Person of any other type.
"Capitalized Lease Liabilities" means with respect to any Person for
any applicable period, all monetary obligations of such Person and its
Subsidiaries determined on a consolidated basis under any leasing or similar
arrangement which, in accordance with GAAP, would be classified as capitalized
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
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<PAGE> 17
"Cash Equivalent Investment" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one year
after such time, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of any Obligor)
organized under the laws of any state of the United States or of
the District of Columbia and rated at least A-l by S&P's or P-l
by Moody's, or
(ii) any Lender (or its holding company);
(c) any certificate of deposit or bankers acceptance, maturing
not more than one year after such time, which is issued by either
(i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000, or
(ii) any Lender;
(d) any repurchase agreement entered into with any Lender (or
other commercial banking institution of the stature referred to in
clause (c)(i)) which
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of clauses (a) through
(c); and
(ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the repurchase
obligation of such Lender (or other commercial banking
institution) thereunder; or
(e) money market funds (x) with a commercial banking institution
of the stature referred to in clause (c)(i), (y) having no
restrictions on liquidation rights and (z) whose sole investments are
comprised of investments permitted under clauses (a) through (d).
"Casualty Event" means the damage, destruction or condemnation, as the
case may be, of any property of the Borrower or any of its Subsidiaries.
"Casualty Proceeds" means, with respect to any Casualty Event, the
amount of any insurance proceeds or condemnation awards received by the Borrower
or any of its Subsidiaries in connection therewith.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System List.
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<PAGE> 18
"Change in Control" means
(a)(i) the failure of the "Jordan Investors" (as defined in the
Subscription Agreement as in effect on the Initial Closing Date) to
own, free and clear of all Liens or other encumbrances, 51% of the
outstanding shares of voting Capital Stock of the Parent on a fully
diluted basis (other than as a result of (A) one or more Initial
Public Offerings, (B) a widely distributed private placement of such
Capital Stock that does not provide any special director designation
or special election rights or other special corporate governance
rights to the holders of such shares or (C) the existence or exercise
of any warrant, option or other entitlement held by DLJMB to purchase
or own voting Capital Stock of the Parent) and/or (ii) any Person or
"group" (within the meaning of Section 13(d) or 14(d) of the Exchange
Act) shall at any time have acquired direct or indirect beneficial
ownership of a percentage of the outstanding voting Capital Stock of
the Parent that exceeds in the aggregate the percentage of such
Capital Stock then beneficially owned, directly or indirectly, by the
Jordan Investors;
(b) the failure of the Jordan Investors to have (i) after any
Initial Public Offering or widely distributed private placement
referred to above, the right to elect a majority of directors who are
not independent directors of the Parent, and provided that no other
Person or "group" (within the meaning of Section 13(d) or 14(d) of the
Exchange Act) shall at any time have acquired the direct or indirect
right to elect a greater number of directors, or (ii) at any other
time the right to elect a majority of the board of directors of the
Parent;
(c) the failure of the Parent to own, free and clear of all Liens
(other than Liens permitted under Section 7.2.3(a)) or other
encumbrances, 100% of the outstanding shares of voting Capital Stock
of the Borrower on a fully diluted basis; or
(d) the failure of the Borrower to own, free and clear of all
Liens (other than Liens permitted under Section 7.2.3(a)) or other
encumbrances, (i) 100% of the outstanding shares of voting Capital
Stock of any Subsidiary Guarantor existing as of August 11, 1997 on a
fully diluted basis or (ii) at least 80% of the outstanding shares of
voting Capital Stock of any other Subsidiary Guarantor on a fully
diluted basis.
"Chief Financial Authorized Officer" means, as the context may require,
the chief financial Authorized Officer of the Parent or the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, as the context may require, (i) a Lender's Letter
of Credit Commitment, Revolving Loan Commitment, Term A Loan Commitment, Term B
Loan Commitment, Term C Loan Commitment, Term D Loan Commitment, Term E Loan
Commitment, Existing Term F Loan Commitment, Additional Term F Loan Commitment
or Delayed Term Loan Commitment or (ii) the Swing Line Lender's Swing Line Loan
Commitment.
"Commitment Amount" means, as the context may require, the Letter of
Credit Commitment Amount, the Revolving Loan Commitment Amount, the Term A Loan
Commitment Amount, the Term B Loan Commitment Amount, the Term C Loan Commitment
Amount, the Term D Loan Commitment Amount, the Term E Loan Commitment Amount,
the Existing Term F Loan Commitment Amount, the Additional Term F Loan
Commitment Amount, the Delayed Term Loan Commitment Amount or the Swing Line
Loan Commitment Amount.
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<PAGE> 19
"Commitment Termination Date" means, as the context may require, the
Revolving Loan Commitment Termination Date, the Term A Loan Commitment
Termination Date, the Term B Loan Commitment Termination Date, the Term C Loan
Commitment Termination Date, the Term D Loan Commitment Termination Date, the
Term E Loan Commitment Termination Date, the Existing Term F Loan
Commitment Termination Date, the Additional Term F Loan Commitment
Termination Date or the Delayed Term Loan Commitment Termination Date.
"Commitment Termination Event" means
(a) the occurrence of any Default described in clauses (a)
through (d) of Section 8.1.9 with respect to the Borrower or any
Subsidiary; or
(b) the occurrence and continuance of any other Event of Default
and either (i) the declaration of the Loans to be due and payable
pursuant to Section 8.3, or (ii) in the absence of such declaration,
the giving of notice by the Agent, acting at the direction of the
Required Lenders, to the Borrower that the Commitments have been
terminated.
"Compliance Certificate" means a certificate duly completed and
executed by the Chief Financial Authorized Officer of the Borrower,
substantially in the form of Exhibit G hereto.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be deemed to be the outstanding
principal amount (or maximum principal amount, if larger) of the debt,
obligation or other liability guaranteed thereby.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit E hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"Credit Extension" means, as the context may require
(a) the making of any Loan by a Lender, or
(b) the issuance of any Letter of Credit, or the extension of any
Stated Expiry Date of any previously issued Letter of Credit, by any
Issuer.
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<PAGE> 20
"Credit Extension Request" means, as the context may require, any
Borrowing Request or Issuance Request.
"Current Assets" means, on any date with respect to any Person, without
duplication, all assets (other than cash) which, in accordance with GAAP
consistently applied, would be included as current assets on a consolidated
balance sheet of such Person and its Subsidiaries at such date as current
assets.
"Current Liabilities" means, on any date with respect to any Person,
without duplication, all amounts which, in accordance with GAAP (consistently
applied), would be included as current liabilities on a consolidated balance
sheet of such Person and its Subsidiaries at such date, excluding current
maturities of Indebtedness.
"Debt" means, without duplication, the outstanding principal amount of
all Indebtedness of the Borrower and its Subsidiaries of the nature referred to
in clauses (a), (b) (to the extent of any unreimbursed drawings under letters of
credit), (c) and (f) (limited to the amount of the recourse to the property in
respect thereof, but excluding all operating leases) of the definition of
"Indebtedness" plus (without duplication) the aggregate amount of all Contingent
Liabilities to the extent covering or supporting the principal amount of any
such Indebtedness.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event of
Default.
"Delayed Term Loan" is defined in clause (b) of Section 2.1.1.
"Delayed Term Loan Commitment" means, relative to any Lender, such
Lender's obligation to make Delayed Term Loans pursuant to clause (b) of Section
2.1.1.
"Delayed Term Loan Commitment Amount" means $15,000,000.
"Delayed Term Loan Commitment Termination Date" means the earliest of
(a) October 31, 1997, if no Term Loans have been made on or prior
to such date;
(b) the six month anniversary of the Initial Closing Date;
(c) the date on which the Delayed Term Loan Commitment is
terminated in full or reduced to zero pursuant to Section 2.2; and
(d) the date on which any Commitment Termination Event occurs.
"Delayed Term Note" means a promissory note of the Borrower payable to
the order of any Lender, in the form of Exhibit B-3 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Lender resulting
from outstanding Delayed Term Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"Disbursement" is defined in Section 2.6.2.
"Disbursement Date" is defined in Section 2.6.2.
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<PAGE> 21
"Disbursement Due Date" is defined in Section 2.6.2.
"Disclosure Schedule" means the Disclosure Schedule attached as
Schedule I to the Third Amended and Restated Credit Agreement, as such
Disclosure Schedule may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Administrative Agent and
the Required Lenders.
"DLJ" is defined in the preamble.
"DLJMB" is defined in the eleventh recital.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means, relative to any Lender, the office of such
Lender designated as such as set forth opposite its name on Schedule II hereto
under the applicable column heading or as set forth in the Lender Assignment
Agreement pursuant to which such Lender became a Lender hereunder or such other
office of a Lender (or any successor or assign of such Lender) within the United
States as may be designated from time to time by notice from such Lender, as the
case may be, to each other Person party hereto.
"EBITDA" means, with respect to the Borrower and its Subsidiaries for
any applicable period, the sum (without duplication), determined on a
consolidated basis, of
(a) Net Income,
plus
(b) the amount deducted in determining Net Income representing
non-cash charges, including depreciation and amortization,
plus
(c) the amount deducted in determining Net Income representing
income tax expense (whether paid or deferred),
plus
(d) the amount deducted in determining Net Income representing
Interest Expense,
plus
(e) the amount deducted in determining Net Income representing
Non-Recurring Costs,
plus
(f) for any applicable period ending during any Fiscal Quarter
ending on or about any date set forth below, the respective amounts
set forth below opposite such date:
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<PAGE> 22
<TABLE>
<CAPTION>
Date Amount
- ------------------------------------------- -----------
<S> <C>
March 31, 1999 $14,000,000
June 30, 1999 $10,500,000
September 30, 1999 $ 7,000,000
December 31, 1999 $ 3,500,000
March 31, 2000 and thereafter $ 0.00
</TABLE>
minus
(g) an amount equal to all non-cash credits included in
determining Net Income,
minus
(h) Restricted Operating Payments made during such period to the
extent not deducted from Net Income.
"Environmental Laws" means all applicable federal, state or local
statutes, laws (including common law), ordinances, codes, rules, regulations,
permits, licenses, administrative authorizations, guidelines, and requirements
(including consent decrees and administrative orders) relating to public health
and safety and protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Event of Default" is defined in Section 8.1.
"Excess Cash Flow" means, with respect to the Borrower and its
Subsidiaries for any applicable period, the excess (if any), of
(a) EBITDA for such applicable period;
over
(b) the sum, without duplication, for such applicable period on a
consolidated basis of
(i) the cash portion of Interest Expense (net of cash
interest or investment income) actually paid during such
applicable period;
plus
(ii) scheduled payments and optional and mandatory
prepayments, to the extent actually made, of the principal amount
of the Term Loans or any other term Debt (including payments
under Capitalized Lease Liabilities), and mandatory prepayments
of the principal amount of the Revolving Loans pursuant to
Section 3.1.1 in connection with
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<PAGE> 23
a permanent reduction of the Revolving Loan Commitment Amount, in
each case for such applicable period;
plus
(iii) all federal, state and foreign income taxes actually
paid in cash during such applicable period;
plus
(iv) Capital Expenditures actually made during such
applicable period pursuant to Section 7.2.7 (excluding Capital
Expenditures constituting Capitalized Lease Liabilities and by
way of the incurrence of Indebtedness permitted pursuant to
Section 7.2.2(e) to a vendor of any assets permitted to be
acquired pursuant to Section 7.2.7 to finance the acquisition of
such assets);
plus
(v) the amount of the net increase (or minus in the case of
a net decrease) of Current Assets over Current Liabilities of the
Borrower and its Subsidiaries for such applicable period;
plus
(vi) Investments permitted and actually made pursuant to
clauses (d) and (h) of Section 7.2.5 during such applicable
period and payments actually made pursuant to Acquisition
Arrangements;
plus
(vii) Restricted Tax Payments and Restricted Parent Payments
actually made pursuant to clause (d)(i) or (iii) of Section 7.2.6
during such applicable period;
minus
(c) with respect to the calculation of Excess Cash Flow for the
1999 Fiscal Year only, $3,500,000.
"Existing Credit Agreement" is defined in the seventh recital.
"Existing Lenders" is defined in the seventh recital.
"Existing Term F Loan" is defined in clause (f) of Section 2.1.1.
"Existing Term F Loan Commitment" means, relative to any Lender, such
Lender's obligation to make Term F Loans pursuant to clause (f) of Section
2.1.1.
"Existing Term F Loan Commitment Amount" means $15,000,000.
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<PAGE> 24
"Existing Term F Loan Commitment Termination Date" means the earliest
of
(a) March 31, 1999, if the Existing Term F Loans have not been
made on or prior to such date;
(b) the Term F Closing Date (immediately after the making of the
Existing Term F Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
"Existing Term F Note" means a promissory note of the Borrower payable
to the order of any Lender, in the form of Exhibit B-7 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrower to such Lender
resulting from outstanding Existing Term F Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal
thereof.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it.
"Fee Letter" means the confidential fee letter, dated as of August 11,
1997, among the Borrower, the Agents under the Original Credit Agreement and the
Lead Arranger.
"Filing Agent" is defined in Section 5.1.20.
"Filing Statements" is defined in Section 5.1.20.
"First Amended and Restated Credit Agreement" is defined in the seventh
recital.
"First Amendment" means Amendment No. 1 to the Second Amended and
Restated Credit Agreement, dated as of August 20, 1998, among the Borrower, the
Lenders signatory thereto, and the Agents.
"Fiscal Month" means any fiscal month of a Fiscal Year of the Borrower.
"Fiscal Quarter" means any quarter of a Fiscal Year of the Borrower.
"Fiscal Year" means, (i) at all times on or prior to December 31, 1996,
any period of twelve consecutive calendar months ending on September 30, and all
references to a Fiscal Year with a number corresponding to any calendar year
(e.g., the "1996 Fiscal Year") refer to the Fiscal Year ending on the September
30 occurring during such calendar year, and (ii) at all times after December 31,
1996, any
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<PAGE> 25
period of twelve consecutive calendar months ending on December 31, and all
references to a Fiscal Year with a number corresponding to any calendar year
(e.g., the "1997 Fiscal Year") refer to the Fiscal Year ending on the December
31 occurring during such calendar year.
"Fixed Charge Coverage Ratio" means, at the end of any Fiscal Quarter,
the ratio for the period consisting of such Fiscal Quarter and each of the three
immediately preceding Fiscal Quarters of
(a) EBITDA for all such Fiscal Quarters,
to
(b) the sum (without duplication) of
(i) Capital Expenditures actually made during all such
Fiscal Quarters pursuant to Section 7.2.7;
plus
(ii) the cash portion of Interest Expense (net of cash
interest income or investment income) for all such Fiscal
Quarters;
plus
(iii) all scheduled payments of principal, to the extent
actually made, of the Term Loans and other term Debt (including
the principal portion of any Capitalized Lease Liabilities)
during all such Fiscal Quarters;
plus
(iv) all federal, state and foreign income taxes and
Restricted Tax Payments of the type set forth in clause (i) of
the definition thereof actually paid in cash during all such
Fiscal Quarters;
provided that if, during any such period, the Borrower or any of its
Subsidiaries shall have made one or more acquisitions (including Permitted
Acquisitions and the Funded Acquisitions), the Fixed Charge Coverage Ratio for
such period shall be calculated on a Pro Forma Basis as if each such acquisition
had been incurred, on the first day of such period.
"Form UCC-1" is defined in Section 5.1.10(a).
"Form UCC-3" is defined in Section 5.1.10(b).
"Form UCC-11" is defined in Section 5.1.10(c).
"Fourth Amended and Restated Effective Date" means the date this
Agreement becomes effective pursuant to Section 10.8.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
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<PAGE> 26
"Funded Acquisitions" means, collectively, (a) the Targeted
Acquisitions, (b) the GSI Acquisition, (c) the AEI Acquisition and (d) the
Pathfinder Acquisition.
"GAAP" is defined in Section 1.4.
"GSI Acquisition" means the acquisition by Drill Motor Services, Inc.,
a direct, wholly-owned Subsidiary of the Borrower, of all of the issued and
outstanding shares of Capital Stock of Grinding & Sizing Company, Inc., a Texas
corporation, Reliable Equipment, Inc., a Texas corporation, and Houston Bagging
and Blending, Inc., a Texas corporation (collectively, "GSI").
"Guaranty" means, as the context may require, the Parent Guaranty
and/or the Subsidiary Guaranty.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant, contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other
applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous waste, substance or material, all as
amended or hereafter amended.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of any Obligor, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item
in such financial statement and which, as a condition to its removal,
would require an adjustment to such item the effect of which would be
to cause such Obligor to be in default of any of its obligations under
Section 7.2.4.
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<PAGE> 27
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money or for the
deferred purchase price of property or services, and all obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments;
(b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases which
have been or should be, in accordance with GAAP, recorded as
Capitalized Lease Liabilities;
(d) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of
such Person as of the date at which Indebtedness is to be determined;
(e) net liabilities of such Person under all Hedging Obligations;
(f) whether or not so included as liabilities in accordance with
GAAP, all Indebtedness (excluding prepaid interest thereon) secured by
a Lien on property owned or being purchased by such Person (including
Indebtedness arising under conditional sales or other title retention
agreements but excluding ordinary course operating leases), whether or
not such Indebtedness shall have been assumed by such Person or is
limited in recourse; and
(g) all Contingent Liabilities of such Person in respect of any
of the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer (to the extent such Person is liable for
such Indebtedness).
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Initial Closing Date" is defined in the third recital.
"Initial Effective Date" means the date on which the Existing Credit
Agreement became effective pursuant to the terms thereof, which date occurred on
August 11, 1997.
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<PAGE> 28
"Initial Public Offering" means (i) a primary underwritten public
offering of the voting Capital Stock of the Parent, other than any public
offering or sale pursuant to a registration statement on Form S-8 or a
comparable form or (ii) a private placement of the Capital Stock of the Parent.
"Integrity Warrants" means warrants for the issuance of Capital Stock
of the Parent issued in connection with the Targeted Acquisition of Integrity
Industries, Inc.
"Interest Coverage Ratio" means, at the end of any Fiscal Quarter, the
ratio computed for the period consisting of such Fiscal Quarter and each of the
three immediately prior Fiscal Quarters of:
(a) EBITDA for all such Fiscal Quarters;
to
(b) the cash portion of Interest Expense for all such Fiscal
Quarters (calculated with respect to the first three Fiscal Quarters
following the Initial Closing Date on an Annualized basis);
provided that if, during any such period, the Borrower or any of its
Subsidiaries shall have made one or more acquisitions (including Permitted
Acquisitions and the Funded Acquisitions), the Interest Coverage Ratio for such
period shall be calculated on a Pro Forma Basis as if each such acquisition had
been made on the first day of such period.
"Interest Expense" means, for any applicable period, the aggregate
consolidated interest expense of the Borrower and its Subsidiaries for such
applicable period, as determined in accordance with GAAP, including the portion
of any payments made in respect of Capitalized Lease Liabilities allocable to
interest expense, but excluding (to the extent included in interest expense)
up-front fees and expenses and other deferred financing costs incurred in
connection with the Transaction, the Targeted Acquisitions or any Permitted
Acquisitions.
"Interest Period" means, as to any LIBO Rate Loan, the period
commencing on the date on which such LIBO Rate Loan is made or continued as, or
converted into, a LIBO Rate Loan and ending on the date which is one, two,
three, six or, if then generally available to all Lenders having a Revolving
Loan Commitment, nine or twelve months thereafter, in each case as the Borrower
may select in its Borrowing Request or its Conversion/Continuation Notice;
provided, however, that
(a) no more than 10 Interest Periods shall be in effect at any
one time;
(b) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration;
(c) if any Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall extend to the next
following Business Day, unless the result of such extension would be to
carry such Interest Period into the next calendar month, in which case
such Interest Period shall end on the preceding Business Day; and
(d) no Interest Period for any Loan may extend beyond the
Stated Maturity Date for such Loan.
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"Investment" means, relative to any Person, (i) any loan or advance
made by such Person to any other Person (excluding commission, travel and
similar advances to officers, directors and employees (or individuals acting in
similar capacities) made in the ordinary course of business) and (ii) any
ownership or similar interest held by such Person in any other Person. The
amount of any Investment shall be the original principal amount thereof less all
returns of principal or equity thereon (and without adjustment by reason of the
financial condition of such other Person).
"Issuance Request" means a Letter of Credit request and certificate
duly executed by the Chief Executive, accounting or Financial Authorized Officer
of the Borrower, in substantially the form of Exhibit D attached hereto.
"Issuer" means such Lender or Lenders as may be designated from time to
time by the Syndication Agent, or any other Lender that has agreed to issue one
or more Letters of Credit at the request of the Syndication Agent (which shall,
at the Borrower's request, notify the Borrower from time to time of the identity
of such other Lender).
"Jordan Investors" means the Purchaser and its partners and their
respective Affiliates, family members and trusts for the benefit of such
partners and/or their family members.
"LC Promissory Note" is defined in the fourth recital.
"Lead Arranger" means DLJ Capital Funding, Inc.
"Lender Assignment Agreement" means a Lender Assignment Agreement
substantially in the form of Exhibit J hereto.
"Lenders" is defined in the preamble.
"Lending Office" means, as to any Lender, the office or offices of such
Lender specified as its "Lending Office" or "Domestic Office" or "LIBOR Office",
as the case may be, on Schedule II, or such other office or offices as such
Lender may from time to time notify the Borrower and the Administrative Agent.
"Letter of Credit" is defined in Section 2.1.3.
"Letter of Credit Commitment" means, with respect to the Issuer, the
Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.3 and,
with respect to each of the other Lenders that has a Revolving Loan Commitment,
the obligation of such Lender to participate in such Letters of Credit pursuant
to Section 2.6.1.
"Letter of Credit Commitment Amount" means, on any date, a maximum
amount of $3,000,000, as such amount may be reduced from time to time pursuant
to Section 2.2.
"Letter of Credit Outstandings" means, on any date, an amount equal to
the sum of
(a) the aggregate Stated Amount at such time of all Letters of
Credit then outstanding and undrawn (as such aggregate Stated Amount
shall be adjusted, from time to time, as a result of drawings, the
issuance of Letters of Credit, or otherwise);
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<PAGE> 30
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"Leverage Ratio" means, at the end of any Fiscal Quarter, the ratio of
(a) total Debt of the Borrower and its Subsidiaries on a
consolidated basis outstanding at such time (excluding the Borrower
2000 PIK Notes);
to
(b) EBITDA for the period of four consecutive Fiscal Quarters
most recently ended on or prior to such date;
provided that if, during any such period, the Borrower or any of its
Subsidiaries shall have made one or more acquisitions (including Permitted
Acquisitions and the Funded Acquisitions), the Leverage Ratio for such period
shall be calculated (on a Pro Forma Basis) as if each such acquisition had been
made on the first day of such period.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans,
the rate of interest per annum determined by the Administrative Agent to be the
arithmetic mean (rounded upward to the next 1/100 of 1%) of the rates of
interest per annum at which dollar deposits in the approximate amount of the
amount of the Loan to be made or continued as, or converted into, a LIBO Rate
Loan by the Administrative Agent and having a maturity comparable to such
Interest Period would be offered to the Administrative Agent in the London
interbank market at its request at approximately 11:00 a.m. (London time) two
Business Days prior to the commencement of such Interest Period.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, the rate of interest per annum (rounded upwards to the next 1/100 of 1%)
determined by the Administrative Agent as follows:
LIBO Rate LIBO Rate
= -------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be adjusted automatically as to all LIBO Rate Loans then outstanding
as of the effective date of any change in the LIBOR Reserve Percentage.
"LIBOR Office" means, relative to any Lender, the office of such Lender
designated as such as set forth opposite its name on Schedule II hereto under
the applicable column heading or as set forth in the Lender Assignment Agreement
pursuant to which such Lender became a Lender hereunder or such other office of
a Lender (or any successor or assign of such Lender) as designated from time to
time by notice from such Lender to the Borrower and the Administrative Agent,
whether or not outside the United States, which shall be making or maintaining
LIBO Rate Loans of such Lender hereunder.
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"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBO Rate Loans, the percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day (whether or not applicable to any
Lender) under regulations issued from time to time by the F.R.S. Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the F.R.S. Board).
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment for collateral purposes, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in property to secure
payment of a debt or performance of an obligation or other priority or
preferential arrangement of any kind or nature whatsoever.
"Loan" means, as the context may require, a Revolving Loan, a Term A
Loan, a Term B Loan, a Term C Loan, a Term D Loan, a Term E Loan, a Term F Loan,
a Delayed Term Loan, or a Swing Line Loan of any type.
"Loan Document" means this Agreement, the Notes, the Letters of Credit,
each Borrowing Request, each Issuance Request, the Fee Letter, each Pledge
Agreement, the Guaranty, each Mortgage, each Security Agreement, each Patent
Security Agreement, each Trademark Security Agreement, each Rate Protection
Agreement and each other agreement, document or instrument delivered in
connection with this Agreement or any other Loan Document, whether or not
specifically mentioned herein.
"Management Option" means each option issued or issuable by the Parent
to purchase up to 30,937.5 shares of Class A Common Stock of the Parent pursuant
to the Parent's new management option plan.
"Marketable Securities" means "marketable securities" as defined under
GAAP.
"Material Adverse Effect" means (a) a material adverse effect on the
financial condition, operations, assets, business or properties of the Parent,
the Borrower and their respective Subsidiaries, taken as a whole, (b) a material
impairment of the ability of the Borrower or any other Obligor to perform its
respective material obligations under the Loan Documents to which it is or will
be a party, or (c) an impairment of the validity or enforceability of, or a
material impairment of the rights, remedies or benefits available to each
Issuer, the Agents or the Lenders under this Agreement or any other Loan
Document.
"MCIT" is defined in the fourth recital.
"Mobile Assets" means vacuum trucks, wireline logging and perforating
trucks, and other motor vehicles having a fair market value in excess of
$100,000.
"Modification No. 3" means Modification No. 3 to the Parent Note
Purchase Agreement, dated as of March 24, 2000.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Mortgage" means, collectively, each mortgage, deed of trust or
leasehold mortgage that may be executed and delivered pursuant to Section 7.1.11
of the Existing Credit Agreement, or Section 7.1.7 or Section 7.1.11 of this
Agreement, in form and substance reasonably satisfactory to the Agents, in each
case as amended, supplemented, amended and restated or otherwise modified from
time to time.
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<PAGE> 32
"MWD Royalty Agreement" is defined in Schedule I to the Original Credit
Agreement.
"Net Debt Proceeds" means, with respect to the incurrence, sale or
issuance by the Borrower or any of its Subsidiaries of any Debt (other than Debt
permitted by Section 7.2.2, including Refinancing Debt), the excess of:
(a) the gross cash proceeds received by such Person from such
incurrence, sale or issuance,
over
(b) all reasonable and customary underwriting commissions and
legal, investment banking, brokerage and accounting and other
professional fees, sales commissions and disbursements and all other
reasonable fees, expenses and charges, including fees and expenses
under the TJC Transaction Advisory Agreement, in each case actually
incurred in connection with such incurrence, sale or issuance.
"Net Disposition Proceeds" means, with respect to any sale, transfer or
other disposition of any assets of the Borrower or any of its Subsidiaries
(other than as permitted pursuant to clause (a) of Section 7.2.9 or the proviso
in the definition of "Capital Expenditures"), the excess of:
(a) the gross cash proceeds when received by such Person from
any such sale, transfer or other disposition and any cash payments
received in respect of promissory notes or other non-cash consideration
delivered to such Person in respect thereof,
over
(b) the sum (without duplication) of (i) all reasonable and
customary fees and expenses with respect to legal, investment banking,
brokerage and accounting and other professional fees, sales commissions
and disbursements and all other reasonable fees, expenses and charges,
including fees and expenses under the TJC Transaction Advisory
Agreement, in each case actually incurred in connection with such sale,
transfer or other disposition, (ii) all taxes and other governmental
costs and expenses actually paid or estimated by the Borrower or any of
its Subsidiaries (in good faith) to be payable in cash in connection
with such sale, transfer or other disposition, and (iii) payments made
by the Borrower or any of its Subsidiaries to retire Indebtedness
(other than the Loans) of such Person where payment of such
Indebtedness is required in connection with such sale, transfer or
other disposition;
provided, however, that if, after the payment of all taxes with respect to such
sale, transfer or other disposition, the amount of estimated taxes, if any,
pursuant to clause (b)(ii) above exceeded the tax amount actually paid in cash
in respect of such sale, transfer or other disposition, the aggregate amount of
such excess shall be immediately payable, pursuant to clause (b) of Section
3.1.1, as Net Disposition Proceeds.
"Net Equity Proceeds" means, with respect to the sale or issuance by
the Parent or any of its Subsidiaries to any Person (other than the Parent or
its wholly-owned Subsidiaries) of any of its Capital Stock or any warrants or
options with respect to its Capital Stock or the exercise of any such warrants
or options after the Initial Closing Date (other than pursuant to any
subscription agreement, incentive plan or similar arrangement with any officer,
employee or director of the Parent or any of its Subsidiaries), the excess of:
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(a) the gross cash proceeds received from such sale, exercise
or issuance,
over
(b) all reasonable and customary underwriting commissions and
legal, investment banking, brokerage and accounting and other
professional fees, sales commissions and disbursements and all other
reasonable fees, expenses and charges, including fees and expenses
under the TJC Transaction Advisory Agreement, in each case actually
incurred in connection with such sale or issuance.
"Net Income" means, for any period, without duplication, the net income
of the Borrower and its Subsidiaries for such period on a consolidated basis,
excluding extraordinary gains and extraordinary losses.
"Non-Recurring Costs" means (i) non-recurring restructuring charges and
reserves and other extraordinary charges, (ii) non-recurring fees, expenses and
non-capitalized financing costs incurred in connection with permitted
Refinancing Debt or the Transaction, Targeted Acquisitions, or any Permitted
Acquisitions and (iii) amounts paid during such period pursuant to any
Acquisition Arrangements.
"Non-U.S. Subsidiary" means any Subsidiary other than a U.S.
Subsidiary.
"Note" means, as the context may require, a Revolving Note, a Term A
Note, a Term B Note, a Term C Note, a Term D Note, a Term E Note, a Term F Note,
a Delayed Term Note, a Swing Line Note or a Registered Note.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower and each other Obligor arising under or in connection with this
Agreement and each other Loan Document.
"Obligor" means the Borrower or any other Person (other than any Agent,
any Issuer or any Lender) obligated under, or otherwise a party to, any Loan
Document.
"Organic Document" means, relative to any Obligor, its certificate of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of Capital
Stock.
"Original Credit Agreement" is defined in the seventh recital.
"Parent" is defined in the preamble.
"Parent Additional Term F Funding Date Certificate" means a certificate
of an Authorized Officer of the Parent substantially in the form of Exhibit F-2
hereto, delivered pursuant to Section 5.1.4.
"Parent Guaranty" means the Obligations of the Parent undertaken
pursuant to Section 10.13.
"Parent 2000 PIK Notes" means the senior subordinated notes issued by
the Parent, substantially in the form of Exhibits M and N to the Parent Note
Purchase Agreement, which shall be non-cash interest bearing, payment-in-kind
promissory notes, including any further payment-in-kind notes issued as interest
thereon, having a final maturity date equal to or later than any existing Parent
Senior Subordinated Notes.
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"Parent Note Issuance" is defined in the fourth recital.
"Parent Note Purchase Agreement" means the purchase agreement, dated as
of August 11, 1997, between the Parent and MCIT, as amended by Modification No.
3, and as otherwise amended prior thereto and after the date hereof in
compliance with Section 7.2.10.
"Parent Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of the Parent pursuant to the Original Credit
Agreement, as amended, supplemented, amended and restated or otherwise modified
from time to time.
"Parent Promissory Note" is defined in the fourth recital.
"Parent Senior Subordinated Debt" means the Parent Senior Subordinated
Notes, together with the principal amount of all "PIK Notes" (as defined in the
Parent Note Purchase Agreement) and Parent 2000 PIK Notes issued by the Parent.
"Parent Senior Subordinated Debt Documents" means the Parent Note
Purchase Agreement, the Parent Senior Subordinated Debt, and each other document
or instrument executed and delivered from time to time pursuant thereto by the
Parent or any Subsidiary, whether or not specifically mentioned therein.
"Parent Senior Subordinated Notes" is defined in the fourth recital.
"Participant" is defined in Section 10.11.2.
"Partnership Warrant" means the warrant to purchase at least 37,812.5
Series A Common Shares of the Parent pursuant to the Stock Purchase Agreement.
"Patent Security Agreement" means any Patent Security Agreement
executed and delivered by an Obligor in substantially the form of Exhibit A to
any Security Agreement, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"Pathfinder" means Pathfinder Energy Services, Inc., a Louisiana
Corporation and a direct, wholly- owned Subsidiary of the Borrower.
"Pathfinder Acquisition" means the acquisition by Pathfinder of
substantially all of the assets of the proprietary logging-while-drilling and
measurement-while-drilling business and related directional drilling technology
and assets of Halliburton Energy Services, Inc., a Delaware corporation.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Borrower or any corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group, may have liability, including any liability by
reason of having been a substantial employer within the meaning of section 4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
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"Percentage" means, relative to any Lender with respect to any Loans,
the applicable percentage relating thereto set forth opposite such Lender's name
on Schedule II hereto; provided that, in each case, "Percentage" shall also
include, relative to any Lender, the applicable percentage relating to Revolving
Loans, Term A Loans, Term B Loans, Term C Loans, Term D Loans, Term E Loans,
Term F Loans or Delayed Term Loans, as the case may be, as set forth in the
Lender Assignment Agreement pursuant to which such Lender became a Lender
hereunder, as such percentage may be adjusted from time to time pursuant to
Lender Assignment Agreement(s) executed by such Lender and its Assignee
Lender(s) and delivered pursuant to Section 10.11. A Lender shall not have any
Commitment to make Revolving Loans, Term A Loans, Term B Loans, Term C Loans,
Term D Loans, Term E Loans, Existing Term F Loans, Additional Term F Loans or
Delayed Term Loans if its Percentage under the respective column heading is
zero.
"Permitted Acquisitions" is defined in clause (h) of Section 7.2.5.
"Permitted Redemption" is defined in clause (j) of Section 7.1.10.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Pledge Agreement" means, as the context may require, the Parent Pledge
Agreement, the Borrower Pledge Agreement and/or the Subsidiary Pledge Agreement.
"Pro Forma Balance Sheet" is defined in Section 5.1.12.
"Pro Forma Basis" means for the purposes of determining the Interest
Coverage Ratio, the Fixed Charge Coverage Ratio, the Leverage Ratio and
Restricted Coverage Ratio, giving pro forma effect to (a) any acquisition or
sale of a Person, business or asset, related incurrence, repayment or
refinancing of Indebtedness or other related transactions, including any related
restructuring charges in respect of restructurings, consolidations, compensation
or headcount reductions or other cost savings which would otherwise be accounted
for as an adjustment permitted by Regulation S-X under the Securities Act of
1933, as amended (the "Securities Act") or on a pro forma basis under GAAP, or
(b) any incurrence, repayment or refinancing of any Indebtedness and the
application of the proceeds therefrom, in each case, as if such acquisition or
sale and related transactions, restructurings, consolidations, cost savings,
reductions, incurrence, repayment or refinancings were realized on the first day
of the relevant period to the extent permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP. Furthermore, in calculating
the Interest Coverage Ratio, the Fixed Charge Coverage Ratio and Restricted
Coverage Ratio (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the determination date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
determination date; (ii) if interest on any Indebtedness actually incurred on
the determination date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered rate,
or other rates, then the interest rate in effect on the determination date will
be deemed to have been in effect during the relevant period; and (iii)
notwithstanding clause (i) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to interest rate swaps or similar interest rate protection Hedging Obligations,
shall be deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements.
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"Promissory Notes Issuance" is defined in the fourth recital.
"Purchaser" is defined in the second recital.
"Quarterly Payment Date" means the last day of each March, June,
September, and December or, if any such day is not a Business Day, the next
succeeding Business Day, commencing December 31, 1997.
"Rate Protection Agreement" means, collectively, any interest rate
swap, cap, collar or similar agreement entered into by the Borrower pursuant to
the terms of this Agreement under which the counterparty to such agreement is
(or at the time such Rate Protection Agreement was entered into, was) a Lender
or an Affiliate of a Lender.
"Recapitalization" is defined in the second recital.
"Recapitalization Documents" means the Stock Purchase Agreement, the
Management Option and the Partnership Warrant.
"Refinancing" is defined in the third recital.
"Refinancing Debt" means Indebtedness incurred in any refinancing of
any existing Indebtedness, provided that (a) with respect to the Borrower and
the Parent (except to the extent specified in clause (b) below), any such
refinancing has the following qualifications: any such refinancing Indebtedness
has, as compared to such existing Indebtedness, (i) an equal or greater
weighted-average life, (ii) an equal or greater maturity, (iii) a ranking equal
to or lower than that of such existing Indebtedness, and (iv) terms and
conditions (including those described in clauses (i) through (iii)), taken as a
whole, no less favorable to the Lenders; and (b) with respect to any refinancing
of any Senior Subordinated Debt, such refinancing shall be subject to the prior
approval of the Agents and the Required Lenders as to the terms and conditions
thereof (including the form and substance of the related documentation).
"Refunded Swing Line Loans" is defined in clause (b) of Section 2.3.2.
"Register" is defined in Section 2.8(b).
"Registered Note" means a promissory note of the Borrower payable to
the order of any Lender, in the form of Exhibit B-9 hereto or in such other form
agreed to by the Borrower and the applicable Lender holding the Loans evidenced
by such promissory note (as such promissory note may be amended, endorsed or
otherwise modified from time to time), evidencing the aggregate Indebtedness of
the Borrower to such Lender resulting from outstanding Term Loans or Revolving
Loans, as the case may be, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Registered Noteholder" means any Lender that is entered in the
Register as the holder of a Registered Note.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of March 26, 1999 as amended from time to time among the
Borrower, the Parent, the guarantors party thereto and DLJMB.
"Reimbursement Obligation" is defined in Section 2.6.3.
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"Release" means a "release", as such term is defined in CERCLA.
"Required Lenders" means, at any time, (i) prior to the Initial Closing
Date, Lenders having at least 51% of the sum of the Revolving Loan Commitments,
Term A Loan Commitments, Term B Loan Commitments and Delayed Term Loan
Commitments and (ii) on and after the Initial Closing Date, Lenders holding at
least 51% of the Total Exposure Amount.
"Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect
from time to time.
"Restricted Coverage Ratio" means, at the end of any Fiscal Quarter,
the ratio for the period consisting of such Fiscal Quarter and each of the three
immediately preceding Fiscal Quarters of
(a) EBITDA for all such Fiscal Quarters,
to
(b) the sum (calculated with respect to the first three Fiscal
Quarters following the Initial Closing Date on an Annualized basis) of
(i) the cash portion of Interest Expense (net of cash
interest income or investment income) for all such Fiscal
Quarters;
plus
(ii) Restricted Parent Payments payable in cash for
all such Fiscal Quarters;
provided that if, during any such period, the Borrower or any of its
Subsidiaries shall have made one or more acquisitions (including Permitted
Acquisitions and the Funded Acquisitions), the Restricted Coverage Ratio for
such period shall be calculated on a Pro Forma Basis as if each such acquisition
had been incurred, on the first day of such period.
"Restricted Non-Operating Payments" means (i) advances in respect of
the Promissory Notes Issuance and (ii) payments to purchase, redeem, acquire or
otherwise retire for value shares of Capital Stock of the Parent held by
employees of the Parent or any of its Subsidiaries, if any, or options on any
such shares or related stock appreciation rights or similar securities owned by
directors, officers or employees (or their estates or beneficiaries under
estates), in all cases only upon death, disability, retirement, termination of
employment or pursuant to the term of such stock option plan or other agreement
under which shares of Capital Stock, options, related rights or similar
securities were issued, in an aggregate amount from the Initial Closing Date not
to exceed $3,000,000.
"Restricted Operating Payments" means (i) general, overhead and
administrative expenses and charges, including officer and employee compensation
and auditor and other professional fees and expenses, and director fees and
expenses, provided that such expenses and charges do not exceed $3,000,000 per
annum for each Fiscal Year through Fiscal Year 1999 and $3,600,000 for the
Fiscal Year 2000 and $4,500,000 for each Fiscal Year thereafter, (ii) director
indemnitees and indemnitees (including related reimbursements) under the TJC
Management Consulting Fee Agreement and the TJC Transaction Advisory Agreement,
(iii) payments of consulting fees specified in, permitted under and made
pursuant to Section 2 of the TJC Management Consulting Fee Agreement and (iv)
payments of fees specified in,
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permitted under and made pursuant to Section 2(a) of the TJC Transaction
Advisory Agreement; and provided, further, that all such payments pursuant to
clauses (iii) and (iv) above shall be subordinated expressly to the Obligations
and payments pursuant to clause (iv) shall be excluded from "Restricted
Operating Payments" for purposes of calculating EBITDA.
"Restricted Parent Payments" means payments by the Borrower to the
Parent that are promptly applied by the Parent to make interest payments next
due and payable in respect of the Parent Senior Subordinated Debt in accordance
with the Parent Senior Subordinated Debt Documents, including any payment in
respect of payment-in-kind Parent Senior Subordinated Debt previously issued
pursuant to the terms thereof.
"Restricted Payments" is defined in Section 7.2.6(c).
"Restricted Tax Payments" means (i) income taxes, provided that such
payments do not exceed the lesser of (x) income taxes payable by the Parent and
its Subsidiaries on a consolidated basis or (y) income taxes that would be
payable by the Borrower and its Subsidiaries on a consolidated, stand-alone
basis and (ii) franchise and similar taxes and charges relating to the Parent's
corporate status and conduct of its business.
"Revolving Loans" is defined in Section 2.1.2.
"Revolving Loan Commitment" means, relative to any Lender, such
Lender's obligation to make Revolving Loans pursuant to Section 2.1.2 and to
issue (in the case of an Issuer) or participate in (in the case of all Lenders)
Letters of Credit pursuant to Section 2.1.3 or Section 2.6.1.
"Revolving Loan Commitment Amount" means, on any date, $20,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2; subject,
however, to increase pursuant to Section 2.9.
"Revolving Loan Commitment Termination Date" means the earliest of
(a) the fifth anniversary of the Initial Closing Date;
(b) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to Section 2.2;
(c) the date on which any Commitment Termination Event occurs;
and
(d) October 31, 1997, if no Term Loans have been made on or
prior to such date.
"Revolving Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit A-1 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from
outstanding Revolving Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or any successor thereto.
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"Second Amended and Restated Credit Agreement" is defined in the
seventh recital.
"Second Amendment" means Amendment No. 2 to the Second Amended and
Restated Credit Agreement, dated as of November 12, 1998, among the Borrower,
the Lenders thereto, and the Agents.
"Secured Party" means, collectively, the Lenders, the Agents and all
Affiliates of the Lenders which may be party to any Loan Document (including any
Rate Protection Agreement).
"Security Agreement" means, as the context may require, the Borrower
Security Agreement and/or the Subsidiary Security Agreement.
"Senior Subordinated Debt" means, collectively, (a) the Parent Senior
Subordinated Debt and (b) the Borrower Senior Subordinated Debt.
"Senior Subordinated Debt Documents" means, collectively, (a) the
Parent Senior Subordinated Debt Documents and (b) the Borrower Senior
Subordinated Debt Documents.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) the fair value of the property of such Person is greater than
the total amount of liabilities, including contingent liabilities, of such
Person, (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature, and
(d) such Person is not engaged in business or a transaction, and such Person is
not about to engage in business or a transaction, for which such Person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities at any time shall be computed as the amount that, in the
light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
"Stated Amount" of each Letter of Credit means the total amount
available to be drawn under such Letter of Credit upon the issuance thereof.
"Stated Expiry Date" is defined in Section 2.6.
"Stated Maturity Date" means
(a) in the case of any Revolving Loan, August 11, 2002;
(b) in the case of any Term A Loan, August 11, 2002;
(c) in the case of any Term B Loan or Term C Loan, August 11,
2003;
(d) in the case of any Delayed Term Loan, August 11, 2003;
(e) in the case of any Term D Loan or Term E Loan, December
31, 2004; and
(f) in the case of any Term F Loan, June 30, 2005.
"Stock Issuance" is defined in the fourth recital.
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"Stock Purchase Agreement" is defined in the second recital.
"Subordinated Debt" means all unsecured Indebtedness of the Borrower
for money borrowed which is subordinated, upon terms satisfactory to the Agents
and the Required Lenders, in right of payment to the payment in full in cash of
all Obligations.
"Subscription Agreement" is defined in the second recital.
"Subsidiary" means, with respect to any Person, any corporation of
which more than 50% of the outstanding Capital Stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time Capital Stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
"Subsidiary Guarantor" means, on the Initial Closing Date, each U.S.
Subsidiary of the Borrower, and thereafter, each U.S. Subsidiary of the Borrower
that is required, pursuant to clause (a) of Section 7.1.7, to execute and
deliver a supplement to the Subsidiary Guaranty.
"Subsidiary Guaranty" means the Guaranty executed and delivered by an
Authorized Officer of each Subsidiary Guarantor pursuant to the Original Credit
Agreement, together with all supplements thereto executed and delivered by any
Subsidiary Guarantor pursuant to clause (a) of Section 7.1.7, in each case as
amended, supplemented, amended and restated or otherwise modified from time to
time.
"Subsidiary Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of each Subsidiary Guarantor pursuant to the
Original Credit Agreement, together with all supplements thereto executed and
delivered by any Subsidiary Guarantor pursuant to clause (b) of Section 7.1.7,
in each case as amended, supplemented, amended and restated or otherwise
modified from time to time.
"Subsidiary Security Agreement" means the Security Agreement executed
and delivered by an Authorized Officer of each Subsidiary Guarantor pursuant to
the Original Credit Agreement, together with all supplements thereto executed
and delivered by any Subsidiary Guarantor pursuant to clause (a) of Section
7.1.7, in each case as amended, supplemented, amended and restated or otherwise
modified from time to time.
"Swing Line Lender" means a Lender to be designated by the Syndication
Agent with the consent of the Borrower, if such Lender agrees to be the Swing
Line Lender hereunder, in such Person's capacity to provide Swing Line Loans.
"Swing Line Loan" is defined in clause (b) of Section 2.1.2.
"Swing Line Loan Commitment" is defined in clause (b) of Section 2.1.2.
"Swing Line Loan Commitment Amount" means, on any date, $2,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.
"Swing Line Note" means a promissory note of the Borrower payable to
the Swing Line Lender, in the form of Exhibit A-2 hereto (as such promissory
note may be amended, endorsed or otherwise modified
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from time to time), evidencing the aggregate Indebtedness of the Borrower to the
Swing Line Lender resulting from outstanding Swing Line Loans, and also means
all other promissory notes accepted from time to time in substitution therefor
or renewal thereof.
"Syndication Agent" is defined in the preamble.
"Targeted Acquisitions" means, as the context may require, the
acquisition by the Borrower, directly or indirectly through a Subsidiary, of all
or substantially all of the assets or all of the outstanding Capital Stock of
Integrity Industries, Inc. and/or Diamond Wireline Services, Inc.
"Taxes" is defined in Section 4.6.
"Term A Loan" is defined in clause (a)(i) of Section 2.1.1.
"Term A Loan Commitment" means, relative to any Lender, such Lender's
obligation to make Term A Loans pursuant to clause (a)(i) of Section 2.1.1.
"Term A Loan Commitment Amount" means $20,000,000.
"Term A Loan Commitment Termination Date" means the earliest of
(a) October 31, 1997, if the Term A Loans have not been made
on or prior to such date;
(b) the Initial Closing Date (immediately after the making of
the Term A Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
"Term A Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit B-1 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from
outstanding Term A Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Term B Loan" is defined in clause (a)(ii) of Section 2.1.1.
"Term B Loan Commitment" means, relative to any Lender, such Lender's
obligation to make Term B Loans pursuant to clause (a)(ii) of Section 2.1.1.
"Term B Loan Commitment Amount" means $40,000,000.
"Term B Loan Commitment Termination Date" means the earliest of
(a) October 31, 1997, if the Term B Loans have not been made
on or prior to such date;
(b) the Initial Closing Date (immediately after the making of
the Term B Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
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"Term B Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit B-2 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from
outstanding Term B Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Term C Closing Date" means the date of the Borrowing of Term C Loans,
which Borrowing shall occur on a Business Day occurring on or after the Amended
and Restated Effective Date but prior to April 30, 1998.
"Term C Loan" is defined in clause (c) of Section 2.1.1.
"Term C Loan Commitment" means, relative to any Lender, such Lender's
obligation to make Term C Loans pursuant to clause (c) of Section 2.1.1.
"Term C Loan Commitment Amount" means $10,000,000.
"Term C Loan Commitment Termination Date" means the earliest of
(a) April 30, 1998, if the Term C Loans have not been made on
or prior to such date;
(b) the Term C Closing Date (immediately after the making of
the Term C Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
"Term C Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit B-4 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from
outstanding Term C Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Term D Closing Date" means the date of the Borrowing of Term D Loans,
which Borrowing shall occur on a Business Day occurring on or after the Amended
and Restated Effective Date but prior to July 31, 1998.
"Term D Loan" is defined in clause (d) of Section 2.1.1.
"Term D Loan Commitment" means, relative to any Lender, such Lender's
obligation to make Term D Loans pursuant to clause (d) of Section 2.1.1.
"Term D Loan Commitment Amount" means $25,000,000.
"Term D Loan Commitment Termination Date" means the earliest of
(a) July 31, 1998, if the Term D Loans have not been made on
or prior to such date;
(b) the Term D Closing Date (immediately after the making of
the Term D Loans on such date); and
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(c) the date on which any Commitment Termination Event occurs.
"Term D Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit B-5 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from
outstanding Term D Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Term E Closing Date" means the date of the Borrowing of Term E Loans,
which Borrowing shall occur on a Business Day occurring on or after the Amended
and Restated Effective Date but prior to September 25, 1998.
"Term E Loan" is defined in clause (e) of Section 2.1.1.
"Term E Loan Commitment" means, relative to any Lender, such Lender's
obligation to make Term E Loans pursuant to clause (e) of Section 2.1.1.
"Term E Loan Commitment Amount" means (a) initially, zero and (b) from
and after the delivery by the Syndication Agent of a Term E Loan Commitment
Confirmation, the amount specified as the Term E Loan Commitment Amount in such
Term E Loan Commitment Confirmation; provided, however, that the Term E Loan
Commitment Amount shall not exceed $10,000,000.
"Term E Loan Commitment Confirmation" means a letter from the
Syndication Agent to the Borrower confirming that the Syndication of Term E
Loans has been completed.
"Term E Loan Commitment Termination Date" means the earliest of
(a) September 25, 1998, if the Term E Loans have not been made
on or prior to such date;
(b) the Term E Closing Date (immediately after the making of
the Term E Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
"Term E Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit B-6 hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from
outstanding Term E Loans, and also means all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"Term F Closing Date" means the date of the Borrowing of Existing Term
F Loans, which Borrowing occurred on a Business Day occurring on or after the
Third Amended and Restated Effective Date but prior to March 31, 1999.
"Term F Loan" means, as the context may require, an Existing Term F
Loan or an Additional Term F Loan; provided, that in the Existing Term F Note,
"Term F Loan" shall mean an Existing Term F Loan.
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"Term F Loan Commitment" means, as the context may require, an Existing
Term F Loan Commitment or an Additional Term F Loan Commitment.
"Term F Loan Commitment Amount" means, as the context may require, an
Existing Term F Loan Commitment Amount or an Additional Term F Loan Commitment
Amount.
"Term F Loan Commitment Termination Date" means, as the context may
require, the Existing Term F Loan Commitment Termination Date or the Additional
Term F Loan Commitment Termination Date.
"Term F Note" means, as the context may require, an Existing Term F
Note or an Additional Term F Note.
"Term Loans" means, collectively, the Term A Loans, the Term B Loans,
the Term C Loans, the Term D Loans, the Term E Loans, the Existing Term F Loans,
the Additional Term F Loans and the Delayed Term Loans.
"Third Amended and Restated Credit Agreement" is defined in the seventh
recital.
"TJC Management Consulting Fee Agreement" means the TJC Management
Consulting Fee Agreement, dated as of August 11, 1997 and as amended from time
to time in accordance with this Agreement, by and among TJC Management Corp.,
the Parent, the Borrower, Drill Motor Services, Inc., Charles Holston, Inc.,
Thomas Tools, Inc., Well Safe, Inc. and any other companies acquired in
connection with Permitted Acquisitions or the Funded Acquisitions.
"TJC Transaction Advisory Agreement" means the TJC Transaction Advisory
Agreement, dated as of August 11, 1997 and as amended from time to time in
accordance with this Agreement, by and among TJC Management Corp., the Borrower,
Drill Motor Services, Inc., Charles Holston, Inc., Thomas Tools, Inc., Well
Safe, Inc. and any other companies acquired in connection with Permitted
Acquisitions or the Funded Acquisitions.
"Total Exposure Amount" means, on any date of determination, the then
outstanding principal amount of all Term Loans and the then effective Revolving
Loan Commitment Amount.
"Trademark Security Agreement" means any Trademark Security Agreement
executed and delivered by an Obligor in substantially the form of Exhibit B to
any Security Agreement, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"Tranche" means, as the context may require, the Term A Loans, the Term
B Loans, the Term C Loans, the Term D Loans, the Term E Loans, the Term F Loans,
the Delayed Term Loans (or Delayed Term Commitments during the first six months
after the Initial Closing Date), the Revolving Loans or the Swing Line Loans.
"Transaction" is defined in the seventh recital.
"Transaction Documents" means each of the Stock Purchase Agreement,
Parent Senior Subordinated Debt Documents, the Recapitalization Documents and
all other agreements, documents, instruments, certificates, filings, consents,
approvals, board of directors resolutions and opinions furnished to or in
connection with the Acquisition, the Refinancing, the Recapitalization, the
Parent Note Issuance,
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the Promissory Notes Issuance, the Stock Issuance and the transactions
contemplated thereby and hereby, each as amended, supplemented, amended and
restated or otherwise modified from time to time as permitted in accordance with
the terms hereof or any other Loan Document.
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of New York or any applicable jurisdiction of the United States.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"U.S. Subsidiary" means any Subsidiary of the Borrower organized under
the laws of the United States or any state, possession or commonwealth thereof.
"Waiver" means any agreement in favor of the Administrative Agent for
the benefit of the Lenders and each Issuer in form and substance reasonably
satisfactory to the Agents.
"Welfare Plan" means a "welfare plan", as such term is defined in
section 3(1) of ERISA.
"Wells Fargo" means Wells Fargo Bank, N.A.
"Wells Fargo LC" means that certain standby irrevocable letters of
credit nos. NZS267321, NZS271429, and S900488-NSZ246692 issued by Wells Fargo in
initial stated amounts of $1,000.00, $180,000.00 and $233,750.00 for the account
of the Parent and the beneficiaries of which are Houston Lighting & Power,
Liberty Mutual Insurance Co. and Liberty Mutual Insurance Co., respectively.
"wholly-owned Subsidiary" means, with respect to any Person, any
Subsidiary of such Person all of the Capital Stock (including all rights and
options to purchase such Capital Stock) of which, other than directors'
qualifying shares, are owned, beneficially and of record, by such Person and/or
one or more wholly- owned Subsidiaries of such Person.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Borrowing Request, Continuation/Conversion Notice, Loan Document, notice
and other communication delivered from time to time in connection with this
Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references
in this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
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accordance with, those generally accepted accounting principles ("GAAP") applied
in the preparation of the financial statements referred to in Section 6.5(a);
provided, however, that footnotes, year-end accruals and year-end adjustments to
financial statements furnished pursuant to clause (a) of Section 7.1.1 need not
be included therein. All computations hereunder and in any other Loan Document
shall be made on a consolidated basis and without duplication.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Commitments. On the terms and subject to the conditions of
this Agreement (including Articles II and V), each Lender severally agrees as
follows:
SECTION 2.1.1. Term Loan Commitments. (a) On the Initial Closing Date,
each Lender that has a Percentage in excess of zero of the Term A Loan
Commitment or the Term B Loan Commitment, as applicable, (i) made Loans
(relative to such Lender, its "Term A Loans") to the Borrower equal to such
Lender's Percentage of the aggregate amount of the Borrowing or Borrowings of
Term A Loans requested by the Borrower to be made on the Initial Closing Date
(with the commitment of each such Lender described in this clause (i) herein
referred to as its "Term A Loan Commitment"); and (ii) made Loans (relative to
such Lender, its "Term B Loans") to the Borrower equal to such Lender's
Percentage of the aggregate amount of the Borrowing or Borrowings of Term B
Loans requested by the Borrower to be made on the Initial Closing Date (with the
commitment of each such Lender described in this clause (ii) herein referred to
as its "Term B Loan Commitment").
(b) On or after the Initial Closing Date but prior to the Delayed Term
Loan Commitment Termination Date, each Lender that had a Percentage of the
Delayed Term Loan Commitment in excess of zero made Loans (relative to such
Lender, its "Delayed Term Loans") to the Borrower equal to such Lender's
Percentage of the aggregate amount of the Borrowing or Borrowings of Delayed
Term Loans requested by the Borrower to be made on such day.
(c) On the Term C Closing Date, each Lender that had a Percentage in
excess of zero of the Term C Loans made Loans (relative to such Lender, its
"Term C Loans") to the Borrower equal to such Lender's Percentage of the
aggregate amount of the Borrowing or Borrowings of Term C Loans requested by the
Borrower to be made on the Term C Closing Date (with the Commitment of each such
Lender described in this clause (c) herein referred to as its "Term C Loan
Commitment").
(d) On the Term D Closing Date (which shall be a Business Day), each
Lender that had a Percentage in excess of zero of the Term D Loans made Loans
(relative to such Lender, its "Term D Loans") to the Borrower equal to such
Lender's Percentage of the aggregate amount of the Borrowing or Borrowings of
Term D Loans requested by the Borrower to be made on the Term D Closing Date
(with the Commitment of each such Lender described in this clause (d) herein
referred to as its "Term D Loan Commitment").
(e) On the Term E Closing Date (which shall be a Business Day), each
Lender that had a Percentage in excess of zero of the Term E Loans made Loans
(relative to such Lender, its "Term E Loans") to the Borrower equal to such
Lender's Percentage of the aggregate amount of the Borrowing or Borrowings of
Term E Loans requested by the Borrower to be made on the Term E Closing Date
(with the
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Commitment of each such Lender described in this clause (e) herein referred to
as its "Term E Loan Commitment").
(f) On the Term F Closing Date (which shall be a Business Day), each
Lender that had a Percentage in excess of zero of the Existing Term F Loans made
Loans (relative to such Lender, its "Existing Term F Loans") to the Borrower
equal to such Lender's Percentage of the aggregate amount of the Borrowing or
Borrowings of Existing Term F Loans requested by the Borrower to be made on the
Term F Closing Date (with the Commitment of each such Lender described in this
clause (f) herein referred to as its "Existing Term F Loan Commitment").
(g) (i) The Borrower may, on any day no later than five Business Days
preceding the Additional Term F Loan Commitment Termination Date, request that
Additional Term F Loan Commitments be solicited by providing an irrevocable
written request to the Agents, which request shall state that the Borrower is
requesting Additional Term F Loan Commitments in a specific amount not exceeding
the Additional Term F Loan Commitment Amount. Upon receipt of such request, the
Administrative Agent shall promptly forward such request to each Lender, and
each such existing Lender shall have the right (but not the obligation) to
commit to all or a specified portion of the proposed Additional Term F Loan
Commitments.
(ii) Each Lender, acting in its sole discretion, shall, by written
notice to the Agents given no later two Business Days prior to the Additional
Term F Loan Commitment Termination Date after the date that the Administrative
Agent forwards such request to them, advise the Agents (x) whether or not such
Lender agrees to make an Additional Term F Loan Commitment and (y) the principal
amount, stated in Dollars, of such Additional Term F Loan Commitment; provided,
that any Lender that does not advise the Agents on or before the date that is
two Business Days prior to the Additional Term F Loan Commitment Termination
Date shall be deemed not to have committed to any Additional Term F Loan
Commitment. The Syndication Agent shall promptly notify the Borrower of the
names of the Lenders that have made (or have refused to make) any such
commitment and the amount of each committing Lender's proposed Additional Term F
Loan Commitment upon receipt of each notice from such Lender. The election of
any Lender to agree to an Additional Term F Loan Commitment shall be irrevocable
but shall not obligate any other Lender to so agree.
(iii) If the aggregate amount of the proposed Additional Term F Loan
Commitments of the then committing existing Lenders pursuant to clause (g)(ii)
above is less than $18,500,000 three Business Days following the making of the
request therefor by the Borrower, then the proposed Additional Term F Loan
Commitments may also be offered to prospective Lenders (and existing Lenders may
still consider the request). Each such prospective Lender (each, an "Additional
Lender"), shall, by notice to the Borrower and the Agents given no later than
two Business Days preceding the Additional Term F Loan Commitment Termination
Date, advise the Borrower and the Agents in writing of the amount, stated in
Dollars, of the Additional Term F Loan Commitments to which such Additional
Lender is irrevocably willing to commit.
(iv) It is the intent of the parties hereto that Additional Term F
Loans shall be made as soon as possible following the making of any Additional
Term F Loan Commitment, subject to the satisfaction of the conditions set forth
in Article V, and the Borrower, the Agents and each such committing existing
Lenders and each such Additional Lender shall work together in coordinating the
extension of Additional Term F Loans relating to such Additional Term F Loan
Commitments on one or more proposed Additional Term F Funding Dates.
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(v) On each proposed Additional Term F Funding Date (which shall be a
Business Day), each Lender or Additional Lender has made a commitment to the
Borrower to fund Additional Term F Loans prior to the Additional Term F Loan
Commitment Termination Date will make Loans (relative to such Lender, its
"Additional Term F Loans") to the Borrower equal to the amount of the aggregate
amount of the Borrowing of Additional Term F Loans requested by the Borrower to
be made on such Additional Term F Funding Date (with the commitment of each such
Lender described in this clause (g) herein referred to as its "Additional Term F
Loan Commitment"), and notwithstanding anything to the contrary herein, upon the
making of any such Loans, the Administrative Agent shall (A) revise (1) the
Percentage of each Lender with respect to the Term F Loans to be a percentage
equal to (x) the aggregate amount of outstanding Term F Loans held by such
Lender divided by (y) the aggregate amount of all outstanding Term F Loans
multiplied by 100% and (2) the amortization schedule for Term F Loans attached
hereto as Annex I on the page entitled "THE TERM F FACILITY", as such schedule
may previously have been amended by this Section 2.1.1(g)(v)(A)(2), by (aa)
increasing each amount set forth under the heading "Scheduled Principal
Repayment" opposite the dates under the heading "Quarterly Payment Date" from
and including June 30, 2000 through and including March 31, 2005 by an amount
equal to 0.25% of the aggregate principal amount of such Loans made on such
Additional Term F Funding Date and (bb) increasing the amount set forth under
the heading "Scheduled Principal Repayment" opposite the Stated Maturity Date
under the heading "Quarterly Payment Date" by an amount equal to 95.0% of the
aggregate principal amount of such Loans made on such Additional Term F Funding
Date and (B) provide each Lender, the Borrower and the Syndication Agent with a
copy of such revised Percentages and amortization schedule promptly following
any such revisions thereto. Such revisions to such Percentages and amortization
schedule shall be conclusive and binding on the parties hereto absent manifest
error.
(vi) Each Additional Lender that agrees to undertake an Additional Term
F Loan Commitment hereunder shall thereupon become a "Lender" for all purposes
of this Agreement in the amount agreed to by such Additional Lender.
No amounts paid or prepaid with respect to Term A Loans, Term B Loans, Term C
Loans, Term D Loans, Term E Loans, Term F Loans or Delayed Term Loans may be
reborrowed.
SECTION 2.1.2. Revolving Loan Commitment and Swing Line Loan
Commitment. From time to time on any Business Day occurring concurrently with
(or after) the Initial Closing Date but prior to the Revolving Loan Commitment
Termination Date,
(a) each Lender that has a Percentage of the Revolving Loan
Commitment in excess of zero will make Loans (relative to such Lender,
its "Revolving Loans") to the Borrower equal to such Lender's
Percentage of the aggregate amount of the Borrowing or Borrowings of
Revolving Loans requested by the Borrower to be made on such day. On
the terms and subject to the conditions hereof, the Borrower may from
time to time borrow, prepay and reborrow Revolving Loans;
(b) the Swing Line Lender will make a loan (a "Swing Line
Loan") to the Borrower equal to the principal amount of the Swing Line
Loan requested by the Borrower to be made on such day. The Commitment
of the Swing Line Lender described in this clause (b) is herein
referred to as its "Swing Line Loan Commitment". On the terms and
subject to the conditions hereof, the Borrower may from time to time
borrow, prepay and reborrow Swing Line Loans.
SECTION 2.1.3. Letter of Credit Commitment. From time to time on any
Business Day occurring prior to the Revolving Loan Commitment Termination Date,
the Issuer will
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(a) issue one or more standby or documentary letters of credit
(each referred to as a "Letter of Credit") for the account of the
Borrower in the Stated Amount requested by the Borrower on such day; or
(b) extend the Stated Expiry Date of an existing Letter of
Credit previously issued hereunder to a date that is not later than the
earlier of (x) the Revolving Loan Commitment Termination Date and (y)
one year from the date of such extension.
SECTION 2.1.4. Lenders Not Permitted or Required To Make Loans. No
Lender shall be permitted or required to, and the Borrower shall not request
that any Lender, make
(a) any Term A Loan, Term B Loan, Term C Loan, Term D Loan,
Term E Loan, Existing Term F Loan or Delayed Term Loan (as the case may
be) if, after giving effect thereto, the aggregate original principal
amount of all the Term A Loans, Term B Loans, Term C Loans, Term D
Loans, Term E Loans, Existing Term F Loans or Delayed Term Loans (as
the case may be) of such Lender would exceed such Lender's Percentage
of the Term A Loan Commitment Amount (in the case of Term A Loans), the
Term B Loan Commitment Amount (in the case of Term B Loans), the Term C
Loan Commitment Amount (in the case of Term C Loans), the Term D Loan
Commitment Amount (in the case of Term D Loans), the Term E Loan
Commitment Amount (in the case of Term E Loans), the Existing Term F
Loan Commitment Amount (in the case of Existing Term F Loans) or
Delayed Term Commitment Amount (in the case of Delayed Term Loans);
(b) any Additional Term F Loan on any Additional Term F
Funding Date if
(i) the principal amount of such Additional Term F
Loan would exceed the amount of such Lender's Additional Term
F Loan Commitment with respect to the Additional Term F Loans
to be made by it on such Additional Term F Funding Date in
accordance with Section 2.1.1(g)(v); or
(ii) after giving effect thereto, the aggregate
original principal amount of all the Additional Term F Loans
of all Lenders would exceed the Additional Term F Loan
Commitment Amount;
(c) any Revolving Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all the Revolving Loans (i)
of all the Lenders with Revolving Loan Commitments, together with the
Letter of Credit Outstandings and the outstanding principal amount of
all Swing Line Loans, would exceed the then existing Revolving Loan
Commitment Amount, or (ii) of such Lender with a Revolving Loan
Commitment, together with such Lender's Percentage of the Letter of
Credit Outstandings and such Lender's Percentage of the outstanding
principal amount of all Swing Line Loans, would exceed such Lender's
Percentage of the then existing Revolving Loan Commitment Amount and
such Lenders' Percentage of the outstanding principal amount of all
Swing Line Loans; or
(d) any Swing Line Loan (i) prior to the date when the
Syndication Agent has notified the Borrower that the syndication of the
Commitments has been completed to the satisfaction of the Agents or
(ii) if, after giving effect thereto, (x) the aggregate outstanding
principal amount of all Swing Line Loans would exceed the Swing Line
Loan Commitment Amount, or (y) the sum of the Letter of Credit
Outstandings plus the aggregate principal amount of all Swing Line
Loans and Revolving Loans then outstanding would exceed the then
existing Revolving Loan Commitment Amount.
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SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of
Credit. No Issuer shall be permitted or required to issue any Letter of Credit
(a) prior to the date when the Syndication Agent has notified the Borrower that
the syndication of the Commitments has been completed to the satisfaction of the
Agents or (b) if, after giving effect thereto, (i) the aggregate amount of all
Letter of Credit Outstandings would exceed the Letter of Credit Commitment
Amount or (ii) the sum of the aggregate amount of all Letter of Credit
Outstandings plus the aggregate principal amount of all Revolving Loans and
Swing Line Loans then outstanding would exceed the then existing Revolving Loan
Commitment Amount.
SECTION 2.2. Reduction of Commitment Amounts. The Commitment Amounts
are subject to reduction from time to time pursuant to this Section 2.2.
SECTION 2.2.1. Optional. The Borrower may, from time to time on any
Business Day occurring after the time of the Initial Closing Date, voluntarily
reduce the amount of the Revolving Loan Commitment Amount or the Letter of
Credit Commitment Amount; provided, however, that all such reductions (i) shall
be permanent and (ii) to the extent such reduction in the Commitment Amount
requires a mandatory prepayment of Revolving Loans pursuant to clause (i) of
Section 3.1.1 (x) in the case of prepayments of Base Rate Loans, shall require
at least one Business Day's prior notice to the Administrative Agent, and any
partial reduction of any Commitment Amount shall be in a minimum amount of
$500,000 and in an integral multiple of $100,000 or (y) in the case of
prepayments of LIBO Rate Loans, shall require at least three Business Days'
prior notice to the Administrative Agent, and any partial reduction of any
Commitment Amount shall be in a minimum amount of $500,000 and in an integral
multiple of $100,000. Any reduction of the Revolving Loan Commitment Amount
which reduces the Revolving Loan Commitment Amount below (i) the Swing Line Loan
Commitment Amount or (ii) the Letter of Credit Commitment Amount shall result in
an automatic and corresponding reduction of the Swing Line Loan Commitment
Amount and/or the Letter of Credit Commitment Amount (as directed by the
Borrower in a notice to the Administrative Agent delivered together with the
notice of voluntary reduction in the Revolving Loan Commitment Amount) to an
aggregate amount not in excess of the Revolving Loan Commitment Amount, as so
reduced, without any further action on the part of the Swing Line Lender or the
Issuer.
SECTION 2.2.2. Mandatory. The Revolving Loan Commitment Amount and the
Letter of Credit Commitment Amount shall be reduced as set forth below.
(a) Following the prepayment or repayment in full of the Term
Loans, the Revolving Loan Commitment Amount shall, without any further
action, automatically and permanently be reduced on the date and in the
amount the Term Loans, if then outstanding, would otherwise have been
required to be prepaid with any Net Debt Proceeds, Net Disposition
Proceeds, Net Equity Proceeds or Excess Cash Flow.
(b) Any reduction of the Revolving Loan Commitment Amount
which reduces the Revolving Loan Commitment Amount below (i) the Swing
Line Loan Commitment Amount or (ii) the Letter of Credit Commitment
Amount shall result in an automatic and corresponding reduction of the
Swing Line Loan Commitment Amount and/or the Letter of Credit
Commitment Amount (as directed by the Borrower in a notice to the
Administrative Agent) to an aggregate amount not in excess of the
Revolving Loan Commitment Amount, as so reduced, without any further
action on the part of the Swing Line Lender or the Issuer.
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SECTION 2.3. Borrowing Procedures and Funding Maintenance. Loans (other
than Swing Line Loans) shall be made by the Lenders in accordance with Section
2.3.1, and Swing Line Loans shall be made by the Swing Line Lender in accordance
with Section 2.3.2.
SECTION 2.3.1. Term Loans and Revolving Loans. By delivering a
Borrowing Request to the Administrative Agent on or before 12:00 p.m., New York
time, on a Business Day, the Borrower may from time to time irrevocably request,
on not less than one Business Day's notice (in the case of Base Rate Loans) or
three Business Days' notice (in the case of LIBO Rate Loans) nor more than five
Business Days' notice (in the case of any Loans) (unless otherwise agreed to by
the Agents and the relevant committing existing Lenders and Additional Lenders
in the case of a proposed Borrowing of Additional Term F Loans), that a
Borrowing be made in a minimum amount of $500,000 and an integral multiple of
$100,000, or in the unused amount of the applicable Commitment. On the terms and
subject to the conditions of this Agreement, each Borrowing shall be comprised
of the type of Loans, and shall be made on the Business Day, specified in such
Borrowing Request. On or before 11:00 a.m. (New York time) on such Business Day
each Lender shall deposit with the Administrative Agent same day funds in an
amount equal to such Lender's Percentage of the requested Borrowing. Such
deposit will be made to an account which the Administrative Agent shall specify
from time to time by notice to the Lenders. To the extent funds are received
from the Lenders, the Administrative Agent shall make such funds available to
the Borrower by wire transfer to the accounts the Borrower shall have specified
in its Borrowing Request. No Lender's obligation to make any Loan shall be
affected by any other Lender's failure to make any Loan.
SECTION 2.3.2. Swing Line Loans. (a) By telephonic notice, promptly
followed (within one Business Day) by the delivery of a confirming Borrowing
Request, to the Swing Line Lender on or before 12:00 p.m., New York time, on the
Business Day the proposed Swing Line Loan is to be made, the Borrower may from
time to time irrevocably request that a Swing Line Loan be made by the Swing
Line Lender in a minimum principal amount of $10,000 or any larger integral
multiple of $10,000. All Swing Line Loans shall be made as Base Rate Loans and
shall not be entitled to be converted into LIBO Rate Loans. The proceeds of each
Swing Line Loan shall be made available by the Swing Line Lender, by 5:00 p.m.,
New York time, on the Business Day telephonic notice is received by it as
provided in this clause (a), to the Borrower by wire transfer to the account the
Borrower shall have specified in its notice therefor.
(b) If (i) any Swing Line Loan shall be outstanding for more than ten
Business Days or (ii) any Default shall occur and be continuing, each Lender
with a Revolving Loan Commitment (other than the Swing Line Lender) irrevocably
agrees that it will, at the request of the Swing Line Lender and upon notice
from the Administrative Agent, unless such Swing Line Loan shall have been
earlier repaid, make a Revolving Loan (which shall initially be funded as a Base
Rate Loan) in an amount equal to such Lender's Percentage of the aggregate
principal amount of all such Swing Line Loans then outstanding (such outstanding
Swing Line Loans hereinafter referred to as the "Refunded Swing Line Loans");
provided, that the Swing Line Lender shall not request, and no Lender with a
Revolving Loan Commitment shall make, any Refunded Swing Line Loan if, after
giving effect to the making of such Refunded Swing Line Loan, the sum of all
Swing Line Loans and Revolving Loans made by such Lender, plus such Lender's
Percentage of the aggregate amount of all Letter of Credit Outstandings, would
exceed such Lender's Percentage of the then existing Revolving Loan Commitment
Amount. On or before 12:00 noon (New York time) on the first Business Day
following receipt by each Lender of a request to make Revolving Loans as
provided in the preceding sentence, each such Lender with a Revolving Loan
Commitment shall deposit in an account specified by the Swing Line Lender the
amount so requested in same day funds and such funds shall be applied by the
Swing Line Lender to repay the Refunded Swing Line Loans. At the time the
aforementioned Lenders make the above referenced Revolving Loans, the Swing Line
Lender shall be deemed to have made, in consideration of the making of the
Refunded Swing
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Line Loans, a Revolving Loan in an amount equal to the Swing Line Lender's
Percentage of the aggregate principal amount of the Refunded Swing Line Loans.
Upon the making (or deemed making, in the case of the Swing Line Lender) of any
Revolving Loans pursuant to this clause (b), the amount so funded shall become
outstanding under such Lender's Revolving Note and shall no longer be owed under
the Swing Line Note. All interest payable with respect to any Revolving Loans
made (or deemed made, in the case of the Swing Line Lender) pursuant to this
clause (b) shall be appropriately adjusted to reflect the period of time during
which the Swing Line Lender had outstanding Swing Line Loans in respect of which
such Revolving Loans were made. Each Lender's obligation (in the case of Lenders
with a Revolving Loan Commitment) to make the Revolving Loans referred to in
this clause (b) shall be absolute and unconditional and shall not be affected by
any circumstance, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the Swing
Line Lender, the Borrower or any other Person for any reason whatsoever; (ii)
the occurrence or continuance of any Default; (iii) any adverse change in the
condition (financial or otherwise) of the Borrower; (iv) the acceleration or
maturity of any Loans or the termination of any Commitment after the making of
any Swing Line Loan; (v) any breach of this Agreement or any other Loan Document
by the Borrower or any Lender; or (vi) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
(c) In the event that the Borrower or any other Obligor is subject to
any bankruptcy or insolvency proceedings as provided in Section 8.1.9, or if for
any other reason Revolving Loans cannot be made or are unavailable, each Lender
with a Revolving Loan Commitment shall acquire without recourse or warranty an
undivided participation interest equal to such Lender's Percentage of any Swing
Line Loan otherwise required to be repaid by such Lender pursuant to the
preceding clause by paying to the Swing Line Lender on the date on which such
Lender would otherwise have been required to make a Revolving Loan in respect of
such Swing Line Loan pursuant to the preceding clause, in same day funds, an
amount equal to such Lender's Percentage of such Swing Line Loan, and no
Revolving Loans shall be made by such Lender pursuant to the preceding clause.
From and after the date on which any Lender purchases an undivided participation
interest in a Swing Line Loan pursuant to this clause, the Swing Line Lender
shall distribute to such Lender (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Lender's participation
interest is outstanding and funded) its ratable amount of all payments of
principal and interest in respect of such Swing Line Loan in like funds as
received; provided, however, that in the event such payment received by the
Swing Line Lender is required to be returned to the Borrower, such Lender shall
return to the Swing Line Lender the portion of any amounts which such Lender had
received from the Swing Line Lender in like funds.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 12:00
p.m., New York time, on a Business Day, the Borrower may from time to time
irrevocably elect, on not less than one Business Day's notice (in the case of a
conversion of LIBO Rate Loans to Base Rate Loans) or three Business Days' notice
(in the case of a continuation of LIBO Rate Loans or a conversion of Base Rate
Loans to LIBO Rate Loans) nor more than five Business Days' notice (in the case
of all Loans) that all, or any portion in an aggregate minimum amount of
$500,000 and an integral multiple of $100,000, of any Loans (other than Swing
Line Loans) be, in the case of Base Rate Loans, converted into LIBO Rate Loans
of either type or, in the case of LIBO Rate Loans of either type, be converted
into a Base Rate Loan or a LIBO Rate Loan of the other type or continued as a
LIBO Rate Loan of such type (in the absence of delivery of a Continuation/
Conversion Notice with respect to any LIBO Rate Loan at least three Business
Days before the last day of the then current Interest Period with respect
thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a
Base Rate Loan); provided, however, that (i) each such conversion or
continuation shall be pro rated among the applicable outstanding Loans of all
Lenders, and (ii) no portion of the outstanding
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principal amount of any Loans may be continued as, or be converted into, LIBO
Rate Loans when any Default has occurred and is continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility. In addition, the
Borrower hereby consents and agrees that, for purposes of any determination to
be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively
assumed that each Lender elected to fund all LIBO Rate Loans by purchasing
Dollar deposits in its LIBOR Office's interbank eurodollar market.
SECTION 2.6. Issuance Procedures. By delivering to the Administrative
Agent an Issuance Request on or before 12:00 noon, New York time, on a Business
Day, the Borrower may, from time to time irrevocably request, on not less than
three nor more than ten Business Days' notice (or such other notice period as
may be acceptable to the Issuer in its sole discretion), in the case of an
initial issuance of a Letter of Credit, and not less than three nor more than
ten Business Days' notice prior to the then existing Stated Expiry Date of a
Letter of Credit (or such other notice period as may be acceptable to the Issuer
in its sole discretion), in the case of a request for the extension of the
Stated Expiry Date of a Letter of Credit, that the Issuer issue, or extend the
Stated Expiry Date of, as the case may be, an irrevocable Letter of Credit on
behalf of the Borrower (whether issued for the Borrower's account or for the
account of any wholly-owned U.S. Subsidiary of the Borrower that is a signatory
to the Subsidiary Guaranty and the Subsidiary Security Agreement and whose
outstanding Capital Stock is pledged to the Administrative Agent for the benefit
of the Lenders pursuant to a Pledge Agreement), in such form as may be requested
by the Borrower and approved by the Issuer, solely for the purposes described in
Section 7.1.10. Notwithstanding anything to the contrary contained herein or in
any separate application for any Letter of Credit, the Borrower hereby
acknowledges and agrees that it shall be obligated to reimburse the Issuer upon
each Disbursement of any Letter of Credit, and it shall be deemed to be an
obligor for purposes of each such Letter of Credit issued hereunder (whether the
account party on such Letter of Credit is the Borrower or a wholly-owned U.S.
Subsidiary of the Borrower). Upon receipt of an Issuance Request, the
Administrative Agent shall promptly notify the Issuer and each Lender thereof
and the Issuer shall, subject to the terms and conditions hereof, including
Article V, promptly (but in no event later than three Business Days after such
notification) issue a Letter of Credit. Each Letter of Credit shall by its terms
be stated to expire on a date (its "Stated Expiry Date") no later than the
earlier to occur of (i) the Revolving Loan Commitment Termination Date and (ii)
one year from the date of its issuance. The Issuer will make available to the
beneficiary thereof the original of each Letter of Credit which it issues
hereunder.
SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each
Letter of Credit issued by the Issuer pursuant hereto, and without further
action, each Lender (other than the Issuer) that has a Revolving Loan Commitment
shall be deemed to have irrevocably purchased from the Issuer, to the extent of
its Percentage in respect of Revolving Loans, and the Issuer shall be deemed to
have irrevocably granted and sold to such Lender a participation interest in
such Letter of Credit (including the Contingent Liability and any Reimbursement
Obligation and all rights with respect thereto), and such Lender shall, to the
extent of its Percentage in respect of Revolving Loans, be responsible for
reimbursing promptly (and in any event within one Business Day) the Issuer for
Reimbursement Obligations which have not been reimbursed by the Borrower in
accordance with Section 2.6.3. In addition, such Lender shall, to the extent of
its Percentage in respect of Revolving Loans, be entitled to receive a ratable
portion of the Letter of Credit fees payable pursuant to Section 3.3.3 with
respect to each Letter of Credit and of interest payable pursuant
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to Section 3.2 with respect to any Reimbursement Obligation. To the extent that
any Lender has reimbursed the Issuer for a Disbursement as required by this
Section, such Lender shall be entitled to receive its ratable portion of any
amounts subsequently received (from the Borrower or otherwise) in respect of
such Disbursement.
SECTION 2.6.2. Disbursements; Conversion to Revolving Loans. The Issuer
will notify the Borrower and the Administrative Agent promptly of the
presentment for payment of any Letter of Credit issued by the Issuer, together
with notice of the date (the "Disbursement Date") such payment shall be made
(each such payment, a "Disbursement"). Subject to the terms and provisions of
such Letter of Credit and this Agreement, the Issuer shall make such payment to
the beneficiary (or its designee) of such Letter of Credit. Prior to 12:00 noon,
New York time, on the first Business Day following the Disbursement Date (the
"Disbursement Due Date"), the Borrower shall be obligated to reimburse the
Administrative Agent, for the account of the Issuer, for all amounts which the
Issuer has disbursed under such Letter of Credit, together with interest thereon
at the rate per annum otherwise applicable to Revolving Loans (made as Base Rate
Loans) from and including the Disbursement Date to but excluding the
Disbursement Due Date and, thereafter (unless such Disbursement is converted
into a Base Rate Loan on the Disbursement Due Date), at a rate per annum equal
to the rate per annum then in effect with respect to overdue Revolving Loans
(made as Base Rate Loans) pursuant to Section 3.2.2 for the period from and
including the Disbursement Due Date to but excluding the date of such
reimbursement; provided, however, that, if no Default shall have then occurred
and be continuing, unless the Borrower has notified the Administrative Agent no
later than one Business Day prior to the Disbursement Due Date that it will
reimburse the Issuer for the applicable Disbursement, then the amount of the
Disbursement shall be deemed to be a Revolving Loan constituting a Base Rate
Loan and following the giving of notice thereof by the Administrative Agent to
the Lenders, each Lender with a commitment to make Revolving Loans (other than
the Issuer) will deliver to the Issuer on the Disbursement Due Date immediately
available funds in an amount equal to such Lender's Percentage of such Revolving
Loan. Each conversion of Disbursement amounts into Revolving Loans shall
constitute a representation and warranty by the Borrower that on the date of the
making of such Revolving Loan all of the statements set forth in Section 5.2.1
are true and correct.
SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement
Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with
respect to each Disbursement (including interest thereon) not converted into a
Base Rate Loan pursuant to Section 2.6.2, and, upon the failure of the Borrower
to reimburse the Issuer and the giving of notice thereof by the Administrative
Agent to the Lenders, each Lender's (to the extent such Lender has a Revolving
Loan Commitment) obligation under Section 2.6.1 to reimburse the Issuer or fund
its Percentage of any Disbursement converted into a Base Rate Loan, shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim or defense to payment which the Borrower or such
Lender, as the case may be, may have or have had against the Issuer or any such
Lender, including any defense based upon the failure of any Disbursement to
conform to the terms of the applicable Letter of Credit (if, in the Issuer's
good faith opinion, such Disbursement is determined to be appropriate) or any
non-application or misapplication by the beneficiary of the proceeds of such
Letter of Credit; provided, however, that after paying in full its Reimbursement
Obligation hereunder, nothing herein shall adversely affect the right of the
Borrower or such Lender, as the case may be, to commence any proceeding against
the Issuer for any wrongful Disbursement made by the Issuer under a Letter of
Credit as a result of acts or omissions constituting gross negligence or willful
misconduct on the part of the Issuer.
SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during the
continuation of any Event of Default of the type described in Section 8.1.9 or,
with notice from the Administrative Agent
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acting at the direction of the Required Lenders, upon the occurrence and during
the continuation of any other Event of Default,
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is undrawn
and available under all Letters of Credit issued and outstanding shall,
without demand upon or notice to the Borrower or any other Person, be
deemed to have been paid or disbursed by the Issuer under such Letters
of Credit (notwithstanding that such amount may not in fact have been
so paid or disbursed); and
(b) upon notification by the Administrative Agent to the
Borrower of the obligations of the Borrower under this Section, the
Borrower shall be immediately obligated to reimburse the Issuer for the
amount deemed to have been so paid or disbursed by the Issuer.
Any amounts so payable by the Borrower pursuant to this Section shall be
deposited in cash with the Administrative Agent and held as collateral security
for the Obligations in connection with the Letters of Credit issued by the
Issuer. At such time when the Events of Default giving rise to the deemed
disbursements hereunder shall have been cured or waived, the Administrative
Agent shall return to the Borrower all amounts then on deposit with the
Administrative Agent pursuant to this Section, together with accrued interest at
the Federal Funds Rate, which have not been applied to the satisfaction of such
Obligations.
SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and,
to the extent set forth in Section 2.6.1, each Lender with a Revolving Loan
Commitment, shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of
its own gross negligence or willful misconduct) shall not be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any Letter of Credit or any document submitted by any
party in connection with the application for and issuance of a Letter
of Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any instrument transferring or assigning or purporting
to transfer or assign a Letter of Credit or the rights or benefits
thereunder or the proceeds thereof in whole or in part, which may prove
to be invalid or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or
otherwise; or
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under a
Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to the Issuer or any Lender with a Revolving Loan
Commitment hereunder. In furtherance and extension and not in limitation or
derogation of any of the foregoing, any action taken or omitted to be taken by
the Issuer in good faith (and not constituting gross negligence or willful
misconduct) shall be binding upon the
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Borrower, each other Obligor and each such Lender, and shall not put the Issuer
under any resulting liability to the Borrower, any other Obligor or any such
Lender, as the case may be.
SECTION 2.7. Notes. Each Lender's Loans under a Commitment shall be
evidenced by a Note payable to the order of such Lender in a maximum principal
amount equal to such Lender's Percentage of the original applicable Commitment
Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause
to be made) appropriate notations on the grid attached to such Lender's Notes
(or on any continuation of such grid), which notations, if made, shall evidence,
inter alia, the date of, the outstanding principal of, and the interest rate and
Interest Period applicable to the Loans evidenced thereby. Such notations shall
be conclusive and binding on the Borrower absent manifest error; provided,
however, that the failure of any Lender to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower or any other Obligor.
SECTION 2.8. Registered Notes. (a) Any Lender may request the Borrower
(through the Administrative Agent), and the Borrower agrees (i) to exchange for
any Notes held by such Lender, or (ii) to issue to such Lender on the date it
becomes a Lender, Registered Note(s). Registered Notes may not be exchanged for
Notes that are not Registered Notes.
(b) The Borrower hereby designates the Administrative Agent to
serve as the Borrower's agent, solely for purposes of this Section 2.8,
to maintain a register (the "Register") on which it shall enter the
name of the registered owner of the Loans evidenced by a Registered
Note, the amount of such Loans, each repayment in respect of the
principal amount of such Loans and, if such Loans are Revolving Loans,
the Revolving Loan Commitment of the applicable Registered Noteholder.
The entries in the Register shall be conclusive and binding absent
manifest error, and the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Notes
evidencing the same is registered as the owner thereof for the purpose
of receiving all payments thereon and for all other purposes; provided,
however, that any failure to make any such recordation, or any error in
such recordation, shall be corrected by the Administrative Agent upon
notice or discovery thereof, but shall not limit or otherwise affect
any Obligations of the Borrower or any other Obligor.
(c) The Register shall be available for inspection by the
Borrower and any Lender at any reasonable time upon reasonable (but in
any event not less than 5 Business Days) prior written notice.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments; Application.
SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in
full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, the Borrower
(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the outstanding principal
amount of any Loans; provided, however, that
(i) (x) any such prepayment of Term A Loans, Term B
Loans, Term C Loans, Term D Loans, Term E Loans, Term F Loans
or Delayed Term Loans shall be made pro rata among Term A
Loans, Term B Loans, Term C Loans, Term D Loans, Term E Loans,
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Term F Loans or Delayed Term Loans, as applicable, of the same
type and, if applicable, having the same Interest Period of
all Lenders that have made such Term A Loans, Term B Loans,
Term C Loans, Term D Loans, Term E Loans, Term F Loans or
Delayed Term Loans and (y) any such prepayment of Revolving
Loans shall be made pro rata among the Revolving Loans of the
same type and, if applicable, having the same Interest Period
of all Lenders that have made such Revolving Loans;
(ii) the Borrower shall comply with Section 4.4 in
the event that any LIBO Rate Loan is prepaid on any day other
than the last day of the Interest Period for such Loan;
(iii) all such voluntary prepayments of LIBO Rate
Loans shall require at least three but no more than five
Business Days' prior written notice to the Administrative
Agent;
(iv) all such voluntary prepayments of Base Rate
Loans shall require at least one but no more than five
Business Days' prior written notice to the Administrative
Agent; and
(v) all such voluntary partial prepayments shall be
in an aggregate minimum amount of $500,000 and an integral
multiple of $100,000;
(b) shall, no later than one Business Day following the
receipt of any Net Disposition Proceeds or Net Debt Proceeds by the
Borrower or any of its Subsidiaries, deliver to the Administrative
Agent a calculation of the amount of such Net Disposition Proceeds or
Net Debt Proceeds, as the case may be, and make a mandatory prepayment
of the Term Loans in an amount equal to 100% of such Net Disposition
Proceeds or Net Debt Proceeds, as the case may be, to be applied as set
forth in Section 3.1.2; provided, however, that with respect to Net
Disposition Proceeds in an aggregate amount not to exceed $10,000,000,
whether in a single transaction or in a series of related transactions,
to the extent such Net Disposition Proceeds are segregated and
reinvested within 365 days of receipt by the Borrower, no such
prepayment therewith is required;
(c) shall, no later than ten Business Days following the
delivery of the annual audited financial reports required pursuant to
clause (b) of Section 7.1.1 (beginning with the financial reports
delivered in respect of the 1998 Fiscal Year), deliver to the
Administrative Agent a calculation of the Excess Cash Flow for the
prior Fiscal Year and, no later than five Business Days following the
delivery of such calculation, make a mandatory prepayment of the Term
Loans in an amount equal to 75% of an amount equal to the excess of (i)
Excess Cash Flow (if any) for such Fiscal Year over (ii) $500,000, to
be applied as set forth in Section 3.1.2; provided, however, that if
the Leverage Ratio is less than 3.50:1 as of the end of the immediately
preceding Fiscal Quarter, such prepayment shall be in an amount equal
to 50% of the Excess Cash Flow for such Fiscal Year (or portion
thereof);
(d) shall, concurrently with the receipt of any Net Equity
Proceeds by the Parent or any of its Subsidiaries, deliver to the
Administrative Agent a calculation of the amount of such Net Equity
Proceeds, and no later than five Business Days following the delivery
of such calculation, make a mandatory prepayment of the Term Loans in
an amount equal to 50% of such Net Equity Proceeds, to be applied as
set forth in Section 3.1.2;
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(e) shall, concurrently with the receipt of any Casualty
Proceeds by the Borrower or any of its Subsidiaries in excess of
$500,000 (individually or in the aggregate over the course of a Fiscal
Year), deposit such Casualty Proceeds in an account maintained with the
Administrative Agent and within 60 days following the receipt by the
Borrower or any of its Subsidiaries of such Casualty Proceeds, direct
the Administrative Agent to apply such Casualty Proceeds to prepay the
Term Loans in an amount equal to 100% of such Casualty Proceeds, to be
applied as set forth in Section 3.1.2; provided that no mandatory
prepayment on account of Casualty Proceeds shall be required under this
clause if the Borrower informs the Agents no later than 60 days
following the occurrence of the Casualty Event resulting in such
Casualty Proceeds of its or its Subsidiary's good faith intention to
apply such Casualty Proceeds to the rebuilding or replacement of the
damaged, destroyed or condemned assets or property and in fact uses
such Casualty Proceeds to rebuild or replace the damaged, destroyed or
condemned assets or property within 365 days following the receipt of
such Casualty Proceeds, with the amount of such Casualty Proceeds
unused after such 365 day period being applied to the Loans pursuant to
Section 3.1.2;
(f) shall, on the Stated Maturity Date and on each Quarterly
Payment Date, make a scheduled repayment of the aggregate outstanding
principal amount, if any, of all Term A Loans, Term B Loans, Term C
Loans, Term D Loans, Term E Loans, Term F Loans and Delayed Term Loans
in accordance with the applicable table set forth in Annex I to this
Agreement (as such amounts may have otherwise been reduced pursuant to
this Agreement);
(g) shall, on each date when a reduction in the Revolving Loan
Commitment Amount shall become effective pursuant to Section 2.2, make
a mandatory prepayment of Revolving Loans and (if necessary) deposit
with the Administrative Agent cash collateral for Letter of Credit
Outstandings in an aggregate amount equal to the excess, if any, of the
aggregate outstanding principal amount of all Revolving Loans and
Letter of Credit Outstandings over the Revolving Loan Commitment Amount
as so reduced; and
(h) shall, immediately upon any acceleration of the Stated
Maturity Date of any Loans or Obligations pursuant to Section 8.2 or
Section 8.3, repay all Loans and provide the Administrative
Agent with cash collateral in an amount equal to the Letter of Credit
Outstandings, unless, pursuant to Section 8.3, only a portion of all
Loans and Obligations are so accelerated (in which case the portion so
accelerated shall be so prepaid or cash collateralized with the
Administrative Agent).
SECTION 3.1.2. Application. (a) Subject to clause (b) below, each
prepayment or repayment of the principal of the Loans shall be applied, to the
extent of such prepayment or repayment, first, to the principal amount thereof
being maintained as Base Rate Loans, and second, to the principal amount thereof
being maintained as LIBO Rate Loans.
(b) Each voluntary prepayment of Term Loans and each prepayment of Term
Loans made pursuant to clauses (b), (c), (d) and (e) of Section 3.1.1 shall be
applied (i) first, on a pro rata basis, to the outstanding principal amount of
all Term A Loans, Term B Loans, Term C Loans, Term D Loans, Term E Loans, Term F
Loans and Delayed Term Loans and the remaining Term A Loan, Term B Loan, Term C
Loan, Term D Loan, Term E Loan, Term F Loan or Delayed Term Loan amortization
payments required pursuant to clause (f) of Section 3.1.1, until all such Term A
Loans, Term B Loans, Term C Loans, Term D Loans, Term E Loans, Term F Loans and
Delayed Term Loans have been paid in full; provided, however, that if the
Borrower at any time elects in writing, in its sole discretion, to permit any
Lender that has Term B Loans, Term C Loans, Term D Loans, Term E Loans, Term F
Loans or Delayed Term Loans
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to decline to have such Term B Loans, Term C Loans, Term D Loans, Term E Loans,
Term F Loans or Delayed Term Loans prepaid, then any Lender having Term B Loans,
Term C Loans, Term D Loans, Term E Loans, Term F Loans or Delayed Term Loans
outstanding may, by delivering a notice to the Agents at least one Business Day
prior to the date that such prepayment is to be made, decline to have such Term
B Loans, Term C Loans, Term D Loans, Term E Loans, Term F Loans or Delayed Term
Loans prepaid with the amounts set forth above, in which case 50% of the amounts
that would have been applied to a prepayment of such Lender's Term B Loans, Term
C Loans, Term D Loans, Term E Loans, Term F Loans or Delayed Term Loans shall
instead be applied to a prepayment of the Term A Loans (until paid in full),
with the balance being retained by the Borrower; and (ii) second, once all Term
A Loans, Term B Loans, Term C Loans, Term D Loans, Term E Loans, Term F Loans
and Delayed Term Loans have been repaid in full, all prepayments of Loans made
pursuant to clauses (b), (c), (d) and (e) of Section 3.1.1 shall be applied to
the repayment of any outstanding Revolving Loans and a corresponding reduction
of the Revolving Loan Commitment Amount in accordance with Section 2.2.2.
SECTION 3.2. Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
SECTION 3.2.1. Rates. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, the Borrower may elect that Loans
comprising a Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base
Rate Loan, equal to the sum of the Alternate Base Rate from time to
time in effect plus the Applicable Margin for Base Rate Loans; and
(b) on that portion maintained as a LIBO Rate Loan, during
each Interest Period applicable thereto, equal to the sum of the LIBO
Rate (Reserve Adjusted) for such Interest Period plus the Applicable
Margin for LIBO Rate Loans.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount
of any Loan is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise), or after any other monetary Obligation of the
Borrower (other than overdue Reimbursement Obligations which shall bear interest
as provided in Section 2.6.2) shall have become due and payable, the Borrower
shall pay, but only to the extent permitted by law, interest (after as well as
before judgment) on such amounts at a rate per annum equal to the rate that
would otherwise have been applicable to Base Rate Loans plus 2%.
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any optional or required payment or
prepayment, in whole or in part, of principal outstanding on such Loan;
(c) with respect to Base Rate Loans, on each Quarterly Payment
Date occurring after the Initial Closing Date;
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(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
three months, on each date occurring at three month intervals after the
first day of such Interest Period);
(e) with respect to any Base Rate Loans converted into LIBO
Rate Loans on a day when interest would not otherwise have been payable
pursuant to clause (c), on the date of such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or Section 8.3,
immediately upon such acceleration.
Interest accrued on Loans, Reimbursement Obligations or other monetary
Obligations arising under this Agreement or any other Loan Document after the
date such amount is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise) shall be payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender that has a Revolving Loan
Commitment or a Delayed Term Loan Commitment, for each day during the period
(including any portion thereof when any of the Lenders' Revolving Loan
Commitments or such Lender's Delayed Term Loan Commitments, as the case may be,
are suspended by reason of the Borrower's inability to satisfy any condition of
Article V) commencing on the Initial Closing Date and continuing through the
Revolving Loan Commitment Termination Date or the Delayed Term Loan Commitment
Termination Date, as applicable, a commitment fee equal to the Applicable
Commitment Fee for such day. Such commitment fees shall be payable by the
Borrower in arrears on each Quarterly Payment Date, commencing with the first
such day following the Initial Closing Date, and on the Revolving Loan
Commitment Termination Date. The making of Swing Line Loans by the Swing Line
Lender shall not constitute usage under the Revolving Loan Commitment for the
purpose of calculating the commitment fees to be paid by the Borrower to the
Lenders pursuant to this Section 3.3.1.
SECTION 3.3.2. Agents' and Lead Arranger's Fees. The Borrower agrees to
pay to the Agents and the Lead Arranger, for their own respective accounts, fees
in the amounts and on the dates set forth in the Fee Letter.
SECTION 3.3.3. Letter of Credit Face Amount Fee. The Borrower agrees to
pay to the Administrative Agent, for the account of each Lender that has a
Revolving Loan Commitment, a fee for each Letter of Credit for the period from
and including the date of the issuance of such Letter of Credit to (but not
including) the date upon which such Letter of Credit expires, at a rate per
annum equal to the Applicable Margin for such day for Revolving Loans that are
maintained as LIBO Rate Loans, minus 1/8 of 1%. Such fee shall be payable by the
Borrower in arrears each Quarterly Payment Date, and on the Revolving Loan
Commitment Termination Date for any period then ending for which such fee shall
not theretofore have been paid, commencing on the first such date after the
issuance of such Letter of Credit.
SECTION 3.3.4. Letter of Credit Issuing Fee. The Borrower agrees to pay
to the Administrative Agent, for the account of the Issuer, an issuing fee for
each Letter of Credit for the period from and including the date of issuance of
such Letter of Credit to (but excluding) the date upon which such Letter of
Credit expires, of .25% per annum of the face amount of such Letter of Credit.
Such fee shall be payable by the Borrower in arrears on each Quarterly Payment
Date and on the Revolving Loan
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Commitment Termination Date for any period then ending for which such fee shall
not theretofore have been paid, commencing on the first such date after the
issuance of such Letter of Credit.
SECTION 3.3.5. Amendment Fee. The Borrower agrees to pay to the
Administrative Agent on the Fourth Amended and Restated Effective Date, for the
account of each Lender which shall have evidenced its consent to this Agreement
by delivery of its executed signature page hereto to the Administrative Agent
not later than March 24, 2000 at 12:00 noon New York time, a fee in the amount
of 0.25% of the sum of (x) the amount of the Revolving Loan Commitment Amount of
such Lender and (y) the outstanding aggregate principal amount of Term Loans
held by such Lender (excluding, however, such Lender's Additional Term F Loan
Commitment or Additional Term F Loans), which fee shall be fully earned upon
becoming due and payable in accordance with the terms hereof, shall be
non-refundable for any reason whatsoever and shall be in addition to any other
fees, costs and expenses payable pursuant to any Transaction Document, and the
Borrower agrees and acknowledges that its obligation to pay the foregoing fee
will not be subject to counterclaim or setoff for, or otherwise be affected by,
any claim or dispute it may have.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrower and the Lenders,
be conclusive and binding on the Borrower) that the introduction of or any
change in or in the interpretation of any law makes it unlawful, or any central
bank or other governmental authority asserts that it is unlawful, for such
Lender to make, continue or maintain any Loan as, or to convert any Loan into, a
LIBO Rate Loan of a certain type, the obligations of all Lenders to make,
continue, maintain or convert into any such Loans shall, upon such
determination, forthwith be suspended until such Lender shall notify the
Administrative Agent that the circumstances causing such suspension no longer
exist, and all LIBO Rate Loans of such type shall automatically convert into
Base Rate Loans at the end of the then current Interest Periods with respect
thereto or sooner, if required by such law or assertion.
SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall
have determined that
(a) Dollar certificates of deposit or Dollar deposits, as the
case may be, in the relevant amount and for the relevant Interest
Period are not available to the Administrative Agent in its relevant
market; or
(b) by reason of circumstances affecting the Administrative
Agent's relevant market, adequate means do not exist for ascertaining
the interest rate applicable hereunder to LIBO Rate Loans of such type,
then, upon notice from the Administrative Agent to the Borrower and the Lenders,
the obligations of all Lenders under Section 2.3 and Section 2.4 to make or
continue any Loans as, or to convert any Loans into, LIBO Rate Loans of such
type shall forthwith be suspended until the Administrative Agent shall notify
the Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees
to reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable
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by such Lender in respect of, making, continuing or maintaining (or of its
obligation to make, continue or maintain) any Loans as, or of converting (or of
its obligation to convert) any Loans into, LIBO Rate Loans. Such Lender shall
promptly notify the Administrative Agent and the Borrower in writing of the
occurrence of any such event, such notice to state, in reasonable detail, the
reasons therefor and the additional amount required fully to compensate such
Lender for such increased cost or reduced amount. Such additional amounts shall
be payable by the Borrower directly to such Lender within five days of its
receipt of such notice, and such notice shall, in the absence of manifest error,
be conclusive and binding on the Borrower.
SECTION 4.4. Funding Losses. In the event any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan) as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loans on a date other than the scheduled last
day of the Interest Period applicable thereto, whether pursuant to
Section 3.1 or otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance
with the Borrowing Request therefor; or
(c) any Loans not being continued as, or converted into, LIBO
Rate Loans in accordance with the Continuation/Conversion Notice
therefor,
then, upon the written notice of such Lender to the Borrower (with a copy to the
Administrative Agent), the Borrower shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense.
Such written notice (which shall include calculations in reasonable detail)
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender or any Person controlling
such Lender, and such Lender determines (in its sole and absolute discretion)
that the rate of return on its or such controlling Person's capital as a
consequence of its Commitments, issuance of or participation in Letters of
Credit or the Loans made by such Lender is reduced to a level below that which
such Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender to the Borrower, the Borrower shall immediately pay
directly to such Lender additional amounts sufficient to compensate such Lender
or such controlling Person for such reduction in rate of return. A statement of
such Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Borrower. In determining such amount, such Lender
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
SECTION 4.6. Taxes. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
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other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by any Lender's net
income or receipts (such non-excluded items being called "Taxes"). In the event
that any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then, subject to the last paragraph of this Section 4.6, the
Borrower will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Administrative Agent an official
receipt or other documentation satisfactory to the Administrative Agent
evidencing such payment to such authority; and
(c) pay to the Administrative Agent for the account of the
Lenders such additional amount or amounts as is necessary to ensure
that the net amount actually received by each Lender will equal the
full amount such Lender would have received had no such withholding or
deduction been required.
Moreover, if any Taxes are directly asserted against the Administrative Agent or
any Lender with respect to any payment received by the Administrative Agent or
such Lender hereunder, the Administrative Agent or such Lender may pay such
Taxes and, subject to the last paragraph of this Section 4.6, the Borrower shall
promptly pay such additional amounts (including any penalties, interest or
expenses) as is necessary in order that the net amount received by such person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such person would have received had not such Taxes been
asserted.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent, for the account
of the respective Lenders, the required receipts or other required documentary
evidence, the Borrower shall, subject to the last paragraph of this Section 4.6,
indemnify the Lenders for any incremental Taxes, interest or penalties that may
become payable by any Lender as a result of any such failure. For purposes of
this Section 4.6, a distribution hereunder by the Administrative Agent or any
Lender to or for the account of any Lender shall be deemed a payment by the
Borrower.
Upon the request of the Borrower or the Administrative Agent, each
Lender that is organized under the laws of a jurisdiction other than the United
States shall, prior to the due date of any payments under the Notes, execute and
deliver to the Borrower and the Administrative Agent, on or about the first
scheduled payment date in each Fiscal Year, one or more (as the Borrower or the
Administrative Agent may reasonably request) (i) United States Internal Revenue
Service Forms 4224 or Forms 1001 or such other forms or documents (or successor
forms or documents), appropriately completed, as may be applicable to establish
the extent, if any, to which a payment to such Lender is exempt from withholding
or deduction of Taxes or (ii) in the case of any Lender that is organized under
the laws of a jurisdiction other than the United States but is not legally
entitled to deliver either an Internal Revenue Service Form 1001 or an Internal
Revenue Service Form 4224, (A) Internal Revenue Service Forms W-8 (or successor
forms), appropriately completed, and (B) a certificate of a duly authorized
officer of such Lender to the effect that such Lender is not (x) a "bank" within
the meaning of Section 881(c)(3)(A) of the Code, (y) a "10 percent shareholder"
of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (z) a
controlled foreign corporation receiving interest from a related person within
the meaning of Section 881(c)(3)(C) of the Code.
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The Borrower shall not be obligated to gross up any payments to any
Lender or to indemnify any Lender pursuant to this Section 4.6 in respect of
United States federal withholding taxes to the extent imposed as a result of (i)
the failure of such Lender to deliver to the Borrower the form or forms and/or
certificates, as applicable to such Lender, pursuant to the penultimate
paragraph of this Section 4.6, (ii) in the case of a Lender other than a Person
that is a Lender (an "Existing Lender") on the Effective Date (as defined
below), such form or forms and/or certificates not establishing a complete
exemption from U.S. federal withholding tax, (iii) the information or
certifications made in any such form or forms and/or certificates by the Lender
being untrue or inaccurate on the date delivered in any material respect, or
(iv) the Lender designating a successor lending office at which it maintains its
Loans which has the effect of causing such Lender to become obligated for tax
payments in excess of those in effect immediately prior to such designation
(other than any such designation of a successor lending office by an Existing
Lender prior to the Effective Date); provided, however, that the Borrower shall
be obligated to gross up any payments to any such Lender and to indemnify any
such Lender pursuant to this Section 4.6 in respect of United States federal
withholding taxes if (i) any such failure to deliver a form or forms or
certificate or the failure of such form or forms or certificate to establish a
complete exemption from U.S. federal withholding tax or inaccuracy or untruth
contained therein resulted from a change in any applicable statute, treaty,
regulation or other applicable law or any interpretation of any of the foregoing
occurring after the date hereof (or, in the case of an Assignee Lender,
occurring after the date such Assignee Lender is deemed to have become a party
hereto pursuant to Section 10.11.1), which change rendered such Lender no longer
legally entitled to deliver such form or forms or certificate or otherwise
ineligible for a complete exemption from U.S. federal withholding tax, or
rendered the information or certifications made in such form or forms or
certificate untrue or inaccurate in a material respect, (ii) the redesignation
of the Lender's lending office was made at the request of the Borrower or (iii)
the obligation to gross up payments to any such Lender or indemnify any such
Lender pursuant to this Section 4.6 is with respect to an Assignee Lender that
becomes an Assignee Lender as a result of an assignment made at the request of
the Borrower.
SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement or any other
Loan Document shall be made by the Borrower to the Administrative Agent for the
pro rata account of the Lenders entitled to receive such payment. All such
payments required to be made to the Administrative Agent shall be made, without
setoff, deduction or counterclaim, not later than 11:00 a.m., New York time, on
the date due, in same day or immediately available funds, to such account as the
Agent shall specify from time to time by notice to the Borrower. Funds received
after that time shall be deemed to have been received by the Agent on the next
succeeding Business Day. The Agent shall promptly remit in same day funds to
each Lender its share, if any, of such payments received by the Agent for the
account of such Lender. All interest and fees shall be computed on the basis of
the actual number of days (including the first day but excluding the last day)
occurring during the period for which such interest or fee is payable over a
year comprised of 360 days (or, in the case of interest on a Base Rate Loan
(other than when calculated with respect to the Federal Funds Rate), 365 days
or, if appropriate, 366 days). Whenever any payment to be made shall otherwise
be due on a day which is not a Business Day, such payment shall (except as
otherwise required by clause (c) of the definition of the term "Interest Period"
with respect to LIBO Rate Loans) be made on the next succeeding Business Day and
such extension of time shall be included in computing interest and fees, if any,
in connection with such payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Loan (other than pursuant to the terms of
Sections 4.3, 4.4 and 4.5) or Letter of Credit in excess of its pro rata share
of payments then or therewith obtained by all Lenders, such Lender shall
purchase from the other Lenders such participations in Loans made by them and/or
Letters of Credit as shall be necessary to cause such
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purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and each Lender which has sold a participation
to the purchasing Lender shall repay to the purchasing Lender the purchase price
to the ratable extent of such recovery together with an amount equal to such
selling Lender's ratable share (according to the proportion of
(a) the amount of such selling Lender's required repayment to
the purchasing Lender
to
(b) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section may, to
the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 4.9) with respect to such participation as fully
as if such Lender were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section to share in the benefits of any
recovery on such secured claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any
Default described in clauses (a) through (d) of Section 8.1.9, or, with the
consent of the Required Lenders, upon the occurrence of any other Event of
Default, have the right to appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter maintained with or otherwise held by such Lender;
provided, however, that any such appropriation and application shall be subject
to the provisions of Section 4.8. Each Lender agrees promptly to notify the
Borrower and the Agent after any such setoff and application made by such
Lender; provided, however, that the failure to give such notice shall not affect
the validity of such setoff and application. The rights of each Lender under
this Section are in addition to other rights and remedies (including other
rights of setoff under applicable law or otherwise) which such Lender may have.
SECTION 4.10. Replacement of Lenders. Each Lender hereby severally
agrees as set forth in this Section. If any Lender (a "Subject Lender") makes
demand upon the Borrower for (or if the Borrower is otherwise required to pay)
amounts pursuant to Section 4.2, 4.3, 4.5 or 4.6, or gives notice pursuant to
Section 4.1 requiring a conversion of such Subject Lender's LIBO Rate Loans to
Base Rate Loans or suspending such Lender's obligation to make Loans as, or to
convert Loans into, LIBO Rate Loans, the Borrower may, within 90 days of receipt
by the Borrower of such demand or notice (or the occurrence of such other event
causing the Borrower to be required to pay such compensation), as the case may
be, give notice (a "Replacement Notice") in writing to the Agents and such
Subject Lender of its intention to replace such Subject Lender with a financial
institution (a "Replacement Lender") designated in such Replacement Notice. If
the Agents shall, in the exercise of their reasonable discretion and within 30
days of their receipt of such Replacement Notice, notify the Borrower and such
Subject Lender in writing that the designated financial institution is
satisfactory to the Agents (such consent not being required where the
Replacement Lender is already a Lender), then such Subject Lender shall, subject
to the payment of any amounts due pursuant to Section 4.4, assign, in accordance
with Section 10.11.1, all of its Commitments,
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Loans, Notes and other rights and obligations under this Agreement and all other
Loan Documents (including, without limitation, Reimbursement Obligations) to
such designated financial institution; provided, however, that (i) such
assignment shall be without recourse, representation or warranty and shall be on
terms and conditions reasonably satisfactory to such Subject Lender and such
designated financial institution and (ii) the purchase price paid by such
designated financial institution shall be in the amount of such Subject Lender's
Loans and its Percentage of outstanding Reimbursement Obligations, together with
all accrued and unpaid interest and fees in respect thereof, plus all other
amounts (including the amounts demanded and unreimbursed under Sections 4.2,
4.3, 4.5 and 4.6), owing to such Subject Lender hereunder. Upon the effective
date of an assignment described above, the Borrower shall issue a replacement
Note or Notes, as the case may be, to such designated financial institution or
Replacement Lender, as applicable, and such institution shall become a "Lender"
for all purposes under this Agreement and the other Loan Documents.
SECTION 4.11. Use of Proceeds. The Borrower shall apply the proceeds of
each Borrowing in accordance with Section 7.1.10; without limiting the
foregoing, no proceeds of any Loan will be used to acquire any equity security
of a class which is registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. Conditions to the extension of Additional Term F Loans.
(a) The obligations of the Lenders (including the Additional Lenders) having
Additional Term F Loan Commitments to make the initial Additional Term F Loans
on or after the Fourth Amended and Restated Effective Date but prior to the
Additional Term F Loan Commitment Termination Date shall be subject to the prior
or concurrent satisfaction of each of the conditions precedent set forth in
Section 5.1.1 through 5.1.9.
(b) The obligations of the Lenders (including the Additional Lenders)
having Additional Term F Loan Commitments to make the Additional Term F Loans on
or after the Additional Term F Initial Funding Date but prior to the Additional
Term F Loan Commitment Termination Date shall be subject to the prior or
concurrent satisfaction of each of the conditions precedent set forth in Section
5.1.2, 5.1.4, 5.1.5, 5.1.6, 5.1.7 and 5.1.9.
SECTION 5.1.1. Resolutions, etc. The Agents shall have received from
each Obligor a certificate, dated the date of the Additional Term F Initial
Funding Date, of its Secretary or Assistant Secretary as to (i) resolutions of
its Board of Directors then in full force and effect authorizing the execution,
delivery and performance of this Agreement and each other Loan Document to be
executed by it; and (ii) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement and each other Loan Document
executed by it.
SECTION 5.1.2. Delivery of Additional Term F Notes. The Agents shall
have received, for the account of each Lender having an Additional Term F Loan
Commitment, its Additional Term F Notes duly executed and delivered by the
Borrower.
SECTION 5.1.3. Affirmation and Consent. The Administrative Agent shall
have received an affirmation and consent substantially in the form of Exhibit H
hereto, duly executed and delivered by each Obligor (other than the Borrower).
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SECTION 5.1.4. Additional Term F Funding Date Certificates. The Agents
shall have received, with counterparts for each Lender, the Borrower Additional
Term F Funding Date Certificate and the Parent Additional Term F Funding Date
Certificate, each dated as of the applicable Additional Term F Funding Date and
duly executed and delivered by the chief executive, financial or accounting (or
equivalent) Authorized Officer of the Borrower or the Parent, as the case may
be, in which certificate such Person shall agree and acknowledge that the
statements made therein shall be deemed to be true and correct representations
and warranties of such Person made as of such date under this Agreement, and, at
the time such certificate is delivered, such statements shall in fact be true
and correct in all material respects.
SECTION 5.1.5. Solvency, etc. The Agents shall have received a Solvency
Certificate of the Chief Financial Officer of the Parent substantially in the
form of Exhibit I hereto, addressed to the Agents and each Lender and dated the
date of the applicable Additional Term F Funding Date, as to the solvency of the
Borrower and its Subsidiaries immediately after giving effect to the making of
the Additional Term F Loans, which certificate shall be in form, substance and
scope satisfactory to the Agents and the Lenders.
SECTION 5.1.6. Litigation. There shall exist no pending or threatened
material litigation, proceedings or investigations which could reasonably be
expected to have a Material Adverse Effect.
SECTION 5.1.7. Material Adverse Effect. Since September 30, 1999, there
shall not have been any event, circumstance or condition which could reasonably
be expected to have a Material Adverse Effect.
SECTION 5.1.8. Opinions of Counsel. The Agents shall have received an
opinion, dated the date of the Additional Term F Initial Funding Date and
addressed to the Agents and all Lenders, from Vinson & Elkins, counsel to the
Obligors, which opinion shall be in form and substance satisfactory to the
Agents.
SECTION 5.1.9. Fees, Expenses, etc. (a) The Syndication Agent shall
have received the fees set forth in the letter agreement dated February 15, 2000
between the Borrower and the Syndication Agent to the extent then due and owing
thereunder.
(b) The Agents and the Lead Arranger shall have received, each for its
own respective account, or, in the case of the Administrative Agent, for the
account of each Lender, as the case may be, all fees, costs and expenses due and
payable to the Agents, the Lead Arranger and the Lenders funding any Term F
Loans on the applicable Additional Term F Funding Date, including pursuant to
Sections 3.3 and 10.3, if then invoiced.
SECTION 5.2. All Credit Extensions. The obligation of each Lender and,
if applicable, the Issuer, to make any Credit Extension (including the initial
Credit Extension) shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Credit Extension (but, if any Default of the
nature referred to in Section 8.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds of any Credit Extension) the following statements
shall be true and correct:
(a) the representations and warranties set forth in Article VI
(excluding, however, those contained in Section 6.7) and in each other
Loan Document shall in each case be true and correct
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in all material respects with the same effect as if then made (unless
stated to relate solely to an early date, in which case such
representations and warranties shall be true and correct in all
material respects as of such earlier date);
(b) except as disclosed by the Borrower to the Agents and the
Lenders pursuant to Section 6.7
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or,
to the knowledge of the Borrower or the Parent, threatened
against the Borrower, the Parent or any of their respective
Subsidiaries which could reasonably be expected to have a
Material Adverse Effect; and
(ii) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental
investigation or proceeding disclosed pursuant to Section 6.7
which could reasonably be expected to have a Material Adverse
Effect;
(c) the sum of (i) the aggregate outstanding principal amount
of all Revolving Loans and Swing Line Loans, plus (ii) the aggregate
amount of all Letter of Credit Outstandings, does not exceed the
Revolving Loan Commitment Amount then in effect; and
(d) no Default shall have then occurred and be continuing, and
neither the Borrower, any other Obligor, nor any of its Subsidiaries
are in material violation of any law or governmental regulation or
court order or decree.
SECTION 5.2.2. Credit Extension Request. The Agents shall have received
a Borrowing Request or Issuance Request, as the case may be, for such Credit
Extension. Each of the delivery of a Borrowing Request or an Issuance Request
and the acceptance by the Borrower of the proceeds of the Borrowing or the
issuance of the Letter of Credit, as applicable, shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof) or the issuance of the Letter of Credit, as
applicable, the statements made in Section 5.2.1 are true and correct.
SECTION 5.2.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be satisfactory in form and substance
to the Agents and their counsel; the Agents and their counsel shall have
received all information, approvals, opinions, documents or instruments as the
Agents or their counsel may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, the Issuer and the Agents to enter into
this Agreement and to make Loans and issue Letters of Credit hereunder, each of
the Borrower and the Parent represents and warrants unto each Agent, the Issuer
and each Lender as set forth in this Article VI.
SECTION 6.1. Organization, etc. Each of the Borrower and the Parent and
each of their respective Subsidiaries:
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(a) is a corporation validly organized and existing and in
good standing under the laws of the State of its incorporation;
(b) is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where the nature of its
business requires such qualification, except to the extent that the
failure to so qualify has not had, and could not reasonably be expected
to have, a Material Adverse Effect; and
(c) has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and
perform its Obligations under this Agreement and each other Loan
Document to which it is a party and to own and hold under lease its
property and to conduct its business substantially as currently
conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement and each other Loan
Document executed or to be executed by it, and the execution, delivery and
performance by each of the Parent and each other Obligor of each Loan Document
executed or to be executed by it and the Borrower's and each such other
Obligor's participation in the consummation of the Transaction are within the
Borrower's and each such Obligor's corporate powers, have been duly authorized
by all necessary corporate action, and do not
(a) contravene the Borrower's, the Parent's or any such
Obligor's Organic Documents;
(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or
affecting the Borrower, the Parent or any such Obligor; or
(c) result in, or require the creation or imposition of, any
Lien (other than the Liens created under the Loan Documents in favor of
the Administrative Agent for the benefit of the Lenders) on any of the
Borrower's, the Parent's or any Obligor's properties.
SECTION 6.3. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrower, the Parent or any other Obligor of this
Agreement or any other Loan Document to which it is a party, or for the
Borrower's, the Parent's and each such other Obligor's participation in the
consummation of the Transaction, except as have been duly obtained or made and
are in full force and effect. Neither the Borrower, the Parent, nor any of their
respective Subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and each other
Loan Document executed by the Borrower will, on the due execution and delivery
thereof, constitute, the legal, valid and binding obligations of the Borrower
enforceable in accordance with their respective terms; and each Loan Document
executed pursuant hereto by each the Parent and other Obligor will, on the due
execution and delivery thereof by such Obligor, be the legal, valid and binding
obligation of such Obligor enforceable in accordance with its terms.
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SECTION 6.5. Financial Information.
(a) The Borrower has delivered to the Agents and each Lender
copies of (i) the Base Financial Statements and (ii) the Pro Forma
Balance Sheet. Each of the financial statements described above has
been prepared in accordance with GAAP consistently applied (in the case
of clause (i)), and, in the case of clause (ii), on a basis
substantially consistent with the basis used to prepare the financial
statements referred to in clause (i), and (in the case of clause (i)),
present fairly the consolidated financial condition of the corporations
covered thereby as at the dates thereof and the results of their
operations for the periods then ended and (in the case of clause (ii)),
include appropriate pro forma adjustments to give pro forma effect to
the Transaction.
(b) The Borrower has delivered to the Agents and each Lender
copies of (i) an unaudited statement setting forth the gross cash
margin of Pathfinder for the two month period ended November 30, 1998,
(ii) pro forma statements setting forth the gross cash margin of
Pathfinder for the nine month period ending September 30, 1998, and the
year ended December 31, 1997, (iii) the projected income statement,
balance sheet and statement of cash flows of Pathfinder and its
Subsidiaries for the Fiscal Years 1999 through 2007 and (iv) the
projected consolidated and consolidating income statement, consolidated
balance sheet and consolidated statement of cash flows of the Parent
and its Subsidiaries, giving effect to the Pathfinder Acquisition, for
the Fiscal Years 1998 through 2007. While the underlying transactions
were accounted for in conformity with GAAP, each of the financial
statements described above (x) in the case of clauses (i) and (ii),
were not prepared in accordance with GAAP but do present fairly the
consolidated financial condition of the corporations covered thereby as
at the dates thereof and the results of their operations for the
periods then ended and (y) in the case of clauses (iii) and (iv),
include appropriate pro forma adjustments to give pro forma effect to
the Pathfinder Acquisition and the transactions contemplated thereby,
subject to the absence of footnotes and year-end accruals and
adjustments.
SECTION 6.6. No Material Adverse Effect. Since September 30, 1999,
there has been no event, circumstance or condition which could reasonably be
expected to have a Material Adverse Effect.
SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower or the Parent, threatened litigation,
action, proceeding, or labor controversy affecting the Borrower, the Parent or
any of their respective Subsidiaries, or any of their respective properties,
businesses, assets or revenues, which could reasonably be expected to have a
Material Adverse Effect, except as disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule.
SECTION 6.8. Subsidiaries; Investments.
(a) The Parent has no direct Subsidiaries other than Borrower
and no direct Investments.
(b) The Borrower has no Subsidiaries, except those
Subsidiaries
(i) which are identified in Item 6.8 ("Existing
Subsidiaries") of the Disclosure Schedule by their correct
legal name, their jurisdiction of organization and the holders
(and their respective percentage ownership) of the Capital
Stock thereof; or
(ii) which are permitted to have been acquired in
accordance with Section 7.2.5 or 7.2.8.
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SECTION 6.9. Ownership of Properties. The Borrower, the Parent and each
of their respective Subsidiaries owns good and marketable title to all of its
properties and assets, real and personal, tangible and intangible, of any nature
whatsoever (including patents, trademarks, trade names, service marks and
copyrights), free and clear of all Liens, charges or claims (including
infringement claims with respect to patents, trademarks, copyrights and the
like) except as permitted pursuant to Section 7.2.3 or except those Liens on
such properties and assets which individually or in the aggregate do not exceed
$3,500,000.
SECTION 6.10. Taxes. The Borrower, the Parent and each of their
respective Subsidiaries has filed all tax returns and reports required by law to
have been filed by them and has paid all taxes and governmental charges thereby
shown to be owing, except any such taxes or charges (a) which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its books
and (b) the non-payment of which individually or in the aggregate does not
exceed $3,500,000.
SECTION 6.11. Pension and Welfare Plans. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the date of any Borrowing hereunder, no steps
have been taken to terminate any Pension Plan, and no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a Lien
under section 302(f) of ERISA in an aggregate amount not to exceed $3,500,000.
No condition exists or event or transaction has occurred with respect to any
Pension Plan which might result in the incurrence by the Borrower, the Parent or
any member of the Controlled Group of any material liability, fine or penalty in
an aggregate amount not to exceed $3,500,000. Except as disclosed in Item 6.11
("Employee Benefit Plans") of the Disclosure Schedule, neither the Borrower, the
Parent nor any member of the Controlled Group has any contingent liability with
respect to any post- retirement benefit under a Welfare Plan, other than
liability for continuation coverage described in Part 6 of Title I of ERISA in
excess of $3,500,000 in the aggregate.
SECTION 6.12. Environmental Warranties. Except as set forth in Item
6.12 ("Environmental Matters") of the Disclosure Schedule or with respect to
matters which individually or in the aggregate do not exceed $3,500,000:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower, the Parent or any of
their respective Subsidiaries have been, and continue to be, owned or
leased by the Borrower, the Parent and their respective Subsidiaries in
compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or
threatened
(i) claims, complaints, notices or requests for
information received by the Borrower, the Parent or any of
their respective Subsidiaries with respect to any alleged
violation of any Environmental Law, or
(ii) complaints, notices or inquiries to the
Borrower, the Parent or any of their respective Subsidiaries
regarding potential liability under any Environmental Law;
(c) there have been no Releases of Hazardous Materials at, on
or under any property now or previously owned or leased by the
Borrower, the Parent or any of their respective Subsidiaries;
(d) no facilities or property (including, without limitation,
underlying soils and groundwater) owned or leased by the Borrower, the
Parent or any of their respective Subsidiaries
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were or are contaminated by Hazardous Materials at levels that are in
excess of levels in regulations, policies, guidances or any other
written guideline by any governmental agency, at or above which
clean-up or other remediation is warranted;
(e) no facilities or property (including, without limitation,
underlying soils and groundwater) owned or leased by the Borrower, the
Parent or any of their respective Subsidiaries is the subject of
monitoring, assessment or remediation for contamination by Hazardous
Materials;
(f) there is no off-site environmental contamination from or
allegedly from facilities or property (including, without limitation,
underlying soils and groundwater) owned or leased by the Borrower, the
Parent or any of their respective Subsidiaries;
(g) the Borrower, the Parent and their respective Subsidiaries
have been issued and are in compliance with all permits, certificates,
approvals, licenses and other authorizations relating to environmental
matters and necessary or desirable for their businesses;
(h) neither the Borrower, the Parent nor any of their
respective Subsidiaries, in transporting waste, has selected the
disposal site where the wastes of their respective customers (other
than the wastes of the Borrower, the Parent or any of their respective
Subsidiaries) have been disposed or has paid the disposal fee for their
customers' wastes;
(i) no property now or previously owned or leased by the
Borrower, the Parent or any of their respective Subsidiaries is listed
or proposed for listing (with respect to owned property only) on the
National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar state list of sites requiring investigation or clean-up;
(j) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower, the Parent or any of
their respective Subsidiaries;
(k) there have not previously been nor are there now any above
ground storage tanks or underground storage tanks on property owned by
the Borrower, the Parent or any of their respective Subsidiaries that
have leaked or otherwise released Hazardous Materials into the
environment;
(l) no facilities or property owned or leased by the Borrower,
the Parent or any of their respective Subsidiaries used, use or contain
a septic tank, cesspool, leaching field, or french drain for disposal
of waste waters other than sewage and other human wastes;
(m) no facilities or property owned or leased by the Borrower,
the Parent or any of their respective Subsidiaries used, use or contain
an underground injection well for disposal of waste waters, other than
salt water as authorized by Environmental Law;
(n) the drinking water at all property owned or leased by the
Borrower, the Parent or any of their respective Subsidiaries has met
and meets the criteria promulgated under the Safe Drinking Water Act;
(o) neither Borrower, the Parent nor any Subsidiary of the
Borrower or the Parent has directly transported or directly arranged
for the transportation of any Hazardous Material to any
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location which is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar
state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to material
claims against the Borrower or such Subsidiary thereof for any remedial
work, damage to natural resources or personal injury, including claims
under CERCLA;
(p) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by the
Borrower, the Parent or any Subsidiary of the Borrower or the Parent;
and
(q) no conditions exist at, on or under any property now or
previously owned or leased by the Borrower or the Parent which, with
the passage of time, or the giving of notice or both, would give rise
to liability under any Environmental Law.
SECTION 6.13. Regulations U and X. Neither the Borrower nor the Parent
is engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock, and no proceeds of any Loans will be used for a purpose
which violates, or would be inconsistent with, F.R.S. Board Regulation U or X.
Terms for which meanings are provided in F.R.S. Board Regulation U or X or any
regulations substituted therefor, as from time to time in effect, are used in
this Section with such meanings.
SECTION 6.14. Accuracy of Information. All factual information
heretofore or contemporaneously, taken as a whole, furnished by or on behalf of
the Borrower or the Parent in writing to the Agents, the Lead Arranger or any
Lender for purposes of or in connection with this Agreement or any transaction
contemplated hereby or with respect to the Transaction is, and all other such
factual information hereafter furnished by or on behalf of the Borrower or the
Parent to the Agents, the Lead Arranger or any Lender will be, true and accurate
in every material respect on the date as of which such information is dated or
certified and as of the date of execution and delivery of this Agreement by the
Agents and each such Lender, and such information is not, or shall not be, as
the case may be, incomplete by omitting to state any material fact necessary to
make such information not misleading.
SECTION 6.15. Solvency. The Additional Term F Loans made on the
Additional Term F Initial Funding Date, the execution and delivery by the Parent
and the existing Subsidiary Guarantors of the Affirmation and Consent, and the
application of the proceeds of the Credit Extensions will not involve or result
in any fraudulent transfer or fraudulent conveyance under the provisions of
Section 548 of the Bankruptcy Code (11 U.S.C. Section 101 et seq., as from time
to time hereafter amended, and any successor or similar statute) or any
applicable state law respecting fraudulent transfers or fraudulent conveyances.
On the Additional Term F Initial Funding Date, after giving effect to the making
of the Additional Term F Loans and all transactions related thereto, the
Borrower, the Parent and each Subsidiary Guarantor is Solvent.
SECTION 6.16. Mobile Assets; Leasehold Mortgages, etc.
(a) All Mobile Assets owned by the Borrower and its
Subsidiaries are set forth on Item 6.16 ("Mobile Assets") of the
Disclosure Schedule.
(b) The Borrower has satisfied its obligations under Sections
7.1.11 and 7.1.12 of the Existing Credit Agreement.
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SECTION 6.17. Year 2000. Each Obligor has reviewed the areas within its
business and operations which could be adversely affected by, and has developed
or is developing a program to address on a timely basis, the "Year 2000 Problem"
(that is, the risk that computer applications used by such Obligor may be unable
to recognize and properly perform date-sensitive functions involving certain
dates prior to and any date after December 31, 1999). Based on such review and
program and to the knowledge of each Obligor's respective management, the Year
2000 Problem could not reasonably be expected to have a Material Adverse Effect
on the Company taken as a whole.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower and the Parent agree
with the Agents, the Issuer and each Lender that, until all Commitments have
terminated and all Obligations have been paid and performed in full, the
Borrower and the Parent will perform the obligations set forth in this Section
7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The
Borrower and the Parent will furnish, or will cause to be furnished, to each
Lender and each Agent copies of the following financial statements, reports,
notices and information:
(a) as soon as available and in any event within 60 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year
of the Parent, a consolidated and consolidating balance sheet of the
Parent, the Borrower and each of their respective Subsidiaries as of
the end of such Fiscal Quarter and a consolidated and consolidating
statement of income and consolidated cash flow of the Parent, the
Borrower and each of their respective Subsidiaries for such Fiscal
Quarter and for the period commencing at the end of the previous Fiscal
Year and ending with the end of such Fiscal Quarter, certified by the
Chief Financial Authorized Officer of the Parent;
(b) as soon as available and in any event within 120 days
after the end of each Fiscal Year of the Parent, (i) a copy of the
annual consolidated audit report for such Fiscal Year for each of the
Parent and the Borrower (including therein consolidated balance sheets
of the Parent, the Borrower and its Subsidiaries as of the end of such
Fiscal Year and consolidated statements of income and cash flow of the
Parent, the Borrower and each of their respective Subsidiaries for such
Fiscal Year), in each case certified (without any Impermissible
Qualification) in a manner acceptable to the Agents and the Required
Lenders by an independent public accountant acceptable to the Agents
and the Required Lenders, together with a report from such accountants
containing a computation of, and showing compliance with, each of the
financial ratios and restrictions contained in Section 7.2.4 and to the
effect that, in making the examination necessary for the signing of
such annual report by such accountants, they have not become aware of
any Default in compliance with any of the financial ratios and
restrictions contained in Section 7.2.4 that has occurred and is
continuing, or, if they have become aware of such Default, describing
such Default and the steps, if any, being taken to cure it; and (ii)
unaudited annual consolidating balance sheets of the Parent, the
Borrower and each of their respective Subsidiaries as of the end of
such Fiscal Year and unaudited annual consolidating statements of
income of the Parent, the Borrower and each of their respective
Subsidiaries and an unaudited annual consolidated statement of cash
flow of the Parent;
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(c) as soon as available and in any event within 60 days after
the end of each Fiscal Quarter, a certificate, executed by the Chief
Financial Authorized Officer of the Parent, showing (in reasonable
detail and with appropriate calculations and computations in all
respects satisfactory to the Agents) compliance with the financial
covenants set forth in Section 7.2.4;
(d) as soon as possible and in any event within ten days after
the Borrower has knowledge or should have had knowledge of the
occurrence of each Default, a statement of the Chief Financial
Authorized Officer of the Borrower setting forth details of such
Default and the action which the Parent or the Borrower has taken and
proposes to take with respect thereto;
(e) as soon as possible and in any event within ten days after
(x) the occurrence of any adverse development which is known or should
be known to the Borrower with respect to any litigation, action,
proceeding, or labor controversy described in Section 6.7 or (y) the
commencement of any labor controversy, litigation, action, proceeding
of the type described in Section 6.7, notice thereof and copies of all
documentation relating thereto;
(f) promptly after the sending or filing thereof, copies of
all reports which the Borrower sends to any of its security holders
after any Initial Public Offering or widely distributed private
placement (as referred to in the definition of "Change of Control"
(other than reports and information provided to MCIT or its board of
directors and advisors in conformity with applicable law or MCIT
financial or other requirements), and all reports and registration
statements which the Borrower, the Parent or any of its Subsidiaries
files with the Securities and Exchange Commission or any national
securities exchange;
(g) immediately upon becoming aware of the institution of any
steps by the Borrower or any other Person to terminate any Pension
Plan, or the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a Lien under section
302(f) of ERISA, or the taking of any action with respect to a Pension
Plan which could result in the requirement that the Borrower, the
Parent or any of their respective subsidiaries furnish a bond or other
security to the PBGC or such Pension Plan, or the occurrence of any
event with respect to any Pension Plan which could result in the
incurrence by the Borrower or the Parent of any material liability,
fine or penalty, or any material increase in the contingent liability
of the Borrower with respect to any post-retirement Welfare Plan
benefit, notice thereof and copies of all documentation relating
thereto;
(h) promptly when available and in any event within 60 days
following the end of each Fiscal Year of the Parent, a budget for the
next Fiscal Year of the Parent, prepared in reasonable detail by the
chief accounting, financial or executive Authorized Officer of the
Parent;
(i) such other information respecting the condition or
operations, financial or otherwise, of the Borrower, the Parent or any
of their respective Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request;
(j) a summary income statement of the Parent and the Borrower
for each calendar month occurring after the Third Amended and Restated
Closing Date (i) prior to November 1, 1999, delivered within 45 days
after the last day of such calendar month, and (ii) thereafter,
delivered within 30 days after the last day of such calendar month; and
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(k) on March 11, 2002, a certificate from an Authorized
Officer of each of the Parent and the Borrower, dated as of such date,
in which certificate such Authorized Officer shall certify that all
actions necessary for the continued perfection of the Administrative
Agent's Liens on all Collateral (as defined in each Loan Document) for
the period from the fifth anniversary of the Closing Date until the
Stated Maturity Date for the Term F Loans have been taken (including
all recordings, registerings, filings, re-recordings, re-registerings
and refilings of all financing statements, continuation statements or
other instruments of further assurance as is necessary to ensure such
continued perfection) and (ii) in any event, not later than the date
occurring five months prior to the expiration of five years from the
filing of any Uniform Commercial Code financing statement or
continuation statement naming the appropriate Obligor as the debtor and
the Administrative Agent as the secured party in respect of the
Collateral, the Borrower and the Parent shall file Uniform Commercial
Code financing statements or continuation statements (Form UCC-1 or
Form UCC-3, as appropriate), naming the appropriate Obligors as the
debtor and the Administrative Agent as the secured party, under the
Uniform Commercial Code of all appropriate jurisdiction in order to
continue the perfection of the Secured Parties' security interests in
the Collateral in connection with such Uniform Commercial Code
financing statement or continuation statement previously filed by the
Administrative Agent in such jurisdictions in respect of such
Collateral.
SECTION 7.1.2. Compliance with Laws, etc. The Borrower and the Parent
will, and will cause each of their respective Subsidiaries to, comply in all
material respects with all applicable laws, rules, regulations and orders, such
compliance to include (without limitation):
(a) the maintenance and preservation of its corporate
existence and qualification as a foreign corporation; and
(b) the payment, before the same become delinquent, of all
taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent being diligently contested in good faith
by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.
SECTION 7.1.3. Maintenance of Properties. The Borrower and the Parent
will, and will cause each of its Subsidiaries to, maintain, preserve, protect
and keep its properties in good repair, working order and condition, and make
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times unless
the Borrower determines in good faith that the continued maintenance of any of
its properties is no longer economically desirable and except where the failure
to do so would not have an adverse effect and taken together would not have a
Material Adverse Effect.
SECTION 7.1.4. Insurance. The Borrower and the Parent will, and will
cause each of their respective Subsidiaries to, maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
properties and business against such casualties and contingencies and of such
types and in such amounts as is customary in the case of similar businesses and
with such provisions and endorsements as the Agents may reasonably request and
will, upon request of the Agents, furnish to the Agents and each Lender a
certificate of an Authorized Officer of the Borrower or the Parent setting forth
the nature and extent of all insurance maintained by the Borrower, the Parent
and their Subsidiaries in accordance with this Section.
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SECTION 7.1.5. Books and Records. The Borrower and the Parent will, and
will cause each of their respective Subsidiaries to, keep books and records
which accurately reflect all of its business affairs and transactions and permit
the Agents, the Issuer and each Lender or any of their respective
representatives, at reasonable times and intervals, to visit all of its offices,
to discuss its financial matters with its officers and independent public
accountant (and the Borrower and the Parent hereby authorizes such independent
public accountant to discuss the Borrower's and the Parent's financial matters
with the Agents, the Issuer and each Lender or their representatives whether or
not any representative of the Borrower or the Parent is present) and to examine
(and, at the expense of the Borrower, photocopy extracts from) any of its books
or other corporate records. If a Default under Section 8.1.1 shall exist and be
continuing, the Borrower, upon payment default shall pay any fees of such
independent public accountant incurred in connection with the Issuer's, any
Agent's or any Lender's (one accounting firm for all the Lenders) exercise of
its rights pursuant to this Section, upon payment Default.
SECTION 7.1.6. Environmental Covenant. The Borrower and the Parent
will, and will cause each of their respective Subsidiaries to,
(a) use and operate all of its facilities and properties in
material compliance with all Environmental Laws, obtain and keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and be in
material compliance therewith, and handle all Hazardous Materials in
material compliance with all applicable Environmental Laws;
(b) immediately notify the Agents and provide copies upon
receipt of all written claims, complaints, notices or inquiries
relating to the condition of its facilities and properties or
compliance with Environmental Laws;
(c) diligently and prudently assess the status of
environmental compliance and safety procedures by the Parent, the
Borrower and each of their respective Subsidiaries and take such steps
related to environmental cleanup and remediation and institute and
continue preventative and safety measures, which in each case are
necessary or prudent and reasonable in order to avoid, individually or
in the aggregate, a Material Adverse Effect; and
(d) provide such information and certifications which the
Agents may reasonably request from time to time to evidence compliance
with this Section 7.1.6.
SECTION 7.1.7. Future Subsidiaries. Upon any Person becoming, after the
Initial Closing Date, a Subsidiary of the Borrower (including pursuant to a
Targeted Acquisition), or upon the Borrower or any Subsidiary of the Borrower
acquiring additional Capital Stock of any existing Subsidiary, the Borrower
shall notify the Agents of such acquisition, and
(a) the Borrower shall promptly (but in any event within 10
days) cause such Subsidiary to execute and deliver to the Agents, with
counterparts for each Lender, a supplement to the Subsidiary Guaranty
and a supplement to the Subsidiary Security Agreement (and, if such
Subsidiary owns or leases any real property with a fair market value in
excess of $1,000,000 a Mortgage, and in any event within 60 days),
together with acknowledgment copies of all Form UCC-1s executed and
delivered by the Subsidiary naming the Subsidiary as the debtor and the
Administrative Agent as the secured party, or other similar instruments
or documents, filed under the UCC and any other applicable recording
statutes, in the case of real property, of all jurisdictions as may be
necessary or, in the reasonable opinion of the Agents, desirable to
perfect
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the security interest of the Administrative Agent pursuant to the
Subsidiary Security Agreement or a Mortgage, as the case may be; and
(b) the Borrower shall promptly deliver, or cause to be
delivered, to the Administrative Agent under a Pledge Agreement (or a
supplement thereto) certificates (if any) representing all of the
issued and outstanding shares of Capital Stock of such Subsidiary owned
by the Borrower or any Subsidiary of the Borrower, as the case may be,
along with undated stock powers for such certificates, executed in
blank, or, if any securities subject thereto are uncertificated
securities, confirmation and evidence satisfactory to the Agents that
appropriate book entries have been made in the relevant books or
records of a financial intermediary or the issuer of such securities,
as the case may be, or other appropriate steps shall have been taken
under applicable law resulting in the perfection of the security
interest granted in favor of the Administrative Agent pursuant to the
terms of a Pledge Agreement;
together, in each case, with such opinions, in form and substance and from
counsel reasonably satisfactory to the Agents, as the Agents may reasonably
require; provided, however, that notwithstanding the foregoing, no Non-U.S.
Subsidiary shall be required to execute and deliver a Mortgage, a supplement to
the Subsidiary Guaranty or a supplement to the Security Agreement, nor will the
Borrower or any Subsidiary of the Borrower be required to deliver a pledge
pursuant to a Pledge Agreement in excess of 65% of the total combined voting
power of all classes of Capital Stock of a Non-U.S. Subsidiary entitled to vote.
SECTION 7.1.8. Future Leased Property and Future Acquisitions of Real
Property; Future Acquisition of Other Property. (a) Prior to entering into any
new lease of real property or renewing any existing lease of real property
following the Initial Closing Date, the Borrower shall, and shall cause each of
its U.S. Subsidiaries to, use its best efforts (which shall not require the
expenditure of cash or the making of any material concessions under the relevant
lease) to deliver to the Administrative Agent a Waiver executed by the lessor of
any real property that is to be leased by the Borrower or such U.S. Subsidiary
for a term in excess of one year in any state which by statute grants such
lessor a "landlord's" (or similar) Lien which is superior to the Administrative
Agent's, to the extent the value of any personal property of the Borrower or its
U.S. Subsidiaries to be held at such leased property exceeds (or it is
anticipated that the value of such personal property will, at any point in time
during the term of such leasehold term, exceed) $1,000,000.
(b) In the event that the Borrower or any of its U.S.
Subsidiaries shall acquire or lease any real property having a value as
determined in good faith by the Administrative Agent in excess of
$1,000,000 in the aggregate, the Borrower or the applicable U.S.
Subsidiary shall, promptly (but in any event within 60 days) after such
acquisition, execute a Mortgage and provide the Agents with
(i) evidence of the completion (or satisfactory
arrangements for the completion) of all recordings and filings
of such Mortgage as may be necessary or, in the reasonable
opinion of the Agents, desirable effectively to create a
valid, perfected first priority Lien, subject to Liens
permitted by Section 7.2.3, against the properties purported
to be covered thereby;
(ii) mortgagee's title insurance policies in favor of
the Administrative Agent and the Lenders in amounts and in
form and substance and issued by insurers, reasonably
satisfactory to the Agents, with respect to the property
purported to be covered by such Mortgage, insuring that title
to such property is marketable and that the interests created
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by the Mortgage constitute valid first Liens thereon free and
clear of all defects and encumbrances other than as permitted
under Section 7.2.3 or as approved by the Agents, and such
policies shall also include a revolving credit endorsement and
such other endorsements as the Agents shall request and shall
be accompanied by evidence of the payment in full of all
premiums thereon; and
(iii) such other approvals, opinions, or documents as
the Agents may reasonably request; and
(c) In accordance with the terms and provisions of this
Agreement and the other Loan Documents, provide (within 60 days) the
Agents with evidence of all recordings and filings as may be necessary
or, in the reasonable opinion of the Agents, desirable to create a
valid, perfected first priority Lien, subject to the Liens permitted by
Section 7.2.3, against all property acquired after the Initial Closing
Date (excluding motor vehicles with a replacement value of less than
$100,000).
SECTION 7.1.9. Hedging Obligations. On or prior to September 30, 2000,
the Administrative Agent shall have received evidence satisfactory to it that
the Borrower has entered into an interest rate swap, cap, collar or similar
arrangement designed to protect the Borrower against fluctuations in interest
rates with respect to at least 30% of the aggregate principal amount of the
Additional Term F Loans for a period of at least two years from the date the
initial interest rate protection arrangement was obtained with terms reasonably
satisfactory to the Borrower and the Agents.
SECTION 7.1.10. Use of Proceeds, etc. The Borrower shall apply the
proceeds of the Loans
(a) to make certain payments of the Borrower's obligations
under the Stock Purchase Agreement;
(b) to make certain payments in connection with the
Refinancing, concurrently with the initial Credit Extension made on the
Initial Closing Date, of all Indebtedness identified in Item 7.2.2(b)
of Schedule I to the Original Credit Agreement;
(c) for Capital Expenditures, and general corporate purposes
(including Investments permitted pursuant to clause (h) of Section
7.2.5) and working capital purposes of the Borrower and its
Subsidiaries;
(d) to make the Targeted Acquisitions and to pay related
transaction costs and expenses (provided that the Delayed Term Loans
shall be applied exclusively to such purpose);
(e) to make acquisitions permitted under the Loan Documents
and to pay the related reasonable transaction costs and expenses;
(f) in the case of the Term C Loans, to make the GSI
Acquisition and to pay transaction costs and expenses incurred in
connection with the GSI Acquisition, and for general corporate purposes
and working capital purposes;
(g) in the case of the Term D Loans, to make a loan to Drill
Motor Services, Inc., the Borrower's wholly-owned Subsidiary (which
loan shall be evidenced by a promissory note which has been executed
and delivered to the Administrative Agent under the Borrower Pledge
Agreement) for the purpose of enabling Drill Motor Services, Inc. to
make the AEI Acquisition
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and to pay transaction costs and expenses incurred in connection with
the AEI Acquisition and for general corporate purposes and working
capital purposes;
(h) in the case of the Term E Loans, to prepay the Revolving
Loans in connection with the AEI Acquisition;
(i) in the case of the Existing Term F Loans, to make a loan
to Pathfinder (which loan shall be evidenced by a promissory note which
has been executed and delivered to the Administrative Agent under the
Borrower Pledge Agreement) for the purpose of enabling Pathfinder to
make the Pathfinder Acquisition and to pay transaction costs and
expenses incurred in connection with the Pathfinder Acquisition and for
general corporate purposes and working capital purposes; and
(j) in the case of Additional Term F Loans, for general
corporate purposes.
SECTION 7.1.11. Mortgages, etc. Within 60 days of the Term F Closing
Date, the Borrower shall deliver to the Agents counterparts of each Mortgage
relating to each property with value greater than $1,000,000 listed on Item
7.1.11(a) ("Leased Properties") or Item 7.1.11(b) ("Fee Properties") of the
Disclosure Schedule, duly executed by the Borrower or the applicable U.S.
Subsidiary, and the Administrative Agent (or its designee), together with
(a) evidence of the completion (or satisfactory arrangements
for the completion) of all recordings and filings of such Mortgage as
may be necessary or, in the reasonable opinion of the Agents, desirable
effectively to create a valid, perfected first priority Lien against
the properties listed on Item 7.1.11(a) or Item 7.1.11(b) to the
Disclosure Schedule, each dated as of the date of such delivery,
purported to be covered thereby;
(b) a Waiver executed by the lessor of each Leased Property;
provided that the Borrower shall use its best efforts to deliver such
estoppel letters within such time; and
(c) such other approvals, opinions, or documents as the Agents
may reasonably request.
SECTION 7.1.12. Mobile Assets, etc. (a) Within 60 days after the Term F
Closing Date, the Borrower shall deliver to the Agents such instruments,
documents or other evidence in form and substance satisfactory to the Agents
that the Administrative Agent has, on behalf of the Lenders, a valid, perfected
first priority Lien against the Mobile Assets listed on Item 6.16 of the
Disclosure Schedule; provided, however, that it is agreed that the failure of
the Administrative Agent to so have a valid, perfected first priority Lien
against no more than twenty percent (20%) of the vehicles comprising all such
Mobile Assets shall not constitute an Event of Default for a period of 180 days
after the Initial Closing Date.
(b) In the event that the Borrower or any of its U.S. Subsidiaries
shall acquire any Mobile Assets on or after the Term F Closing Date, the
Borrower or such U.S. Subsidiary shall within 60 days after the acquisition
thereof deliver to the Agents such instruments, documents or other evidence in
form and substance satisfactory to the Agents that the Administrative Agent has,
on behalf of the Lenders, a valid, perfected first priority Lien against such
Mobile Assets.
SECTION 7.1.13. Wells Fargo LC. Upon the earlier of (a) the issuance of
a Letter of Credit the purpose of which is to backstop or replace the Wells
Fargo LC and (b) the termination or expiry of the
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Wells Fargo LC, the Parent shall concurrent with such issuance, replacement,
termination or expiry repay the LC Promissory Note in full in cash.
SECTION 7.1.14. Perfection of Foreign Subsidiary Pledge. Within 60 days
after the Term F Closing Date, the Agents shall have received (i) certificates
evidencing 65% of the issued and outstanding shares of Capital Stock of each of
the Borrower's non-U.S. Subsidiaries, which certificates shall in each case be
accompanied by undated stock powers duly executed in blank and shall be pledged
pursuant to the Borrower Pledge Agreement, and (ii) any and all other documents
or instruments of further assurance required to be filed or customarily provided
in respect thereof in the local jurisdiction of such Non-U.S. Subsidiary,
including but not limited to opinions of counsel; provided, however, that the
Borrower shall not be required to pledge in excess of 65% of the outstanding
voting stock of any Non-U.S. Subsidiary. If any securities pledged pursuant to a
Pledge Agreement are uncertificated securities, the Agents shall have received
confirmation and evidence satisfactory to each of them that appropriate book
entries have been made in the relevant books or records of a financial
intermediary or the issuer of such securities, as the case may be, or other
appropriate steps have been taken under applicable law resulting in the
perfection of the security interest granted in favor of the Administrative Agent
in such securities pursuant to the terms of the applicable Pledge Agreement.
SECTION 7.2. Negative Covenants. The Borrower and the Parent agree with
the Agents, the Issuer and each Lender that, until all Commitments have
terminated and all Obligations have been paid and performed in full, the
Borrower will perform the obligations set forth in this Section 7.2.
SECTION 7.2.1. Business Activities. The Borrower will not, and the
Borrower and the Parent will not permit any of their respective Subsidiaries to,
engage in any business activity, except those described in the first recital and
such activities as may be incidental or related thereto, Permitted Acquisitions
and the Funded Acquisitions. The Parent will not engage in any business
activity, except ownership and operation of the Borrower and related activities
and activities related to the Transaction as provided for in the Transaction
Documents.
SECTION 7.2.2. Indebtedness. The Borrower will not, and the Borrower
and the Parent will not permit any of their respective Subsidiaries to, create,
incur, assume or suffer to exist or otherwise become or be liable in respect of
any Indebtedness, other than, without duplication, the following:
(a) Indebtedness in respect of the Credit Extensions and other
Obligations;
(b) until the Initial Closing Date, Indebtedness identified in
Item 7.2.2(b) of Schedule I to the Original Credit Agreement;
(c) Indebtedness existing as of the Initial Effective Date
which is identified in Item 7.2.2(c) of Schedule I to the Original
Credit Agreement;
(d) Hedging Obligations of the Borrower or any of its
Subsidiaries in respect of the Loans;
(e) Indebtedness in an aggregate principal amount not to
exceed $10,000,000 at any time outstanding which is incurred by the
Borrower or any of its Subsidiaries (x) to a vendor of any assets
permitted to be acquired pursuant to Section 7.2.7 to finance its
acquisition of such assets or (y) in respect of Capitalized Lease
Liabilities to the extent permitted by Section 7.2.7;
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(f) unsecured Indebtedness incurred in the ordinary course of
business (including open accounts extended by suppliers on normal trade
terms in connection with purchases of goods and services, but excluding
Indebtedness incurred through the borrowing of money or Contingent
Liabilities);
(g) Indebtedness not to exceed $10,000,000 (individually or in
the aggregate) incurred in accordance with Section 7.2.5(h), including
seller notes and assumed acquired Person Indebtedness;
(h) Indebtedness of the Borrower to any wholly-owned U.S.
Subsidiary of the Borrower, or Indebtedness of any wholly-owned U.S.
Subsidiary of the Borrower to the Borrower or to any other wholly-owned
U.S. Subsidiary of the Borrower, which intercompany Indebtedness (i)
shall be evidenced by one or more promissory notes in form and
substance satisfactory to the Agents which have been duly executed and
delivered to (and indorsed to the order of) the Administrative Agent in
pledge pursuant to a Pledge Agreement, and (ii) shall not be forgiven
or otherwise discharged for any consideration other than payment
(Dollar for Dollar) in cash unless the Agents shall otherwise consent;
(i) Indebtedness incurred under the MWD Royalty Agreement;
(j) Indebtedness incurred by the Borrower (including the
Borrower Senior Subordinated Debt) or its Subsidiaries (including any
guarantees of the Borrower Senior Subordinated Debt) in connection with
the Targeted Acquisitions, the GSI Acquisition, the AEI Acquisition and
the Pathfinder Acquisition in form, substance and amount satisfactory
to the Agents;
(k) other Indebtedness of the Borrower and its Subsidiaries in
an aggregate amount at any time outstanding not to exceed $5,000,000;
and
(l) Indebtedness which is Refinancing Debt of the Borrower or
its Subsidiaries.
The Parent will not create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(m) the Parent Senior Subordinated Debt (provided, that during
Fiscal Year 2000 the Parent will not issue additional Parent Senior
Subordinated Debt in excess of $3,606,150);
(n) any guaranty of the Borrower Senior Subordinated Debt;
(o) the unsecured Indebtedness incurred pursuant to the
Promissory Notes Issuance;
(p) Refinancing Debt in respect of the Parent Senior
Subordinated Debt;
(q) unsecured Indebtedness in amount not to exceed $3,000,000
(used for the purposes of clause (ii) of the definition of Restricted
Non-Operating Payments) less the aggregate amount of cash Restricted
Payments made pursuant to Section 7.2.6 for such purpose; and
(r) Indebtedness as evidenced by the LC Promissory Note.
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Notwithstanding the foregoing, no Indebtedness otherwise permitted by clause
(e), (g), (j) or (k) shall be permitted if, after giving effect to the
incurrence thereof, any Default shall have occurred and be continuing.
SECTION 7.2.3. Liens. The Borrower will not, and the Borrower and the
Parent will not permit any of their respective Subsidiaries to, create, incur,
assume or suffer to exist any Lien upon any of its property, revenues or assets,
whether now owned or hereafter acquired, except:
(a) Liens securing payment of the Obligations or any Hedging
Obligations owed to any Lenders or any Affiliate of any Lender, granted
pursuant to any Loan Document;
(b) Until the Initial Closing Date, Liens securing payment of
Indebtedness of the type permitted and described in clause (b) of
Section 7.2.2 or which are listed on Item 7.2.2(b) of Schedule I to the
Original Credit Agreement;
(c) Liens granted prior to the Initial Effective Date to
secure payment of Indebtedness of the type permitted and described in
clause (c) of Section 7.2.2;
(d) Liens granted to secure payment of Indebtedness of the
type permitted and described in clause (e) of Section 7.2.2 and
covering only those assets acquired with the proceeds of such
Indebtedness;
(e) Liens for taxes, assessments or other governmental charges
or levies not at the time delinquent or thereafter payable without
penalty or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(f) Liens of carriers, warehousemen, mechanics, materialmen
and landlords incurred in the ordinary course of business for sums not
overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(g) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance
of tenders, statutory obligations, leases and contracts (other than for
borrowed money) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds;
(h) judgment Liens in existence less than 30 days after the
entry thereof or with respect to which execution has been stayed or the
payment of which is covered in full (subject to a customary deductible)
by insurance maintained with responsible insurance companies;
(i) any interest or title of a lessor secured by a lessor's
interest under any lease permitted by this Agreement, or any leases or
subleases granted to others not interfering in any material respect
with the business of the Parent and its Subsidiaries to which the
property subject to such lease or sublease relates;
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(j) Liens securing Indebtedness of the type referred to in
clause (l) or (g) (up to an amount of $5,000,000) or (i) of Section
7.2.2, provided, however, that such Liens do not spread to any other
assets of the Parent, the Borrower or any of their respective
Subsidiaries; and
(k) Liens granted to secure payment of other Indebtedness
permitted under Section 7.2.2 in an aggregate amount at any time
outstanding not to exceed $2,000,000.
The Parent will not create, incur, assume or suffer to exist any lien
upon any of its property, revenues or assets, whether now owned or hereafter
acquired, except:
(l) Liens permitted under clauses (a) and (e) above;
(m) Liens for the benefit of Wells Fargo in respect of cash
deposits securing the Indebtedness set forth in Section 7.2.2(q).
SECTION 7.2.4. Financial Covenants.
(a) Leverage Ratio. The Borrower and the Parent will not
permit the Leverage Ratio as of the end of any Fiscal Quarter ending on or about
any date set forth below or occurring during any period set forth below to be
greater than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Leverage Ratio
- --------------------------------------------------- --------------
<S> <C>
Initial Closing Date through and including 5.25:1
March 31, 1998
June 30, 1998 5.00:1
September 30, 1998 through and including 4.95:1
December 31, 1998
March 31, 1999 through and including 5.75:1
June 30, 1999
September 30, 1999 5.50:1
December 31, 1999 through and including 5.50:1
September 30, 2000
December 31, 2000 4.75:1
March 31, 2001 through and including 4.50:1
September 30, 2001
December 31, 2001 through and including 3.75:1
September 30, 2002
December 31, 2002 and thereafter 3.00:1
</TABLE>
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(b) Interest Coverage Ratio. The Borrower and the Parent will
not permit the Interest Coverage Ratio as of the end of any Fiscal Quarter
ending on or about any date set forth below or occurring during any period set
forth below to be less than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Interest Coverage
Period Ratio
- ------------------------------------------------------ -----------------
<S> <C>
Initial Closing Date through and including March 1.75:1
31, 1998
June 30, 1998 2.00:1
September 30, 1998 through and including 2.00:1
December 31, 1998
March 31, 1999 through and including 1.60:1
June 30, 1999
September 30, 1999 1.70:1
December 31, 1999 through and including 1.75:1
September 30, 2000
December 31, 2000 through and including 2.00:1
September 30, 2001
December 31, 2001 through and including 2.25:1
September 30, 2002
December 31, 2002 and thereafter 2.50:1
</TABLE>
(c) Fixed Charge Coverage Ratio. The Borrower and the Parent
will not permit the Fixed Charge Coverage Ratio as of the end of any Fiscal
Quarter (commencing with the Fiscal Quarter ended December 31, 2000) to be less
than the ratio of 1.00:1.
SECTION 7.2.5. Investments. The Borrower and the Parent will not, and
will not permit any of their respective Subsidiaries to, make, incur, assume or
suffer to exist any Investment in any other Person, except:
(a) Investments existing on the Initial Effective Date and
identified in Item 7.2.5(a) of Schedule I to the Original Credit
Agreement;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as Indebtedness
pursuant to Section 7.2.2;
(d) without duplication, Investments permitted as Capital
Expenditures pursuant to Section 7.2.7;
(e) (w) the Targeted Acquisitions (including all fees and
expenses relating thereto, but excluding the Integrity Warrants) in an
aggregate amount not to exceed $20,000,000, (x) the GSI Acquisition
(including all fees and expenses related thereto but excluding the GSI
Warrant) in an
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aggregate amount not to exceed $10,500,000, (y) the AEI Acquisition
(including all fees and expenses related thereto but excluding the AEI
Warrant) in a net aggregate amount not to exceed $22,500,000 and (z)
the Pathfinder Acquisition (including all reasonable fees and expenses
related thereto) in a net aggregate amount not to exceed $40,000,000;
(f) in the ordinary course of business, Investments by the
Borrower in any of its Subsidiaries, or by any such Subsidiary in any
of its Subsidiaries, by way of contributions to capital;
(g) Investments in the form of loans to officers, directors
and employees of the Borrower and its Subsidiaries for the sole purpose
of purchasing the common stock of the Borrower in an aggregate amount
at any time outstanding not to exceed $3,600,000;
(h) Investments made by the Borrower or any of its
Subsidiaries in an aggregate amount not to exceed $10,000,000 (or
$20,000,000, if the Leverage Ratio is less than 2.50:1 at the end of
the four Fiscal Quarters immediately preceding such investment), which
Investments shall result in the Borrower or the relevant Subsidiary
acquiring (subject to Section 7.2.1) a majority controlling interest in
the Person in which such Investment was made or increasing any such
controlling interest maintained by it in any such Person (such
Investments are collectively referred to as "Permitted Acquisitions");
and
(i) other Investments in an aggregate amount at any one time
not to exceed $5,000,000;
provided, however, that
(j) any Investment which when made complies with the
requirements of the definition of the term "Cash Equivalent Investment"
may continue to be held notwithstanding that such Investment if made
thereafter would not comply with such requirements;
(k) no Investment otherwise permitted under clauses (e) and
(h) shall be permitted unless the Parent and the Borrower would be in
pro forma compliance with the covenants set forth in Section 7.2.4 for
the most recent full Fiscal Quarter immediately preceding the date of
such Investment; and
(l) no Investment otherwise permitted by clauses (c) (except
as it relates to clause (e), (g), (j) or (k) of Section 7.2.2), (e),
(g), (h) or (i), shall be permitted to be made if, immediately before
or after giving effect thereto, any Default shall have occurred and be
continuing.
SECTION 7.2.6. Restricted Payments, etc. On and at all times after the
Initial Effective Date:
(a) the Borrower will not, and the Parent will not permit the
Borrower to, declare, pay or make any dividend or distribution (in
cash, property or obligations) on any shares of any class of Capital
Stock (now or hereafter outstanding) of the Borrower or on any
warrants, options or other rights with respect to any shares of any
class of Capital Stock (now or hereafter outstanding) of the Borrower
(other than dividends or distributions payable in its Capital Stock or
warrants to purchase its Capital Stock or splitups or reclassifications
of its Capital Stock into additional or other shares of its Capital
Stock) or apply, or permit any Subsidiary to apply, any of its funds,
property or assets to the purchase, redemption, sinking fund or other
retirement of, or agree or permit any Subsidiary to purchase or redeem,
any shares of any class of Capital Stock (now or
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hereafter outstanding) of the Borrower, or warrants, options or other
rights with respect to any shares of any class of Capital Stock (now or
hereafter outstanding) of the Borrower;
(b) the Borrower will not, and the Parent will not permit the
Borrower to or permit any Subsidiary to
(i) make any payment or prepayment of principal of,
or make any payment of interest on, any Subordinated Debt on
any day other than the stated, scheduled date for such payment
or prepayment set forth in the documents and instruments
memorializing such Subordinated Debt, or which would violate
the subordination provisions of such Subordinated Debt
(provided, however, that (i) with respect to the Borrower
Senior Subordinated Notes, the Borrower (A) shall (x) for the
interest payment due thereon for the period ended March 31,
2000, only make such interest payment in the form of Borrower
2000 PIK Notes and (y) for the interest payment due thereon
for the period ended September 30, 2000, only make such
interest payment in the form of Borrower 2000 PIK Notes,
unless the Parent consummates an Initial Public Offering
resulting in gross proceeds of at least $50,000,000 prior to
such date and (B) may pay up to an aggregate amount equal to
$175,000 in fees to the holders of the Borrower Senior
Subordinated Notes, and (ii) the aggregate amount of Borrower
2000 PIK Notes issued in Fiscal Year 2000 shall not exceed
$5,071,500); or
(ii) make any Investment in, advances to or fee
payments to the Parent or its Affiliates (other than
Subsidiaries of the Borrower); or
(iii) suffer to exist any Contingent Liabilities of
the Borrower in respect of Indebtedness of the Parent or its
Affiliates; and
(c) the Borrower will not, and the Parent will not permit the
Borrower to or permit any Subsidiary to, make any deposit for any of
the foregoing purposes (the foregoing prohibited acts referred to in
clauses (a), (b) and (c), together with Restricted Non-Operating
Payments, Restricted Operating Payments, Restricted Tax Payments and
Restricted Parent Payments, are collectively referred to as "Restricted
Payments");
provided, however, that
(d) notwithstanding the provisions of clauses (a) and (b)
above, the Borrower shall be permitted to make Restricted Payments to
the Parent to the extent necessary to enable the Parent to make
(i) Restricted Operating Payments included in clause
(i) or (ii) of the definition of Restricted Operating Payments
and Restricted Tax Payments,
(ii) Restricted Non-Operating Payments and Restricted
Operating Payments included in clauses (iii) and (iv) of the
definition of Restricted Operating Payments, so long as no
Default shall have occurred and be continuing (provided, that
all such payments incurred in Fiscal Year 2000 shall accrue
and remain unpaid until the consummation by the Parent of an
Initial Public Offering resulting in gross cash proceeds of at
least $50,000,000),
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(iii) Restricted Parent Payments, so long as (A)
immediately both prior to and after giving effect to such
Restricted Parent Payment, no Default under Section 8.1.1,
Section 8.1.3 (with respect to Section 7.2.6) or Section 8.1.9
shall have occurred and be continuing, (B) after giving effect
to the making of such Restricted Parent Payment, the Borrower
shall be in pro forma compliance with the covenants set forth
in Section 7.2.4, 7.2.5 or 7.2.7 for the most recent full
Fiscal Quarter immediately preceding the date of the payment
of such Restricted Payment for which the relevant financial
information has been delivered pursuant to clause (a) or
clause (b) of Section 7.1.1, (C) after giving effect to the
making of such Restricted Parent Payment, the Restricted
Coverage Ratio shall be at least 1.2:1, and (D) an Authorized
Officer of the Borrower shall have delivered a certificate to
the Agents in form and substance satisfactory to the Agents
(including a calculation of the Borrower's compliance with the
covenants set forth in Section 7.2.4) certifying as to the
accuracy of clauses (d)(iii)(A), (d)(iii)(B) and (d)(iii)(C)
above (provided, however, that the Borrower shall not make
Restricted Parent Payments (x) for the interest payment due on
the Parent Senior Subordinated Debt for the period ended March
31, 2000 or (y) for the interest payment due on the Parent
Senior Subordinated Debt for the period ended September 30,
2000, unless the Parent comsummates an Initial Public Offering
resulting in gross proceeds of at least $50,000,000 prior to
such date), and
(iv) payments up to an aggregate amount equal to
$120,000 in fees to the holders of Parent Senior Subordinated
Debt.
SECTION 7.2.7. Capital Expenditures, etc. The Borrower and the Parent
will not, and will not permit any of their respective Subsidiaries to, make or
commit to make Capital Expenditures in any period, except Capital Expenditures
which do not aggregate in excess of the amount set forth below opposite such
period:
<TABLE>
<CAPTION>
Period Amount
- ----------------------------------------------- -----------
<S> <C>
Initial Closing Date through and including
September 30, 1997 $ 3,000,000
twelve months ended September 30, 1998 $21,500,000
twelve months ended December 31, 1999 $15,000,000
twelve months ended December 31, 2000 $20,000,000
twelve months ended December 31, 2001 $17,500,000
twelve months ended December 31, 2002 $17,500,000
twelve months ended December 31, 2003 and
each twelve month period thereafter $20,000,000
</TABLE>
provided, however, that to the extent the amount of Capital Expenditures
permitted to be made in any period pursuant to this Section exceeds the
aggregate amount of Capital Expenditures actually made during such period, up to
100% of such excess amount (except with respect to the period from the Initial
Closing Date through September 30, 1997, such excess amount shall not exceed
$1,000,000) may be carried
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forward to (but only to) the next succeeding period (any such amount to be
certified by the Borrower to the Agents in the Compliance Certificate delivered
for the last Fiscal Quarter of such period, and any such amount carried forward
to a succeeding period shall be deemed to be used after the Borrower, the Parent
and their respective Subsidiaries using the amount of Capital Expenditures
permitted by this Section without giving effect to such carry-forward).
Notwithstanding the above proviso, the permitted amount of Capital Expenditures
for the twelve-month period ended December 31, 1999 shall be $15,000,000.
SECTION 7.2.8. Consolidation, Merger, etc. The Borrower and the Parent
will not, and will not permit any of their respective Subsidiaries to, liquidate
or dissolve, consolidate with, or merge into or with, any other corporation, or
purchase or otherwise acquire all or substantially all of the assets of any
Person (or of any division thereof) except
(a) any such Subsidiary of the Borrower may liquidate or
dissolve voluntarily into, and may merge with and into, the Borrower
(so long as the Borrower is the surviving corporation in any such
combination or merger) or any other Subsidiary, and the assets or stock
of any Subsidiary may be purchased or otherwise acquired by the
Borrower or any other Subsidiary; and
(b) so long as no Default has occurred and is continuing or
would occur after giving effect thereto, the Borrower or any of its
Subsidiaries may purchase all or substantially all of the assets of any
Person other than the Parent, or acquire such Person by merger, if
permitted hereunder.
SECTION 7.2.9. Asset Dispositions, etc. The Borrower and the Parent
will not, and will not permit any of their respective Subsidiaries to, sell,
transfer, lease, contribute or otherwise convey, or grant options, warrants or
other rights with respect to, all or any substantial part of its assets
(including accounts receivable and Capital Stock of their respective
Subsidiaries) to any Person, unless
(a) such sale, transfer, lease, contribution or conveyance is
in the ordinary course of its business (including with respect to any
"lost in the hole" assets or assets damaged beyond repair or not
returned) or is permitted by Section 7.2.8; or
(b) (i) such sale, transfer, lease or other disposition is for
fair market value and the consideration consists of not less than 80%
in cash and Marketable Securities, (ii) the Net Disposition Proceeds
received for such assets, together with the Net Disposition Proceeds of
all other assets sold, transferred, leased, contributed or conveyed
otherwise than in the ordinary course of business by the Borrower or
any of its Subsidiaries pursuant to this clause since the Initial
Effective Date, does not exceed $20,000,000, and (iii) except to the
extent provided in the proviso to the definition of "Capital
Expenditures", the Net Disposition Proceeds generated from such sale,
transfer, lease or other disposition are applied as Net Disposition
Proceeds to prepay the Loans or for reinvestment by the Borrower
pursuant to the terms of Section 3.1.
SECTION 7.2.10. Modification of Certain Agreements. The Borrower will
not consent to any amendment, supplement or other modification adverse to the
Lenders of any of the terms or provisions contained in, or applicable to, the
TJC Management Consulting Fee Agreement, the TJC Transaction Advisory Agreement,
any Recapitalization Document, any Senior Subordinated Debt Document, or any
document or instrument evidencing or applicable to any Subordinated Debt, other
than any amendment, supplement or other modification which extends the date or
reduces the amount of any required repayment or redemption.
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SECTION 7.2.11. Transactions with Affiliates. The Borrower and the
Parent will not, and will not permit any of their respective Subsidiaries to,
enter into, or cause, suffer or permit to exist any arrangement or contract with
any of its other Affiliates, unless such arrangement or contract is fair and
equitable to the Borrower, the Parent or such Subsidiary and is an arrangement
or contract of the kind which would be entered into by a prudent Person in the
position of the Borrower, the Parent or such Subsidiary with a Person which is
not one of its Affiliates; provided, however, that the Parent may enter into the
TJC Management Consulting Fee Agreement and the TJC Transaction Advisory
Agreement, the Parent Promissory Notes and the LC Promissory Notes as in effect
on the date hereof.
SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. The
Borrower and the Parent will not, and will not permit any of their respective
Subsidiaries to, enter into any agreement (excluding this Agreement, any other
Loan Document, the Parent Senior Subordinated Notes as in effect on the date
hereof, the Borrower Senior Subordinated Debt Documents as in effect on the date
hereof, and as to the assets financed with the proceeds of such Indebtedness any
agreement governing any Indebtedness permitted either by clause (b) of Section
7.2.2 as in effect on the Initial Effective Date or by clause (e) or (g) of
Section 7.2.2) prohibiting
(a) the creation or assumption of any Lien upon its
properties, revenues or assets, whether now owned or hereafter
acquired, or the ability of the Borrower or any other Obligor to amend
or otherwise modify this Agreement or any other Loan Document; or
(b) the ability of any Subsidiary of the Borrower to make any
payments, directly or indirectly, to the Borrower by way of dividends,
advances, repayments of loans or advances, reimbursements of management
and other intercompany charges, expenses and accruals or other returns
on investments, or any other agreement or arrangement which restricts
the ability of any such Subsidiary to make any payment, directly or
indirectly, to the Borrower.
SECTION 7.2.13. Sale and Leaseback. The Borrower and the Parent will
not, and will not permit any of their respective Subsidiaries to, enter into any
agreement or arrangement with any other Person providing for the leasing by the
Borrower, the Parent or any of their respective Subsidiaries of real or personal
property having a fair market value of more than $500,000 in the aggregate at
any time outstanding which has been or is to be sold or transferred by the
Borrower, or Parent or any of their respective Subsidiaries to such other Person
or to any other Person to whom funds have been or are to be advanced by such
Person on the security of such property or rental obligations of the Borrower or
any of its Subsidiaries.
SECTION 7.2.14. Accounting Changes. The Borrower and the Parent will
not, and will not permit any of their respective Subsidiaries to, change their
respective Fiscal Years from the period of twelve consecutive calendar months
ending on December 31.
SECTION 7.2.15. Subsidiaries. The Parent shall not own any Capital
Stock other than that of the Borrower.
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ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following events
or occurrences described in this Section 8.1 shall constitute an "Event of
Default".
SECTION 8.1.1. Non-Payment of Obligations. (a) The Borrower shall
default in the payment or prepayment when due of any principal of any Loan, (b)
the Borrower shall default (and such default shall continue unremedied for a
period of five days) in the payment when due of any interest on any Loan, (c)
the Borrower or any other Obligor shall default (and such default shall continue
unremedied for a period of five days) in the payment when due of any fee,
deposit or of any other Obligation, or (d) the Parent or any Subsidiary
Guarantor shall default in the payment when due of any amounts under the
Guaranty to which it is a party.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of
the Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to the Agents or any Lender
for the purposes of or in connection with this Agreement or any such other Loan
Document (including any certificates delivered pursuant to Article V) is or
shall be incorrect when made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower shall default in the due performance and observance of any of its
obligations under Section 7.1.9, Section 7.1.10, Section 7.1.11, Section 7.1.12
or Section 7.2 or, if such default shall continue for 10 days, Section 7.1.4.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. The
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan Document
executed by it, and such default shall continue unremedied for a period of 30
days after notice thereof shall have been given to the Borrower by the Agent or
any Lender.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur (a)
with respect to any Senior Subordinated Debt or (b) in the payment when due
(subject to any applicable grace period), whether by acceleration or otherwise,
of any other Indebtedness (other than Indebtedness described in Section 8.1.1)
of the Borrower or any of its Subsidiaries or any other Obligor having a
principal amount, individually or in the aggregate, in excess of $3,500,000, or
a default shall occur in the performance or observance of any obligation or
condition with respect to such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or such default shall continue
unremedied for any applicable period of time sufficient to permit the holder or
holders of such Indebtedness, or any trustee or agent for such holders, to cause
such Indebtedness to become due and payable prior to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of
money in excess of $3,500,000 shall be rendered against the Borrower or any of
its Subsidiaries or any other Obligor and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or
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(b) there shall be any period of 10 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
SECTION 8.1.7. Pension Plans. Any of the following events shall occur
with respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member
of its Controlled Group or any other Person to terminate a Pension Plan
if, as a result of such termination, the Borrower or any such member
could be required to make a contribution to such Pension Plan, or could
reasonably expect to incur a liability or obligation to such Pension
Plan, in excess of $3,500,000; or
(b) a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 8.1.8. Control of the Borrower. Any Change in Control shall
occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of its
Subsidiaries or any other Obligor shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, debts as they become
due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Borrower
or any of its Subsidiaries or any other Obligor or any property of any
thereof, or make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or
acquiescence, permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Borrower or any of
its Subsidiaries or any other Obligor or for a substantial part of the
property of any thereof, and such trustee, receiver, sequestrator or
other custodian shall not be discharged within 60 days, provided that
the Borrower, each Subsidiary and each other Obligor hereby expressly
authorizes the Administrative Agent and each Lender to appear in any
court conducting any relevant proceeding during such 60-day period to
preserve, protect and defend their rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of the Borrower or any
of its Subsidiaries or any other Obligor, and, if any such case or
proceeding is not commenced by the Borrower or such Subsidiary or such
other Obligor, such case or proceeding shall be consented to or
acquiesced in by the Borrower or such Subsidiary or such other Obligor
or shall result in the entry of an order for relief or shall remain for
60 days undismissed, provided that the Borrower, each Subsidiary and
each other Obligor hereby expressly authorizes the Administrative Agent
and each Lender to appear in any court conducting any such case or
proceeding during such 60-day period to preserve, protect and defend
their rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of
the foregoing.
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SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto (with respect to
property with a replacement cost individually or in the aggregate in excess of
$1,000,000); the Borrower, any other Obligor or any other party shall, directly
or indirectly, contest in any manner such effectiveness, validity, binding
nature or enforceability; any Lien securing any Obligation shall, in whole or in
part, cease to be a perfected first priority Lien, subject only to those
exceptions expressly permitted by such Loan Document; the subordination
provisions contained in the documents and instruments memorializing Subordinated
Debt (including the Borrower Senior Subordinated Debt Documents and the Parent
Senior Subordinated Debt Documents) shall, in whole or in part, terminate, cease
to be effective or cease to be the legally valid, binding and enforceable
obligation of any holder of such Subordinated Debt or of any party to such
documents or instruments; or any such holder or party shall, directly or
indirectly, contest in any manner such effectiveness, validity, binding nature
or enforceability of such subordination provisions.
SECTION 8.1.11. Subordinated Debt. The Borrower, the Parent or any of
their respective Subsidiaries shall:
(a) redeem, repurchase or defease any Subordinated Debt (other
than a Permitted Redemption), whether or not such redemption,
repurchase or defeasance was required by the terms of the documents and
instruments memorializing such Subordinated Debt; or
(b) take any action authorizing, or in furtherance of, any
such redemption, purchase or defeasance (including the providing of
notice to any Person in anticipation of any such redemption, purchase
or defeasance and the making of any deposit for the purpose of any such
redemption, purchase or defeasance).
SECTION 8.2. Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.9 shall occur with respect to the
Borrower or any Subsidiary or any other Obligor, the Commitments (if not
theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of Section
8.1.9 with respect to the Borrower or any Subsidiary or any other Obligor) shall
occur for any reason, whether voluntary or involuntary, and be continuing, the
Administrative Agent, upon the direction of the Required Lenders, shall by
notice to the Borrower declare all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
Commitments (if not theretofore terminated) to be terminated, whereupon the full
unpaid amount of such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand or presentment, and/or, as the case may be, the Commitments shall
terminate.
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ARTICLE IX
THE AGENTS
SECTION 9.1. Actions. Each Lender hereby appoints DLJ as its
Syndication Agent and as its Administrative Agent under and for purposes of this
Agreement and each other Loan Document. Each Lender authorizes the Agents to act
on behalf of such Lender under this Agreement and each other Loan Document and,
in the absence of other written instructions from the Required Lenders received
from time to time by the Agents (with respect to which each Agent agrees that it
will comply, except as otherwise provided in this Section or as otherwise
advised by counsel), to exercise such powers hereunder and thereunder as are
specifically delegated to or required of the Agents by the terms hereof and
thereof, together with such powers as may be reasonably incidental thereto. Each
Lender hereby indemnifies (which indemnity shall survive any termination of this
Agreement) the Agents, pro rata according to such Lender's Percentage, from and
against any and all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time be imposed on,
incurred by, or asserted against, any of the Agents in any way relating to or
arising out of this Agreement and any other Loan Document, including reasonable
attorneys' fees, and as to which any Agent is not reimbursed by the Borrower;
provided, however, that no Lender shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, claims, costs or expenses
which are determined by a court of competent jurisdiction in a final proceeding
to have resulted solely from such Agent's gross negligence or wilful misconduct.
The Agents shall not be required to take any action hereunder, under any other
Loan Document, or to prosecute or defend any suit in respect of this Agreement
or any other Loan Document, unless they are indemnified hereunder to their
satisfaction. If any indemnity in favor of any Agent shall be or become, in such
Agent's determination, inadequate, such Agent may call for additional
indemnification from the Lenders and cease to do the acts indemnified against
hereunder until such additional indemnity is given.
SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent
shall have been notified by telephone, confirmed in writing, by any Lender by
5:00 p.m., New York time, on the day prior to a Borrowing or disbursement with
respect to a Letter of Credit pursuant to Section 2.6.2 that such Lender will
not make available the amount which would constitute its Percentage of such
Borrowing on the date specified therefor, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent and,
in reliance upon such assumption, make available to the Borrower a corresponding
amount. If and to the extent that such Lender shall not have made such amount
available to the Administrative Agent, such Lender and the Borrower severally
agree to repay the Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date the
Administrative Agent made such amount available to the Borrower to the date such
amount is repaid to the Administrative Agent, at the interest rate applicable at
the time to Loans comprising such Borrowing.
SECTION 9.3. Exculpation. None of the Agents nor any of their
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under this Agreement or any other Loan
Document, or in connection herewith or therewith, except for its own wilful
misconduct or gross negligence, nor responsible for any recitals or warranties
herein or therein, nor for the effectiveness, enforceability, validity or due
execution of this Agreement or any other Loan Document, nor for the creation,
perfection or priority of any Liens purported to be created by any of the Loan
Documents, or the validity, genuineness, enforceability, existence, value or
sufficiency of any collateral security, nor to make any inquiry respecting the
performance by the Borrower of its obligations hereunder or under any other Loan
Document. Any such inquiry which may be made by any Agent shall not obligate it
to make any further inquiry or to take any action. The Agents shall be entitled
to rely upon advice of counsel
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concerning legal matters and upon any notice, consent, certificate, statement or
writing which the Agents believe to be genuine and to have been presented by a
proper Person.
SECTION 9.4. Successor. The Syndication Agent may resign upon one
Business Day's notice to the Borrower and the Administrative Agent. The
Administrative Agent may resign as such at any time upon at least 30 days' prior
notice to the Borrower and all Lenders. If the Administrative Agent at any time
shall resign, the Required Lenders may appoint another Lender as a successor
Administrative Agent which shall thereupon become the Administrative Agent
hereunder. If no successor Administrative Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Administrative Agent's giving notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be one of the Lenders or a commercial banking
institution organized under the laws of the U.S. (or any State thereof) or a
U.S. branch or agency of a commercial banking institution, and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall be entitled to receive from the
retiring Administrative Agent such documents of transfer and assignment as such
successor Administrative Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges and duties of
the retiring Administrative Agent, and the retiring Administrative Agent shall
be discharged from its duties and obligations under this Agreement. After any
retiring Administrative Agent's resignation hereunder as the Administrative
Agent, the provisions of
(a) this Article IX shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the
Administrative Agent under this Agreement; and
(b) Section 10.3 and Section 10.4 shall continue to inure to
its benefit.
SECTION 9.5. Loans or Letters of Credit Issued by the Issuer. The
Administrative Agent shall have the same rights and powers with respect to (x)
the Loans made by it or any of its Affiliates, (y) the Notes held by it or any
of its Affiliates, and (z) its participating interests in the Letters of Credit
as any other Lender and may exercise the same as if it were not the
Administrative Agent. The Administrative Agent and its Affiliates may accept
deposits from, lend money to, and generally engage in any kind of business with
the Borrower or any Subsidiary or Affiliate of the Borrower as if the
Administrative Agent were not the Administrative Agent hereunder.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has,
independently of the Agents, the Lead Arranger and each other Lender, and based
on such Lender's review of the financial information of the Parent, the
Borrower, this Agreement, the other Loan Documents (the terms and provisions of
which being satisfactory to such Lender) and such other documents, information
and investigations as such Lender has deemed appropriate, made its own credit
decision to extend its Commitments. Each Lender also acknowledges that it will,
independently of the Agents, the Lead Arranger and each other Lender, and based
on such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.
SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt
notice to each Lender of each notice or request required or permitted to be
given to the Administrative Agent by the Borrower pursuant to the terms of this
Agreement (unless concurrently delivered to the Lenders by the Borrower). The
Administrative Agent will distribute to each Lender each document or instrument
received for its
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account and copies of all other communications received by the Administrative
Agent from the Borrower for distribution to the Lenders by the Administrative
Agent in accordance with the terms of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Required Lenders; provided, however, that
no such amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular
action be taken by all the Lenders or by the Required Lenders shall be
effective unless consented to by each Lender;
(b) modify this Section 10.1 or clause (a) of Section 10.10,
change the definition of "Required Lenders", increase any Commitment
Amount or the Percentage of any Lender, reduce any fees described in
Article III, release any Subsidiary Guarantor from its obligations
under the Subsidiary Guaranty (except pursuant to a disposition of such
Subsidiary Guarantor in accordance with clause (b) of Section 7.2.9),
release the Parent from its obligations under the Parent Guaranty or
release all or substantially all of the collateral security (except as
otherwise specifically provided in any Loan Document) or extend any
Commitment Termination Date, shall be made without the consent of each
Lender adversely affected thereby and each holder of a Note adversely
affected thereby;
(c) extend the due date for, or reduce the amount of, any
scheduled repayment of principal of or interest on or fees payable in
respect of any Loan or any Reimbursement Obligations shall be made
without the consent of the holder of that Note evidencing such Loan or,
in the case of a Reimbursement Obligation, the Issuer owed, and those
Lenders participating in, such Reimbursement Obligation;
(d) affect adversely the interests, rights or obligations of
any Agent, Issuer or the Lead Arranger (in its capacity as Agent,
Issuer or the Lead Arranger), unless consented to by such Agent, Issuer
or the Lead Arranger, as the case may be; or
(e) amend, modify or waive the provisions of clause (a)(i) of
Section 3.1.1 or clause (b) of Section 3.1.2 or effect any amendment,
modification or waiver that by its terms adversely affects the rights
of Lenders participating in any Tranche differently from those of
Lenders participating in other Tranches, without the consent of the
holders of the Notes evidencing at least 51% of the aggregate amount of
Loans outstanding under the Tranche or Tranches affected by such
modification, or, in the case of a modification affecting the Revolving
Loan Commitment Amount or the Delayed Term Loan Commitment Amount, the
Lenders holding at least 51% of the Revolving Loan Commitments or the
Delayed Term Loan Commitments, as applicable.
No failure or delay on the part of any Agent, the Issuer, any Lender or the
holder of any Note in exercising any power or right under this Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise
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thereof or the exercise of any other power or right. No notice to or demand on
the Borrower in any case shall entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by any Agent, the Issuer, any Lender
or the holder of any Note under this Agreement or any other Loan Document shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
For purposes of this Section 10.1, the Syndication Agent, in
coordination with the Administrative Agent, shall have primary responsibility,
together with the Borrower, in the negotiation, preparation, and documentation
relating to any amendment, modification or waiver of this Agreement, any other
Loan Document or any other agreement or document related hereto or thereto
contemplated pursuant to this Section.
SECTION 10.2. Notices. All notices and other communications provided to
any party under this Agreement or any other Loan Document shall be in writing or
by facsimile and addressed, delivered or transmitted to such party (a) in the
case of any Lender, to the Lender in care of the Administrative Agent at its
address or facsimile number set forth on Schedule II hereto, (b) in the case of
any Agent, at its address or facsimile number set forth on Schedule II hereto,
and (c) in the case of Borrower, at its address or facsimile number set forth on
Schedule II hereto, or, in any case, at such address or facsimile number as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid or if properly addressed and
sent by pre-paid courier service, shall be deemed given when received; any
notice, if transmitted by facsimile, shall be deemed given when transmitted
(receipt acknowledged).
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay
on demand all expenses of each of the Agents and the Lead Arranger (including
the reasonable fees and out-of-pocket expenses of counsel to the Agents and of
local counsel, if any, who may be retained by counsel to the Agents) in
connection with
(a) the syndication by the Syndication Agent and the Lead
Arranger of the Loans, the negotiation, preparation, execution and
delivery of this Agreement and of each other Loan Document, including
schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other Loan
Document as may from time to time hereafter be required, whether or not
the transactions contemplated hereby are consummated;
(b) the filing, recording, refiling or rerecording of each
Mortgage, each Pledge Agreement and each Security Agreement and/or any
UCC financing statements relating thereto and all amendments,
supplements and modifications to any thereof and any and all other
documents or instruments of further assurance required to be filed or
recorded or refiled or rerecorded by the terms hereof or of such
Mortgage, Pledge Agreement or Security Agreement; and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Agents, the Issuer and the
Lenders harmless from all liability for, any stamp or other taxes which may be
payable in connection with the execution or delivery of this Agreement, the
borrowings hereunder, the issuance of the Notes, the issuance of the Letters of
Credit, or any other Loan Documents. The Borrower also agrees to reimburse the
Agents, the Issuer and each
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Lender upon demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses) incurred by such Agent, the Issuer or such
Lender in connection with (x) the negotiation of any restructuring or
"work-out", whether or not consummated, of any Obligations and (y) the
enforcement of any Obligations.
SECTION 10.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds each Agent, the Issuer,
the Lead Arranger and each Lender and each of their respective officers,
directors, partners, trustees, employees and agents (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan or the use
of any Letter of Credit;
(b) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties (including
any action brought by or on behalf of the Borrower as the result of any
determination by the Required Lenders pursuant to Article V not to make
any Credit Extension);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any
Person, whether or not the Agent or such Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to
the protection of the environment or the Release by the Borrower or any
of its Subsidiaries of any Hazardous Material; or
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary thereof of
any Hazardous Material (including any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any
Environmental Law), regardless of whether caused by, or within the
control of, the Borrower or such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. Each Obligor and its permitted successors and
assigns hereby waive, release and agree not to make any claim, or bring any cost
recovery action against, any Agent, the Lead Arranger or any Lender under CERCLA
or any state equivalent, or any similar law now existing or hereafter enacted,
except to the extent arising out of the gross negligence or wilful misconduct of
any Indemnified Party. It is expressly understood and agreed that to the extent
that any of such Persons is strictly liable under any Environmental Laws, such
Obligor's obligation to such Person under this indemnity shall likewise be
without regard to fault on the part of such Obligor, to the extent permitted
under applicable law, with respect to the violation or condition which results
in liability of such Person. If and to the extent that the foregoing undertaking
may be unenforceable for any reason, the Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
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SECTION 10.5. Survival. (a) Notwithstanding the execution and delivery
of this Agreement by the parties hereto, the obligations of the Borrower under
Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4 of the Existing Credit Agreement, and
the obligations of the Lenders under Sections 4.8 and 9.1 of the Existing Credit
Agreement, shall in each case survive the execution and delivery of this
Agreement and the occurrence of the Fourth Amended and Restated Effective Date.
The representations and warranties made by each Obligor in the Existing Credit
Agreement and in each other Loan Document delivered in connection therewith
shall survive the execution and delivery of this Agreement, each such other Loan
Document and the occurrence of the Fourth Amended and Restated Effective Date.
(b) The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.6,
10.3 and 10.4, and the obligations of the Lenders under Sections 4.8 and 9.1,
shall in each case survive any termination of this Agreement, the payment in
full of all Obligations and the termination of all Commitments. The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION 10.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be deemed to be an original and all of which shall constitute
together but one and the same agreement. This Agreement shall become effective
when counterparts hereof executed on behalf of the Borrower and the Required
Lenders (including Lenders holding at least 51% of the aggregate amount of each
of the Revolving Loans and Existing Term F Loans) (or notice thereof
satisfactory to the Agent) shall have been received by the Agents and notice
thereof shall have been given by the Administrative Agent to the Borrower and
each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT AND EACH
OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. Subject to Section
10.5(a), this Agreement and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersede any prior agreements, written or oral, with respect thereto.
SECTION 10.10. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
(a) the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of each of the
Agents and all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders
are subject to Section 10.11.
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SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans
and Commitments to one or more other Persons in accordance with this Section
10.11.
SECTION 10.11.1. Assignments. Any Lender,
(a) with the written consents of the Borrower, the Agents and
(in the case of any assignment of participations in Letters of Credit
or Revolving Loan Commitments) the Issuer and the Swing Line Lender
(which consents shall not be unreasonably delayed or withheld and which
consents of the Agents, the Issuer and the Swing Line Lender shall not
be required in the case of assignments to or by DLJ or any of its
Affiliates) may at any time assign and delegate to one or more
commercial banks, funds which are regularly engaged in making,
purchasing or investing in loans or securities or other financial
institutions, and
(b) with notice to the Borrower, the Agents and (in the case
of any assignment of participations in Letters of Credit or Revolving
Loan Commitments) the Issuer, but without the consent of the Borrower,
the Agents, the Issuer or the Swing Line Lender, may assign and
delegate to any of its Affiliates, to any other Lender or to an
Approved Fund of any Lender
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans,
participations in Letters of Credit and Letter of Credit Outstandings with
respect thereto and Commitments (which assignment and delegation shall be, as
among Revolving Loan Commitments, Revolving Loans and participations in Letters
of Credit, of a constant, and not a varying, percentage) in a minimum aggregate
amount of $2,500,000; provided, however, that any such Assignee Lender will
comply, if applicable, with the provisions contained in the penultimate
paragraph of Section 4.6 and provided, further, however, that the Borrower, each
other Obligor and the Agents shall be entitled to continue to deal solely and
directly with such Lender in connection with the interests so assigned and
delegated to an Assignee Lender until
(c) written notice of such assignment and delegation, together
with payment instructions, addresses and related information with
respect to such Assignee Lender, shall have been given to the Borrower
and the Agents by such Lender and such Assignee Lender,
(d) such Assignee Lender shall have executed and delivered to
the Borrower and the Agents a Lender Assignment Agreement, accepted by
the Agents, and
(e) the processing fees described below shall have been paid.
From and after the date that the Agents accept such Lender Assignment Agreement
(and, if applicable, the information set forth therein is recorded in the
Register), (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Lender in connection
with such Lender Assignment Agreement, shall have the rights and obligations of
a Lender hereunder and under the other Loan Documents, and (y) the assignor
Lender, to the extent that rights and obligations hereunder have been assigned
and delegated by it in connection with such Lender Assignment Agreement, shall
be released from its obligations hereunder and under the other Loan Documents.
Within five Business Days after its receipt of notice that the Administrative
Agent has received an executed Lender Assignment Agreement, the Borrower shall
execute and deliver to the Administrative Agent (for delivery to the relevant
Assignee
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Lender) new Notes evidencing such Assignee Lender's assigned Loans and
Commitments and, if the assignor Lender has retained Loans and Commitments
hereunder, replacement Notes in the principal amount of the Loans and
Commitments retained by the assignor Lender hereunder (such Notes to be in
exchange for, but not in payment of, those Notes then held by such assignor
Lender). Each such Note shall be dated the date of the predecessor Notes. The
assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to
the Borrower. Accrued interest on that part of the predecessor Notes evidenced
by the new Notes, and accrued fees, shall be paid as provided in the Lender
Assignment Agreement. Accrued interest on that part of the predecessor Notes
evidenced by the replacement Notes shall be paid to the assignor Lender. Accrued
interest and accrued fees shall be paid at the same time or times provided in
the predecessor Notes and in this Agreement. Such assignor Lender or such
Assignee Lender (excluding any Agent) must also pay a processing fee to the
Administrative Agent upon delivery of any Lender Assignment Agreement in the
amount of $3,500; provided, that any assignments made by DLJ to any assignee of
Additional Term F Loans pursuant to the primary syndication thereof shall not
require payment of such processing fee. Any attempted assignment and delegation
not made in accordance with this Section 10.11.1 shall be null and void.
Nothing contained in this Section 10.11.1 shall prevent or prohibit any
Lender from pledging its rights (but not its obligations to make Loans or
participate in Letters of Credit or Letter of Credit Outstandings) under this
Agreement and/or its Loans and/or its Notes hereunder (i) to a Federal Reserve
Bank in support of borrowings made by such Lender from such Federal Reserve
Bank, or (ii) in the case of a Lender that is an investment fund, to its trustee
in support of its obligations to its trustee, in either case without notice to
or consent of the Borrower or the Agents; provided, however, that (A) such
Lender shall remain a "Lender" under this Agreement and shall continue to be
bound by the terms and conditions set forth in this Agreement and the other Loan
Documents, and (B) any assignment by such trustee shall be subject to the
provisions of this Section 10.11.1. No such pledge by any Lender shall be
required to comply with the provisions of this Section 10.11.1, and no such
pledge shall be null and void by reason of the failure to so comply.
SECTION 10.11.2. Participations. Any Lender may at any time sell to one
or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "Participant") participating interests in
any of the Loans, Commitments, participations in Letters of Credit and Letter of
Credit Outstandings or other interests of such Lender hereunder; provided,
however, that
(a) no participation contemplated in this Section 10.11 shall
relieve such Lender from its Commitments or its other obligations
hereunder or under any other Loan Document;
(b) such Lender shall remain solely responsible for the
performance of its Commitments and such other obligations;
(c) the Borrower and each other Obligor and the Agents shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and each
of the other Loan Documents;
(d) no Participant, unless such Participant is an Affiliate of
such Lender, or is itself a Lender, shall be entitled to require such
Lender to take or refrain from taking any action hereunder or under any
other Loan Document, except that such Lender may agree with any
Participant that such Lender will not, without such Participant's
consent, take any actions of the type described in clause (b) or (c) of
Section 10.1, and
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(e) the Borrower shall not be required to pay any amount under
Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4 that is greater than the
amount which it would have been required to pay had no participating
interest been sold.
The Borrower acknowledges and agrees that, subject to clause (e) above, each
Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and
10.4, shall be considered a Lender.
SECTION 10.11.3. Assignment of Registered Notes. A Registered Note and
the Loans evidenced thereby may be assigned or otherwise transferred in whole or
in part pursuant to the terms of Section 10.11.1 and only by registration of
such assignment or transfer of such Registered Note and the Loans evidenced
thereby on the Register (and each Registered Note shall expressly so provide).
Any assignment or transfer of all or part of such Loans and the Registered
Note(s) evidencing the same shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Registered Note(s)
evidencing such Loans, duly endorsed by (or accompanied by a written instrument
of assignment or transfer duly executed by) the Registered Noteholder thereof,
and thereupon one or more new Registered Note(s) in the same aggregate principal
amount shall be issued to the designated Assignee Lender, and the old Registered
Note shall be returned by the Administrative Agent to the Borrower marked
"canceled". Prior to the due presentment for registration of assignment or
transfer of any Registered Note, the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Note(s) evidencing
the same is registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding any notice to the
contrary.
SECTION 10.12. Other Transactions. Nothing contained herein shall
preclude any Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
SECTION 10.13. Parent Guaranty.
SECTION 10.13.1. Guaranty. The Parent hereby absolutely,
unconditionally and irrevocably:
(a) guarantees the full and punctual payment when due, whether
at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise, of all Obligations of the Borrower now or
hereafter existing, whether for principal, interest, fees, expenses or
otherwise (including all such amounts which would become due but for
the operation of the automatic stay under Section 362(a) of the United
States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of
Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. Section 502(b) and Section 506(b)); and
(b) indemnifies and holds harmless each Secured Party and each
holder of a Note for any and all costs and expenses (including
reasonable attorney's fees and expenses) incurred by such Secured Party
or such holder, as the case may be, in enforcing any rights under the
guaranty set forth in this Section 10.13.
The guaranty set forth in this Section 10.13 constitutes a guaranty of payment
when due and not of collection, and the Parent specifically agrees that it shall
not be necessary or required that any Secured Party or any holder of any Note
exercise any right, assert any claim or demand or enforce any remedy whatsoever
against the Borrower or any other Obligor (or any other Person) before or as a
condition to the obligations of the Parent under the guaranty set forth in this
Section 10.13.
-95-
<PAGE> 103
SECTION 10.13.2. Acceleration of Parent Guaranty. The Parent agrees
that, in the event of the dissolution or insolvency of the Borrower, any other
Obligor or the Parent, or the inability or failure of the Borrower, any other
Obligor or the Parent to pay debts as they become due, or an assignment by the
Borrower, any other Obligor or the Parent for the benefit of creditors, or the
commencement of any case or proceeding in respect of the Borrower, any other
Obligor or the Parent under any bankruptcy, insolvency or similar laws, and if
such event shall occur at a time when any of the Obligations of the Borrower and
each other Obligor may not then be due and payable, the Parent agrees that it
will pay to the Administrative Agent for the account of the Secured Parties
forthwith the full amount which would be payable under the guaranty set forth in
this Section 10.13 by the Parent if all such Obligations were then due and
payable.
SECTION 10.13.3. Guaranty Absolute, etc. The guaranty set forth in this
Section 10.13 shall in all respects be a continuing, absolute, unconditional and
irrevocable guaranty of payment, and shall remain in full force and effect until
all Obligations of the Borrower and each other Obligor have been paid in full in
cash, all obligations of the Parent under the guaranty set forth in this Section
10.13 shall have been paid in full in cash, all Letters of Credit have been
terminated or expired and all Commitments shall have terminated. The Parent
guarantees that the Obligations of the Borrower will be paid strictly in
accordance with the terms of this Agreement and each other Loan Document under
which they arise, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of any
Secured Party or any holder of any Note with respect thereto. The liability of
the Parent under the guaranty set forth in this Section 10.13 shall be absolute,
unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of this
Agreement or any other Loan Document;
(b) the failure of any Secured Party or any holder of any
Note:
(i) to assert any claim or demand or to enforce any
right or remedy against the Borrower, any other Obligor or any
other Person (including any other guarantor (including the
Parent or any Subsidiary Guarantor)) under the provisions of
this Agreement, any other Loan Document or otherwise; or
(ii) to exercise any right or remedy against any
other guarantor (including the Parent or any Subsidiary
Guarantor) of, or collateral securing, any Obligations of the
Borrower;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of the Borrower, or
any other extension, compromise or renewal of any Obligation of the
Borrower;
(d) any reduction, limitation, impairment or termination of
any Obligations of the Borrower for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be
subject to (and the Parent hereby waives any right to or claim of) any
defense or setoff, counterclaim, recoupment or termination whatsoever
by reason of the invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or occurrence
affecting, any Obligations of the Borrower or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
this Agreement or any other Loan Document;
-96-
<PAGE> 104
(f) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty, held by any Secured Party or any holder of any Note securing
any of the Obligations of the Borrower; or
(g) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the
Borrower, any surety or any guarantor.
SECTION 10.13.4. Reinstatement, etc. The Parent agrees that the
guaranty set forth in this Section 10.13 shall continue to be effective or be
reinstated, as the case may be, if at any time any payment (in whole or in part)
of any of the Obligations is rescinded or must otherwise be restored by any
Secured Party or any holder of any Note, upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 10.13.5. Waiver, etc. The Parent hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations of the Borrower and the guaranty set forth in this Section 10.13 and
any requirement that the Administrative Agent, any other Secured Party or any
holder of any Note protect, secure, perfect or insure any security interest or
Lien, or any property subject thereto, or exhaust any right or take any action
against the Borrower, any other Obligor or any other Person (including any other
guarantor) or entity or any collateral securing the Obligations of the Borrower.
SECTION 10.13.6. Postponement of Subrogation, etc. The Parent agrees
that it will not exercise any rights which it may acquire by way of rights of
subrogation under the guaranty set forth in this Section 10.13, by any payment
made under the guaranty set forth in this Section 10.13 or otherwise, until the
prior payment in full in cash of all Obligations of the Borrower and each other
Obligor, the termination or expiration of all Letters of Credit and the
termination of all Commitments. Any amount paid to the Parent on account of any
such subrogation rights prior to the payment in full in cash of all Obligations
of the Borrower and each other Obligor shall be held in trust for the benefit of
the Secured Parties and each holder of a Note and shall immediately be paid to
the Administrative Agent for the benefit of the Secured Parties and each holder
of a Note and credited and applied against the Obligations of the Borrower and
each other Obligor, whether matured or unmatured, in accordance with the terms
of this Agreement; provided, however, that if:
(a) the Parent has made payment to the Secured Parties and
each holder of a Note of all or any part of the Obligations of the
Borrower; and
(b) all Obligations of the Borrower and each other Obligor
have been paid in full in cash, all Letters of Credit have been
terminated or expired and all Commitments have been permanently
terminated;
each Secured Party and each holder of a Note agrees that, at the Parent's
request, the Administrative Agent, on behalf of the Secured Parties and the
holders of the Notes, will execute and deliver to the Parent appropriate
documents (without recourse and without representation or warranty) necessary to
evidence the transfer by subrogation to the Parent of an interest in the
Obligations of the Borrower resulting from such payment by the Parent. In
furtherance of the foregoing, for so long as any Obligations or Commitments
remain outstanding, the Parent shall refrain from taking any action or
commencing any proceeding against the Borrower (or its successors or assigns,
whether in connection with a bankruptcy proceeding or otherwise) to recover any
amounts in the respect of payments made under the guaranty set forth in this
Section 10.13 to any Secured Party or any holder of a Note.
-97-
<PAGE> 105
SECTION 10.13.7. Successors, Transferees and Assigns; Transfers of
Notes, etc. The guaranty set forth in this Section 10.13 shall:
(a) be binding upon the Parent, and its successors,
transferees and assigns; and
(b) inure to the benefit of and be enforceable by the
Administrative Agent and each other Secured Party.
Without limiting the generality of the foregoing clause (b), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all rights and benefits in respect thereof granted
to such Lender under any Loan Document (including the guaranty set forth in this
Section 10.13) or otherwise, subject, however, to any contrary provisions in
such assignment or transfer, and to the provisions of Section 10.11 and Article
IX.
SECTION 10.14. Independence of Covenants. All covenants contained in
this Agreement and each other Loan Document shall be given independent effect
such that, in the event a particular action or condition is not permitted by any
of such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not, unless
expressly so provided in such first covenant, avoid the occurrence of a Default
or an Event of Default if such action is taken or such condition exists.
SECTION 10.15. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE
LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR
-98-
<PAGE> 106
ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.16. Waiver of Jury Trial. THE AGENTS, THE ISSUER, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE ISSUER, THE LENDERS OR
THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENTS, THE ISSUER AND THE LENDERS ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
-99-
<PAGE> 107
Fourth Amended and Restated Credit Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
PERF-O-LOG, INC.
By /s/ JEFFREY TEPERA
---------------------------------------------
Name: Jeffrey L. Tepera
Title: Vice President and Chief Financial
Officer
W-H ENERGY SERVICES, INC.
By /s/ JEFFREY TEPERA
---------------------------------------------
Name: Jeffrey L. Tepera
Title: Vice President and Chief Financial
Officer
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent
By /s/ DANA KLEIN
---------------------------------------------
Name: Dana F. Klein
Title: Senior Vice President
BNY ASSET SOLUTIONS LLC,
as Administrative Agent
By /s/ C. DAVID TURNER
---------------------------------------------
Name: C. David Turner
Title: Senior Vice President
S-1
<PAGE> 108
Fourth Amended and Restated Credit Agreement
ARCHIMEDES FUNDING, L.L.C., as Lender
By: ING Capital Advisors, LLC, as Collateral
Manager
By /s/ KURT WEGLIETNER
-----------------------------------------
Name: Kurt Weglietner
Title: Vice President and Portfolio
Manager
S-2
<PAGE> 109
Fourth Amended and Restated Credit Agreement
ARCHIMEDES FUNDING II, LTD., as Lender
By: ING Capital Advisors, LLC, as Collateral
Manager
By /s/ KURT WEGLIETNER
-----------------------------------------
Name: Kurt Weglietner
Title: Vice President and Portfolio
Manager
S-3
<PAGE> 110
Fourth Amended and Restated Credit Agreement
THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND,
L.P., as Lender
By: ING Capital Advisors, LLC, as Investment
Advisor
By /s/ KURT WEGLIETNER
-----------------------------------------
Name: Kurt Weglietner
Title: Vice President and Portfolio
Manager
S-4
<PAGE> 111
Fourth Amended and Restated Credit Agreement
FLEET NATIONAL BANK, f/k/a
BANKBOSTON, N.A., as Lender
By /s/ PETER VAN DER HURST
----------------------------------------
Name: Peter van der Hurst
Title: Vice President
S-5
<PAGE> 112
Fourth Amended and Restated Credit Agreement
BHF (USA) CAPITAL CORPORATION,
as Lender
By /s/ ERIC EMMERT
----------------------------------------
Name: Eric Emmert
Title: Associate
By /s/ PERRY FORMAN
----------------------------------------
Name: Perry Forman
Title: Vice President
S-6
<PAGE> 113
Fourth Amended and Restated Credit Agreement
DLJ CAPITAL FUNDING, INC.,
as Lender
By /s/ DANA F. KLIEN
----------------------------------------
Name: Dana F. Klien
Title: Senior Vice President
S-7
<PAGE> 114
Fourth Amended and Restated Credit Agreement
FLEET CAPITAL CORPORATION, as Lender
By /s/ JOHN W. STANESCKI
----------------------------------------
Name: John W. Stanescki
Title: Vice President
S-8
<PAGE> 115
Fourth Amended and Restated Credit Agreement
MERRILL LYNCH PRIME RATE PORTFOLIO, as
Lender
By: Merrill Lynch Asset Management, L.P.,
As Investment Advisor
By /s/ PAUL TRAVERS
--------------------------------------
Name: Paul Travers
Title: Authorized Signatory
S-9
<PAGE> 116
Fourth Amended and Restated Credit Agreement
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC., as Lender
By /s/ PAUL TRAVERS
--------------------------------------------
Name: Paul Travers
Title: Authorized Signatory
16876057
S-10
<PAGE> 117
Fourth Amended and Restated Credit Agreement
ML CLO XII PILGRIM AMERICA (CAYMAN) LTD. (as
assignee), as Lender
By: PILGRIM INVESTMENTS, INC.,
as its Investment Manager
By /s/ CHARLES E. LEMIEUX
----------------------------------------
Name: Charles E. LeMieux
Title: Assistant Vice President
S-11
<PAGE> 118
Fourth Amended and Restated Credit Agreement
PILGRIM PRIME RATE TRUST, as Lender
By: PILGRIM INVESTMENTS, INC.,
as its Investment Manager
By /s/ CHARLES F. LEMIEUX
-----------------------------------------
Name: Charles F. LeMieux, CFA
Title: Assistant Vice President
S-12
<PAGE> 119
Fourth Amended and Restated Credit Agreement
BALANCED HIGH-YIELD FUND I LTD., as Lender
By: BHF (USA) CAPITAL CORPORATION, as
attorney-in-fact
By /s/ PERRY FORMAN
--------------------------------------------
Name: Perry Forman
Title: Vice President
By /s/ ERIC EMMERT
--------------------------------------------
Name: Eric Emmert
Title: Associate
S-13
<PAGE> 120
Fourth Amended and Restated Credit Agreement
CAPTIVA III FINANCE, LTD., as Lender
As Advised by Pacific Investment Management Company
By /s/ DAVID DYER
-------------------------------------------------
Name: David Dyer
Title: Director
S-14
<PAGE> 121
Fourth Amended and Restated Credit Agreement
CYPRESSTREE INSTITUTIONAL FUND, LLC,
as Lender
By: CypressTree Investment Management Company, Inc.,
its Managing Member
By /s/ JEFFREY W. HEUER
-------------------------------------------------
Name: Jeffrey W. Heuer
Title: Principal
S-15
<PAGE> 122
Fourth Amended and Restated Credit Agreement
DELANO COMPANY, as Lender
By: Pacific Investment Management Company, as its
Investment Advisor
By: PIMCO Management Inc., a general partner
By /s/ RAYMOND KENNEDY
----------------------------------------------
Name: Raymond Kennedy
Title: Senior Vice President
S-16
<PAGE> 123
Fourth Amended and Restated Credit Agreement
ROYALTON COMPANY, as Lender
By: Pacific Investment Management Company, as its
Investment Advisor
By /s/ RAYMOND KENNEDY
-----------------------------------------------
Name: Raymond Kennedy
Title: Senior Vice President
S-17
<PAGE> 124
Fourth Amended and Restated Credit Agreement
MORGAN STANLEY SENIOR FUNDING, INC.,
as Lender
By /s/ KEVIN O'MALLEY
----------------------------------------------
Name: Kevin O'Malley
Title: Vice President
S-18
<PAGE> 125
Fourth Amended and Restated Credit Agreement
CAPTIVA FINANCE LTD., as Lender
By /s/ JOHN H. CULLIHANE
----------------------------------------------
Name: John H. Cullihane
Title: Director
S-19
<PAGE> 126
Fourth Amended and Restated Credit Agreement
KZH CYPRESSTREE-1 LLC, as Lender
By /s/ PETER CHIN
----------------------------------------------
Name: Peter Chin
Title: Authorized Agent
S-20
<PAGE> 127
Fourth Amended and Restated Credit Agreement
KZH PAMCO LLC
By /s/ PETER CHIN
---------------------------------------------
Name: Peter chin
Title: Authorized Agent
S-21
<PAGE> 128
Fourth Amended and Restated Credit Agreement
ACKNOWLEDGED and AGREED to
as of the day and year first above written:
AGRI-EMPRESA, INC.
AGRI-EMPRESA TRANSPORTATION, INC.
CHARLES HOLSTON, INC.
DRILL MOTOR SERVICES, INC.
DIAMOND WIRELINE SERVICES, INC.
GRINDING AND SIZING COMPANY, INC.
INTEGRITY SERVICES, INC.
STG TRANSPORTATION, INC.
THOMAS ENERGY SERVICES, INC.
WELL SAFE, INC.
PATHFINDER ENERGY SERVICES, INC.
DYNA-DRILL TECHNOLOGIES, INC.
By /s/ JEFFREY L. TEPERA
------------------------------------
Name: Jeffrey L. Tepera
Title: Vice-President / C.F.O.
S-22
<PAGE> 129
ANNEX I
AMORTIZATION SCHEDULE
THE TERM A FACILITY
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
December 31, 1997 $ 250,000
March 31, 1998 $ 250,000
June 30, 1998 $ 250,000
September 30, 1998 $ 250,000
December 31, 1998 $ 500,000
March 31, 1999 $ 500,000
June 30, 1999 $ 500,000
September 30, 1999 $ 500,000
December 31, 1999 $ 750,000
March 31, 2000 $ 750,000
June 30, 2000 $ 750,000
September 30, 2000 $ 750,000
December 31, 2000 $ 1,500,000
March 31, 2001 $ 1,500,000
June 30, 2001 $ 1,500,000
September 30, 2001 $ 1,500,000
December 31, 2001 $ 2,000,000
March 31, 2002 $ 2,000,000
June 30, 2002 $ 2,000,000
Stated Maturity Date $ 2,000,000
-------------------
Total $ 20,000,000
===================
</TABLE>
<PAGE> 130
THE TERM B FACILITY
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
December 31, 1997 $ 100,000
March 31, 1998 $ 100,000
June 30, 1998 $ 100,000
September 30, 1998 $ 100,000
December 31, 1998 $ 100,000
March 31, 1999 $ 100,000
June 30, 1999 $ 100,000
September 30, 1999 $ 100,000
December 31, 1999 $ 100,000
March 31, 2000 $ 100,000
June 30, 2000 $ 100,000
September 30, 2000 $ 100,000
December 31, 2000 $ 100,000
March 31, 2001 $ 100,000
June 30, 2001 $ 100,000
September 30, 2001 $ 100,000
December 30, 2001 $ 100,000
March 31, 2002 $ 100,000
June 30, 2002 $ 100,000
September 30, 2002 $ 100,000
December 31, 2002 $ 100,000
March 31, 2003 $ 100,000
June 30, 2003 $ 100,000
Stated Maturity Date $ 37,700,000
-------------------
Total $ 40,000,000
===================
</TABLE>
<PAGE> 131
THE DELAYED TERM FACILITY*/
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
March 31, 1998 $ 37,500
June 30, 1998 $ 37,500
September 30, 1998 $ 37,500
December 31, 1998 $ 37,500
March 31, 1999 $ 37,500
June 30, 1999 $ 37,500
September 30, 1999 $ 37,500
December 31, 1999 $ 37,500
March 31, 2000 $ 37,500
June 30, 2000 $ 37,500
September 30, 2000 $ 37,500
December 31, 2000 $ 37,500
March 31, 2001 $ 37,500
June 30, 2001 $ 37,500
September 30, 2001 $ 37,500
December 30, 2001 $ 37,500
March 31, 2002 $ 37,500
June 30, 2002 $ 37,500
September 30, 2002 $ 37,500
December 31, 2002 $ 37,500
March 31, 2003 $ 37,500
June 30, 2003 $ 37,500
Stated Maturity Date $ 14,175,000
-------------------
Total $ 15,000,000
===================
</TABLE>
- --------
*/ If the aggregate principal amount of Delayed Term Loans borrowed or prior
to the Delayed Term Loan Commitment Termination Date (the "Original Delayed
Term Loan Amount") is less than the Delayed Term Loan Commitment Amount as
in effect on the Closing Date, then each amount (an "Amortization Amount")
set forth above shall be revised to reflect an amount equal to the product
of (a) such Amortization Amount multiplied by (b) the quotient of (i) the
Original Delayed Term Loan Amount divided by (ii) the Delayed Term Loan
Commitment Amount.
<PAGE> 132
THE TERM C FACILITY
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
June 30, 1998 $ 25,000
September 30, 1998 $ 25,000
December 31, 1998 $ 25,000
March 31, 1999 $ 25,000
June 30, 1999 $ 25,000
September 30, 1999 $ 25,000
December 31, 1999 $ 25,000
March 31, 2000 $ 25,000
June 30, 2000 $ 25,000
September 30, 2000 $ 25,000
December 31, 2000 $ 25,000
March 31, 2001 $ 25,000
June 30, 2001 $ 25,000
September 30, 2001 $ 25,000
December 30, 2001 $ 25,000
March 31, 2002 $ 25,000
June 30, 2002 $ 25,000
September 30, 2002 $ 25,000
December 31, 2002 $ 25,000
March 31, 2003 $ 25,000
June 30, 2003 $ 25,000
Stated Maturity Date $ 9,475,000
-------------------
Total $ 10,000,000
===================
</TABLE>
<PAGE> 133
THE TERM D FACILITY
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
December 31, 1998 $ 62,500
March 31, 1999 $ 62,500
June 30, 1999 $ 62,500
September 30, 1999 $ 62,500
December 31, 1999 $ 62,500
March 31, 2000 $ 62,500
June 30, 2000 $ 62,500
September 30, 2000 $ 62,500
December 31, 2000 $ 62,500
March 31, 2001 $ 62,500
June 30, 2001 $ 62,500
September 30, 2001 $ 62,500
December 30, 2001 $ 62,500
March 31, 2002 $ 62,500
June 30, 2002 $ 62,500
September 30, 2002 $ 62,500
December 31, 2002 $ 62,500
March 31, 2003 $ 62,500
June 30, 2003 $ 62,500
September 30, 2003 $ 62,500
December 31, 2003 $ 62,500
March 31, 2004 $ 62,500
June 30, 2004 $ 62,500
September 30, 2004 $ 62,500
Stated Maturity Date $ 23,500,000
-------------------
Total $ 25,000,000
===================
</TABLE>
<PAGE> 134
THE TERM E FACILITY
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
December 31, 1998 $ 25,000
March 31, 1999 $ 25,000
June 30, 1999 $ 25,000
September 30, 1999 $ 25,000
December 31, 1999 $ 25,000
March 31, 2000 $ 25,000
June 30, 2000 $ 25,000
September 30, 2000 $ 25,000
December 31, 2000 $ 25,000
March 31, 2001 $ 25,000
June 30, 2001 $ 25,000
September 30, 2001 $ 25,000
December 30, 2001 $ 25,000
March 31, 2002 $ 25,000
June 30, 2002 $ 25,000
September 30, 2002 $ 25,000
December 31, 2002 $ 25,000
March 31, 2003 $ 25,000
June 30, 2003 $ 25,000
September 30, 2003 $ 25,000
December 31, 2003 $ 25,000
March 31, 2004 $ 25,000
June 30, 2004 $ 25,000
September 30, 2004 $ 25,000
Stated Maturity Date $ 9,400,000
-------------------
Total $ 10,000,000
===================
</TABLE>
<PAGE> 135
THE TERM F FACILITY
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL
QUARTERLY PAYMENT DATE REPAYMENT
- -------------------------- -------------------
<S> <C>
June 30, 1999 $ 37,500
September 30, 1999 $ 37,500
December 31, 1999 $ 37,500
March 31, 2000 $ 37,500
June 30, 2000 $ 83,750
September 30, 2000 $ 83,750
December 31, 2000 $ 83,750
March 31, 2001 $ 83,750
June 30, 2001 $ 83,750
September 30, 2001 $ 83,750
December 31, 2001 $ 83,750
March 31, 2002 $ 83,750
June 30, 2002 $ 83,750
September 30, 2002 $ 83,750
December 31, 2002 $ 83,750
March 31, 2003 $ 83,750
June 30, 2003 $ 83,750
September 30, 2003 $ 83,750
December 31, 2003 $ 83,750
March 31, 2004 $ 83,750
June 30, 2004 $ 83,750
September 30, 2004 $ 83,750
December 31, 2004 $ 83,750
March 31, 2005 $ 83,750
Stated Maturity Date $ 31,675,000
-------------------
Total $ 33,500,000
===================
</TABLE>
SCHEDULE I
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED TJC TRANSACTION ADVISORY AGREEMENT
THIS AMENDED AND RESTATED TJC TRANSACTION ADVISORY AGREEMENT
("Agreement"), is executed as of the 26th day of March 1999 by and among TJC
Management Corp., a Delaware corporation (the "Consultant"), W-H Energy
Services, Inc., a Texas corporation (the "Company"), Agri-Empresa, Inc., a Texas
corporation ("AEI"), Agri-Empresa Transportation, Inc., a Texas corporation
("AET"), STG Transportation, a Texas corporation ("STG"), Grinding and Sizing
Co., Inc., a Texas corporation ("GSC"), Pathfinder Energy Services, Inc., a
Louisiana corporation ("PES"), Integrity Industries, Inc., a Texas corporation
("III"), Diamond Wireline Services, a Texas corporation ("DWS"), Drill Motor
Services, Inc., a Louisiana corporation ("DMS"), Charles Holston, Inc., a
Louisiana corporation ("CHI"), Perf-O-Log, Inc., a Texas corporation ("POL"),
Thomas Tools, Inc., a Louisiana corporation ("TT"), and Well Safe, Inc., a Texas
corporation ("WSI")(AEI, AET, STG, GSC, PES, III, DWS, DMS, CHI, POL, TT and WSI
each are referred to as a "Subsidiary" and collectively as the "Subsidiaries").
W I T N E S S E T H
WHEREAS, the Consultant, the Company and certain of its subsidiaries
were party to the TJC Transaction Advisory Agreement, dated as of August 11,
1997 (the "Original Agreement"), and the parties have agreed to amend and
restate the Original Agreement;
WHEREAS, the Consultant has and/or has access to personnel who are
highly skilled in the field of rendering advice to businesses and financial
advice to the Company;
WHEREAS, the Board of Directors of the Company has been made fully
aware of the relationships of certain members of the Company's Board of
Directors to the Consultant;
WHEREAS, the Company's Board of Directors has reviewed in detail and
discussed the terms and provisions of this Agreement and the fairness of this
Agreement and whether more favorable agreements for the Company could be
obtained from unaffiliated third parties; and
WHEREAS, on the basis of its review of this Agreement, the Board of
Directors of the Company deemed it advisable and in the best interests of the
Company and necessary to the conduct, promotion, and attainment of the business
objectives of the Company that the Company retain Consultant to provide
business and financial advice to the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto do hereby agree
as follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to render
consulting services from
<PAGE> 2
time to time to the Company and its direct and indirect Subsidiaries (whether
now existing or hereafter acquired) in connection with their acquisitions,
divestitures and investments, their financial and business affairs, their
relationships with their lenders, stockholders and other third-party associates
or affiliates, and the expansion of their businesses. Consultant shall render
such services to the Company and/or its direct and indirect Subsidiaries in
good faith and in accordance with professional standards and applicable law.
The term of this Agreement shall commence the date hereof and continue until
December 31, 2007, unless extended, or sooner terminated, as provided in
Section 5 below. The Consultant's personnel shall be reasonably available to
the Company's managers, auditors and other personnel for consultation and
advice pursuant to this Agreement, subject to Consultant's reasonable
convenience and scheduling. Services may be rendered at the Consultant's
offices or at such other locations selected by the Consultant as the Company
and the Consultant shall from time to time agree.
2. (a) Subject to Section 4 hereof, the Company shall pay to the
Consultant (i) an investment banking and sponsorship fee of two percent (2%) of
the aggregate consideration paid (including non-competition, earnout, contingent
purchase price, incentive arrangements and similar payments)(A) by the Company
and/or its direct and indirect Subsidiaries in connection with the acquisition
by the Company and/or its direct and indirect Subsidiaries of all or
substantially all of the outstanding capital stock, warrants, options or other
rights to acquire or sell capital stock, or all or substantially all of the
business or assets of another individual, corporation, partnership or other
business entity, (B) by the Company and/or its direct and indirect Subsidiaries
in connection with any joint venture or other minority investment, or (C) to the
Company in connection with the sale by the Company of all or substantially all
of the Company's and/or its direct and indirect Subsidiaries outstanding capital
stock, warrants, options, or other rights to acquire or sell stock, or all or
substantially all of the business or assets of the Company and/or its direct and
indirect Subsidiaries (each of the transactions described in clauses (A), (B)
and (C), a "Transaction"), including, but not limited to, any Transaction
negotiated for the Company involving any affiliate of the Company or the
Consultant, including, but not limited to, any Transaction involving the
Consultant, Jordan Industries, Inc., JII, Inc., JI Partners Limited Partnership,
The Jordan Company, JZ Equity Partners PLC, Jordan/Zalaznick Capital Company,
Leucadia National Corporation or any affiliates of any of the foregoing
(collectively, the "Jordan Affiliates"); and (ii) a financial consulting fee of
one percent (1%) of the amount obtained or made available pursuant to any debt,
equity or other financing (including without limitation, and refinancing) by the
Company and/or its direct and indirect Subsidiaries with the assistance of
Consultant, including, but not limited to, any financing obtained for the
Company and/or its Subsidiaries from one or more of the Jordan Affiliates.
Notwithstanding and in addition to the foregoing, if the Consultant renders
services to the Company outside the ordinary course of business, the Company
shall pay an additional amount equal to the value of such extraordinary services
rendered by the Consultant as may be separately agreed to between the Consultant
and the Company.
(b) In recognition of the services rendered by the Consultant in
connection with the evaluation, negotiation, financing and closing of (x) the
Acquisition of certain business, assets and technology from Halliburton Energy
Services, Inc. pursuant to an Asset Purchase
-2-
<PAGE> 3
Agreement, dated as of January 22, 1999, as amended by Amendment No. 1 thereto,
dated as of March 26, 1999, (y) the issuance of Senior Subordinated Notes due
2006 of POL, and Warrants of the Company to DLJ Merchant Banking Partners II,
L.P. and its affiliated funds pursuant to a Subscription Agreement, dated as of
March 26, 1999, among the Company, POL, DLJ Merchant Banking Partners II,
L.P., and such affiliated funds, on or about the date hereof, and (z) the
additional term loan F under the Third Amended and Restated Credit Agreement
referenced in paragraph 10(j) below, the Company will pay Consultant a fee of
$500,000, such amount to be in lieu of any fees that may otherwise be payable
pursuant to this Section 2 in connection with the transactions contemplated
thereby.
3. The Company shall promptly reimburse Consultant for out-of-pocket
expenses (including, without limitation, an allocable amount of the Consultant's
overhead expenses, attributable to the Company and its direct and indirect
Subsidiaries, determined on actual usage, percentage or revenue or such other
basis as Consultant may determine), incurred by the Consultant and its personnel
in performing services hereunder to the Company and its direct and indirect
Subsidiaries upon the Consultant rendering a statement therefor, together with
supporting data as the Company shall reasonably require.
4. Notwithstanding the foregoing, the Company shall not be required to
pay the fees under Section 2, (a) if and to the extent expressly prohibited by
the provisions of any credit, stock, financing or other agreements or
instruments binding upon the Company, its Subsidiaries or properties, (b) if the
Company has not paid cash interest on any interest payment date or has postponed
or not made any principal payments with respect to any of their indebtedness on
any scheduled payments dates, or (c) if the Company has not paid cash dividends
on any dividend payment date as set forth in its certificate of incorporation or
as declared by its Board of Directors, or has postponed or not made any
redemptions on any redemption date as set forth in its certificate of
incorporation or any certificate of designation with respect to its preferred
stock, if any. Any payments otherwise owed hereunder, which are not made for any
of the above-mentioned reasons, shall not be canceled but rather accrue, and
shall be payable by the Company promptly when, and to the extent, that the
Company is no longer prohibited from making such payments and when the Company
has become current with respect to such principal or interest payments, has
become current with respect to such dividends and has made such redemptions with
respect to such preferred stock, if any. Any payment required hereunder which is
not paid when due shall bear interest at the rate of ten percent (10)% per
annum. This Section 4 will not, in any event, restrict or limit the Company's
obligations under Sections 3, 8, and 9, which will be absolute and not subject
to set-off.
5. This Agreement shall be automatically renewed for successive
one-year terms starting December 31, 2007 unless either party hereto, within
sixty (60) days prior to the scheduled renewal date, notifies the other party as
to its election to terminate this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated by not less than ninety (90) days' prior written
notice from the Company to the Consultant at any time after (a) substantially
all of the stock or substantially all of the assets of the Company or all of its
Subsidiaries are sold to an entity unaffiliated with the Consultant and/or a
majority of the Company stockholders
-3-
<PAGE> 4
immediately prior to the sale or (b) the Company is merged or consolidated into
another entity unaffiliated with the Consultant and/or a majority of the
Company's stockholders immediately prior to such merger and the Company is not
the survivor of such transaction.
6. The Consultant shall have no liability to the Company on account of
(i) any advice which it renders to the Company or any of its direct or indirect
Subsidiaries, provided the Consultant believed in good faith that such advice
was useful or beneficial to the Company or any of its direct or indirect
Subsidiaries at the time it was rendered, or (ii) the Consultant's inability to
obtain financing or achieve other results desired by the Company (or any of its
direct or indirect Subsidiaries) or Consultant's failure to render services to
the Company at any particular time or from time to time, or (iii) the failure of
any Transaction to meet the financial, operating, or other expectations of the
Company or any of its direct or indirect Subsidiaries. The Company's and any of
its direct or indirect Subsidiaries' sole remedy for any claim under this
Agreement shall be termination of this Agreement.
7. Notwithstanding anything contained in this Agreement to the
contrary, the Company agrees and acknowledges for itself and on behalf of its
direct and indirect Subsidiaries that the Consultant, the Jordan Affiliates and
their respective shareholders, partners, employees, directors and agents intend
to engage and participate in acquisitions and business transactions outside of
the scope of the relationship created by this Agreement and neither the
Consultant, any of the Jordan Affiliates nor any of their respective
shareholders, partners, employees, directors or agents shall be under any
obligation whatsoever to make such acquisitions or business transactions through
the Company or any of its direct or indirect Subsidiaries or offer such
acquisitions or business transactions to the Company or any of its direct or
indirect Subsidiaries.
8. The Company will, and will cause each of its direct and indirect
Subsidiaries to, indemnify and hold harmless to the fullest extent permitted by
applicable law, the Consultant, its affiliates and associates, each of the
Jordan Affiliates, and each of the respective owners, partners, officers,
directors, employees and agents of each of the foregoing, from and against any
loss, liability, damage, claim or expenses (including the fees and expenses of
counsel) arising as a result or in connection with this Agreement, the
Consultant's services hereunder or other activities on behalf of the Company and
its direct and indirect Subsidiaries.
9. Any payments paid by the Company under this Agreement shall not be
subject to set-off and shall be increased by the amount, if any, of any taxes
(other than income taxes) or other governmental charges levied in respect of
such payments, so that the Consultant is made whole for such taxes or charges.
10. (a) This Agreement sets forth the entire understanding of the
parties with respect to the Consultant's rendering of services to the Company.
This Agreement may not be modified, waived, terminated or amended except
expressly by an instrument in writing signed by the Consultant and the Company.
-4-
<PAGE> 5
(b) This Agreement may be assigned by Consultant to any of its
subsidiaries or affiliates without the consent of the Company, provided,
however, such assignment shall not relieve such party from its obligations
hereunder. Any assignment of this Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns.
(c) In the event that any provision of this Agreement shall be held to
be void or unenforceable in whole or in part, the remaining provisions of this
Agreement and the remaining portion of any provision held void or unenforceable
in part shall continue in full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail to the address of the party for whom intended at
the principal executive offices of such party, or at such other address as such
party may hereinafter specify by written notice to the other party.
(e) If at any time after the date upon which this Agreement is
executed, the Company acquires or creates one or more subsidiary corporations
(a) "Subsequent Subsidiary"), the Company shall cause such Subsequent Subsidiary
to be subject to this Agreement and all references herein to the Company's
"direct and indirect Subsidiaries" shall be interpreted to include all
Subsequent Subsidiaries.
(f) Each Subsidiary of the Company shall be jointly and severally
liable and obligated hereunder with respect to each obligation, responsibility
and liability of the Company, as if a direct obligation of such Subsidiary.
(g) No waiver by either party of any breach of any provision of this
Agreement shall be deemed a continuing waiver or a waiver of any preceding or
succeeding breach of such provision or of any other provision herein contained.
(h) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
(i) This Agreement shall be governed by the internal laws (and not the
law of conflicts) of the State of New York.
(j) Payment of fees hereunder shall be subject to the restrictions and
limitations, and amounts due hereunder shall be subordinated to the Company's
obligations under, as and to the extent provided in (1) the Third Amended and
Restated Credit Agreement, dated as of March 26, 1999, among POL, DLJ Capital
Funding, Inc., as agent and arranger, and the lenders thereunder, as amended,
modified and restated, from time to time, in accordance with its terms, (2) the
Purchase Agreement, dated August 11, 1997, between the Company and JZ Equity
Partners PLC, as amended as of March 26, 1999, and as further amended, modified
and restated, from time to time, in accordance with its terms, and (3) the
Subscription Agreement, dated as of March 26, 1999, among the Company, its
subsidiaries, DLJ Merchant Banking Partners II, L.P., and its affiliated
funds, as amended, modified and restated, from time to time, in accordance with
-5-
<PAGE> 6
its terms, and the Indenture, dated as of March 26, 1999, among POL, the
Company and their subsidiaries, and the Senior Subordinated Notes due 2006 of
POL issued thereunder, as amended, modified and restated, from time to time, in
accordance with their terms and the terms of the Indenture attached as Exhibit
A to, and incorporated by reference in, such Notes. Upon any bankruptcy,
liquidation, insolvency or similar proceeding or event relating to the Company
or its property, no further fees will thereafter be paid under this Agreement,
and any fees previously accrued or deferred and unpaid at the time of the
filing or commencement of such proceedings, together with any fees paid or
payable hereunder from and after the filing or other commencement of such
proceedings, shall be turned over to the holders of such indebtedness until
such indebtedness is paid in full in cash, provided, that the foregoing will
not be construed so as to terminate or discharge any claims by Consultant
hereunder against the Company in respect of the payments of such fees.
(k) This Agreement amends, restates and supersedes the Original
Agreement.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TJC MANAGEMENT CORP.
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
W-H ENERGY SERVICES, INC.
By: /s/ JONATHAN BOUCHER
------------------------------------
Name: Jonathan Boucher
Title: Vice President
AGRI-EMPRESA, INC.
AGRI-EMPRESA TRANSPORTATION, INC.
STG TRANSPORTATION, INC.
GRINDING AND SIZING CO., INC.
PATHFINDER ENERGY INDUSTRIES, INC.
INTEGRITY INDUSTRIES, INC.
DIAMOND WIRELINE SERVICES, INC.
DRILL MOTOR SERVICES, INC.
CHARLES HOLSTON, INC.
PERF-O-LOG, INC.
THOMAS TOOLS, INC.
WELL SAFE, INC.
By: /s/ JONATHAN BOUCHER
------------------------------------
Name: Jonathan Boucher
Title: Vice President
-7-
<PAGE> 1
EXHIBIT 10.12
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
W-H ENERGY SERVICES, INC.
A TEXAS CORPORATION
AS PURCHASER
AND
HALLIBURTON ENERGY SERVICES, INC.
A DELAWARE CORPORATION
AS SELLER
AND
HALLIBURTON COMPANY
A DELAWARE CORPORATION
AS GUARANTOR
DATED AS OF THE 22nd DAY OF JANUARY, 1999
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
PURCHASE AND SALE AGREEMENT ...........................................................1
RECITALS ..............................................................................1
ARTICLE I - DEFINITIONS ...............................................................1
ARTICLE II - PURCHASE AND SALE ........................................................5
2.01 Sale and Purchase of Assets .........................................5
(a) Assets Transferred ..............................................5
(b) Assets Not Transferred ..........................................7
(c) Governmental Entity Approvals ...................................9
2.02 Instruments of Conveyance and Transfer ..............................9
2.03 Nonassignable Contracts .............................................9
2.04 Retained Contracts .................................................10
2.05 Transition Services Agreement ......................................10
2.06 Condition of Assets: Intended Use ..................................10
2.07 Owned Real Property ................................................12
(a) Title Review ...................................................12
(b) Environmental Review ...........................................12
2.08 Title Policies and Surveys .........................................12
2.09 Taxes on Owned Real Property .......................................13
2.10 Manufacturing Facility .............................................13
2.11 Research and Development Facility ..................................13
ARTICLE III - PRIMARY CLOSING, PURCHASE PRICE, ASSUMPTION OF LIABILITIES,
WORK IN PROCESS ........................................................14
3.01 Primary Closing ....................................................14
3.02 Secondary Closing ..................................................14
3.03 Consideration ......................................................14
3.04 Purchase Price and Payment Thereof .................................15
(a) Purchase Price .................................................15
(b) Allocation of Purchase Price ...................................15
3.05 Assumption of Liabilities ..........................................15
3.06 Excluded Liabilities ...............................................16
3.07 Unbilled Accounts Receivable: Work in Process ......................16
ARTICLE IV - PURCHASER'S REPRESENTATIONS AND WARRANTIES ..............................16
4.01 Organization and Good Standing .....................................16
4.02 Authorization and Validity .........................................17
4.03 No Violation .......................................................17
4.04 Litigation .........................................................17
4.05 Consents ...........................................................17
4.06 Finders' Fees ......................................................18
4.07 Condition of Assets ................................................18
4.08 HSR Act ............................................................18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE V - SELLER'S REPRESENTATIONS AND WARRANTIES ..................................18
5.01 Organization and Good Standing ......................................19
5.02 Authorization and Validity ..........................................19
5.03 Employee Benefit Plans ..............................................19
5.04 Absence of Certain Changes ..........................................19
5.05 Title ...............................................................20
5.06 Commitments .........................................................20
5.07 Intellectual Property and Software ..................................20
5.08 No Violation ........................................................22
5.09 Taxes ...............................................................22
5.10 Government Approvals ................................................22
5.11 Labor Relations .....................................................23
5.12 Compliance with Laws ................................................23
5.13 Litigation ..........................................................23
5.14 Employees ...........................................................23
5.15 Assigned Contracts ..................................................24
5.16 Finders' Fees .......................................................24
5.17 Gross Cash Margin Results ...........................................24
5.18 Year 2000 Readiness Disclosures .....................................25
5.19 HSR Act .............................................................25
ARTICLE VI - PURCHASER'S COVENANTS ...................................................25
6.01 Retention of Records, Cooperation and Access ........................25
6.02 Timely Payment and Performance of Assumed Liabilities ...............26
6.03 Seller's Marks ......................................................26
6.04 Warranty Work .......................................................26
6.05 Employment by Purchaser .............................................27
6.06 Notice of Change ....................................................27
6.07 Competition Filings .................................................27
6.08 Intended Use ........................................................28
6.09 Compliance with Consent Decree ......................................28
6.10 License Request .....................................................28
6.11 Phase II Study ......................................................28
ARTICLE VII - SELLER'S COVENANTS .....................................................28
7.01 Business Operations .................................................28
7.02 Access ..............................................................29
7.03 Approvals of Third Parties ..........................................29
7.04 Employee Compensation and Benefit Matters ...........................29
7.05 Contracts ...........................................................30
7.06 Capital Assets; Payments of Liabilities .............................30
7.07 Mortgages, Liens ....................................................30
7.08 Notice of Change ....................................................30
7.09 Competition Filings .................................................30
7.10 Audit ...............................................................30
7.11 Immunity From Prosecution ...........................................31
ARTICLE VIII - PURCHASER'S CONDITIONS PRECEDENT TO THE PRIMARY CLOSING ...............32
8.01 Representations and Warranties ......................................32
8.02 Covenants ...........................................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
8.03 Proceedings ........................................................32
8.04 No Material Adverse Change .........................................32
8.05 Bill of Sale .......................................................32
8.06 Delivery of Documents ..............................................33
8.07 Approval Pursuant to Consent Decree ................................33
8.08 Certificate ........................................................33
8.09 Transfer of Intellectual Property Licenses .........................33
ARTICLE IX - SELLER'S CONDITIONS PRECEDENT TO THE PRIMARY CLOSING ....................33
9.01 Representations and Warranties .....................................33
9.02 Covenants ..........................................................34
9.03 Proceedings ........................................................34
9.04 Purchase Price .....................................................34
9.05 Bill of Sale .......................................................34
9.06 Delivery of Other Documents ........................................34
9.07 Approval Pursuant to Consent Decree ................................34
9.08 Certificate ........................................................34
ARTICLE X - LIABILITY AND INDEMNIFICATION ............................................35
10.01 Seller's Liability and Indemnity ...................................35
10.02 Purchaser's Liability and Indemnity ................................35
10.03 Basket .............................................................35
10.04 Non-Basket Items ...................................................36
10.05 Cap ................................................................36
10.06 Responsibility for Breach of Agreement .............................36
10.07 Conditions of Indemnification ......................................36
10.08 Remedies Exclusive .................................................37
ARTICLE XI - GUARANTIES ..............................................................37
11.01 Guaranty of Halliburton Company ....................................37
11.02 Guaranty of Seller .................................................38
11.03 Guaranty of Purchaser ..............................................38
ARTICLE XII - MISCELLANEOUS ..........................................................38
12.01 Amendment ..........................................................38
12.02 Assignment .........................................................38
12.03 Notice .............................................................38
12.04 Pre-Closing Confidentiality ........................................40
12.05 Post-Closing Confidentiality .......................................40
12.06 Entire Agreement ...................................................40
12.07 Costs, Expenses and Legal Fees .....................................40
12.08 Severability .......................................................41
12.09 Waiver .............................................................41
12.10 GOVERNING LAW ......................................................41
12.11 Consent to Jurisdiction and Service of Process .....................41
12.12 Captions ...........................................................42
12.13 Counterparts .......................................................42
12.14 Additional Agreements ..............................................42
12.15 Bulk Sales Compliance ..............................................42
12.16 Survival of Representations, Warranties, Covenants and Agreements ..42
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
12.17 Risk of Loss .......................................................43
12.18 Noncompetition .....................................................43
12.19 Restriction on Transfer ............................................43
ARTICLE XIII - TERMINATION ...........................................................44
13.01 Termination Rights .................................................44
13.02 Performance Excused ................................................44
13.03 Continuing Obligations .............................................44
ARTICLE XIV - ADDITIONAL ASSETS ......................................................45
14.01 Sale and Purchase of Additional Assets .............................45
(a) Additional Assets Transferred ..................................45
14.02 Right of First Refusal .............................................46
</TABLE>
Exhibit A - Bill of Sale, Assignment and Assumption Agreement
Exhibit B - Act of Sale
Exhibit C - Supplemental Purchase and Sale Agreement
Exhibit D - Transition Services Agreement
Exhibit E - Gross Cash Margin Results
Exhibit F - Confidentiality Agreement
Exhibit G - Consent Decree
iv
<PAGE> 6
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT, dated as of January 22, 1999,
("AGREEMENT") is by and between Halliburton Energy Services, Inc., a Delaware
corporation ("SELLER"), Halliburton Company, a Delaware corporation
("GUARANTOR") and W-H Energy Services, Inc., a Texas corporation ("PURCHASER").
RECITALS
WHEREAS, the Seller desires to sell and to cause Seller's Affiliates to
sell and Purchaser desires to purchase, as an ongoing concern, the assets owned
by the Seller and Seller's Affiliates or which the Seller and Seller's
Affiliates have a legal right to use and which are used by the Seller and
Seller's Affiliates in connection with their business of providing logging-while
drilling ("LWD") services, together with the measurement-while-drilling ("MWD")
business used in conjunction with the LWD business (the "BUSINESS"); and
WHEREAS, Purchaser desires that Guarantor guarantee certain obligations
of the Seller and Seller's Affiliates and Guarantor finds that it is in
Guarantor's best interest to do so.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
As used herein, the following definitions apply:
"ACT OF SALE" shall mean the Act of Cash Sale in substantially the form
of Exhibit B hereto.
"ADDITIONAL ASSETS" shall have the meaning set forth in Section 14.01
(a).
"ADDITIONAL ASSIGNED CONTRACTS" shall have the meaning set forth in
Section 2.01(a)(3).
"ADDITIONAL EQUIPMENT" shall have the meaning set forth in Section
14.01(a).
"ADDITIONAL INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 14.01(a)(2)(a).
"ADDITIONAL LICENSES" shall have the meaning set forth in Section 14.01
(a)(1).
1
<PAGE> 7
"AFFILIATE" shall, with respect to any Person, mean any other Person
that controls, is controlled by or is under common control with
the former.
"AFFILIATE ACCOUNTS" shall have the meaning set forth in Section 2.01
(b)(10).
"AGREEMENT" shall have the meaning set forth in the first paragraph
of this document.
"APPLICABLE CLOSING DATE" shall mean, with respect to the transfer
hereunder or under an Supplemental Purchase and Sale Agreement of a
portion of the Assets, either (i) the Primary Closing Date, or (ii) the
Secondary Closing Date, whichever is applicable.
"ASSETS" shall have the meaning set forth in Section 2.01(a).
"ASSIGNED CONTRACTS" shall have the meaning set forth in Section 2.01
(a)(3).
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 3.05.
"BASKET" shall have the meaning set forth in Section 10.03.
"BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT" shall mean the Bill
of Sale, Assignment and Assumption Agreement in substantially the form
of Exhibit A hereto.
"BUSINESS" shall have the meaning set forth in the first Recital above.
"CODE" shall have the meaning set forth in Section 3.04(b).
"CONFIDENTIALITY AGREEMENT" shall mean the Confidentiality Agreement
referred to in Section 12.04 and attached hereto as Exhibit F.
"CONSENT DECREE" shall mean the Consent Decree referred to in Section
6.09 and attached hereto as Exhibit G.
"DAMAGES" shall have the meaning set forth in Section 10.01.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
2.01(b)(11).
"EMPLOYEES" shall have the meaning set forth in Section 6.05.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.01(b).
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section
3.06.
2
<PAGE> 8
"FIXED ASSETS" shall have the meaning set forth in Section 2.01(a)(1).
"GAAP" shall have the meaning set forth in Section 5.17.
"GOVERNMENTAL ENTITY" shall mean any court or any federal, provincial,
state or local legislative body or governmental department, commission,
board, bureau, agency or authority.
"GROSS CASH MARGIN RESULTS" shall have the meaning set forth in Section
5.17.
"GUARANTOR" shall mean Halliburton Company, a Delaware corporation.
"HSR ACT" shall have the meaning set forth in Section 4.08.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.07.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.07.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section
5.07(a).
"INVENTORY" shall have the meaning set forth in Section 2.01(a)(2).
"LWD" shall have the meaning set forth in the first Recital above.
"LAWS" shall mean all laws, and the rules and regulations promulgated
thereunder, of any jurisdiction applicable to the Business.
"LEASED REAL PROPERTY" shall mean the real property leased by Seller's
Affiliates, as described in Schedule 2.01(a)(3) hereto.
"LICENSES" shall mean the licenses of Intellectual Property and
Software set forth in Section 2.01(a)(4).
"MWD" shall have the meaning set forth in the first Recital above.
"OWNED REAL PROPERTY" shall mean the real property owned by Seller
located in Lafayette, Louisiana, as more fully described in Schedule
2.01(a)(8) of the Seller's Disclosure Letter.
"PERMITTED LIENS" shall mean (i) taxes not yet due and payable, (ii)
contractual and statutory liens of landlords, warehouses, mechanics and
materialmen and other like liens which secure bills for services or
materials not yet due and payable and which arose in the ordinary
course of business, (iii) other encumbrances, easements, and defects or
irregularities in title which do not, individually or in the aggregate,
materially detract from
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the value or interfere with the use of the properties affected thereby,
as presently used, and (iv) those liens described in Schedule 1 of the
Seller's Disclosure Letter.
"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 or professional entity, but shall not include a
Governmental Entity.
"PRIMARY CLOSING" and "PRIMARY CLOSING DATE" shall have the meanings
set forth in Section 3.01.
"PURCHASE PRICE" shall have the meaning set forth in Section 3.04(a).
"PURCHASER" shall mean W-H Energy Services, Inc., a Texas corporation.
"PURCHASER'S AFFILIATES" shall mean those subsidiaries or Affiliates of
Purchaser to which any portion of the Assets shall be conveyed at the
direction of Purchaser given pursuant to Section 12.02 or the
provisions of any Supplemental Purchase and Sale Agreement.
"PURCHASER'S DISCLOSURE LETTER" shall mean a letter of even date
herewith delivered by the Purchaser to the Seller with the execution of
this Agreement, which, among other things, shall identify exceptions to
the Purchaser's representations and warranties contained in Article IV.
"RETAINED CONTRACTS" shall have the meaning set forth in Section 2.04.
"SECONDARY CLOSING" and "SECONDARY CLOSING DATE" shall have the
meanings set forth in Section 3.02.
"SECONDED EMPLOYEES" shall have the meaning set forth in Section 2.04.
"SELLER" shall mean Halliburton Energy Services, Inc., a Delaware
corporation.
"SELLER'S AFFILIATES" shall mean those Affiliates of Seller that own
any Assets or conduct part of the Business, each of which is listed on
Schedule 2 of the Seller's Disclosure Letter.
"SELLER'S DISCLOSURE LETTER" shall mean a letter of even date herewith
delivered by the Seller to the Purchaser with the execution of this
Agreement, which, among other things, shall identify (i) the Assets
transferred by the Seller, and (ii) the exceptions to the Seller's
representations and warranties contained in Article V.
"SELLER'S MARKS" shall have the meaning set forth in Section
2.01(b)(6).
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"SOFTWARE" shall have the meaning set forth in Section 5.07(c).
"SUPPLEMENTAL PURCHASE AND SALE AGREEMENT" shall mean a Supplemental
Purchase and Sale Agreement between each of the Seller's Affiliates and
the Purchaser, each to be in substantially the form of Exhibit C
hereto.
"TRANSFERRED MARKS" shall have the meaning set forth in Section
2.01(a)(9).
"TRANSITION SERVICES AGREEMENT" shall mean the Transition Services
Agreement in substantially the form of Exhibit D hereto.
"WARRANTY WORK" shall have the meaning set forth in Section 6.04.
ARTICLE II - PURCHASE AND SALE
2.01 SALE AND PURCHASE OF ASSETS.
(a) ASSETS TRANSFERRED.
Subject to and upon the terms and conditions contained herein, at the
Primary Closing, the Seller, and at the Secondary Closing, the Seller's
Affiliates, shall sell, transfer, assign, grant, convey and deliver to Purchaser
and Purchaser shall purchase, accept and acquire from the Seller and the
Seller's Affiliates, all of the Seller's and Seller's Affiliates' rights, titles
and interests in and to the properties, assets and rights which are set forth on
Schedules 2.01(a)(1), 2.01(a)(2), 2.01(a)(3)(i) and (ii), 2.01(a)(4)(a) and (b),
2.01(a)(5), 2.01(a)(6)(i) and (ii), 2.01(a)(7), 2.01(a)(8) and 2.01(a)(9) of the
Seller's Disclosure Letter, except for any such assets (other than equipment
lost or damaged beyond repair in the hole) which may be disposed of, or sold or
consumed since the date hereof in the ordinary course of business (collectively
and individually, the "ASSETS"). The Assets shall be limited to the following:
(1) FIXED ASSETS. All fixtures, machinery, equipment, tools and
supplies listed in Schedule 2.01(a)(1) of the Seller's Disclosure
Letter (the "FIXED ASSETS").
(2) INVENTORY. The inventory of spare parts, replacements,
component parts and supplies which are set forth in Schedule
2.01(a)(2) of the Seller's Disclosure Letter (the "INVENTORY").
(3) ASSIGNED CONTRACTS. To the extent assignable, all rights (or
the portion pertaining to the Business only for contracts and
commitments involving services other than those performed by the
Business and then only to the extent specified) under the
contracts, agreements, leases, sales orders, purchase orders, and
other arrangements and commitments listed in Schedule
2.01(a)(3)(i) of the Seller's
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Disclosure Letter ("ASSIGNED CONTRACTS"), and all contracts,
agreements, leases, sales orders, purchase orders and other
arrangements and commitments (or the portion pertaining to the
Business only for contracts and commitments involving services
other than those performed by the Business and then only to the
extent specified) entered into in the ordinary course of business
of the Business by the Seller or Seller's Affiliates after the
date of this Agreement and through the Applicable Closing Date
("ADDITIONAL ASSIGNED CONTRACTS") and disclosed by the Seller as a
supplement to the Seller's Disclosure Letter, labeled Schedule
2.01(a)(3)(ii) and provided at the Applicable Closing.
(4) LICENSES.
(a) INTELLECTUAL PROPERTY. Subject to the third party licenses
granted to the Seller and Seller's Affiliates as set forth in
Schedule 5.07(b)(i) of the Seller's Disclosure Letter,
non-exclusive, non-sublicensable, irrevocable, royalty-free,
worldwide licenses to (i) Seller's and Seller's Affiliates
Intellectual Property as set forth in Schedule 2.01(a)(4)(a) of
the Seller's Disclosure Letter and (ii) such other of Seller's and
Seller's Affiliates' Intellectual Property as used in the Business
up to the Primary Closing Date or has been used in the Business,
together with the right to use, manufacture, have manufactured for
it, lease and sell the equipment and tools and the right to use
the Seller's and Seller's Affiliates' Intellectual Property
embodied in such equipment and tools as are used or have been used
in the conduct of operations of the Business.
(b) SOFTWARE. Subject to the third party licenses granted to
the Seller and Seller's Affiliates as set forth in Schedule
5.07(d)(i) of the Seller's Disclosure Letter, non-exclusive,
non-sublicensable, irrevocable, royalty-free, worldwide licenses
as set forth in Schedule 2.01(a)(4)(b) of the Seller's Disclosure
Letter to use and copy the Software and create derivative works
based thereon, as is used up to the Primary Closing Date or has
been used in the Business in the conduct of the Business as
embodied in the equipment and tools.
(5) BOOKS AND RECORDS. Originals or copies of documents, papers,
agreements, drawings, designs, plans, methods, engineering and
manufacturing specifications, formulas, procedures, computer
programs and customer lists which relate exclusively to the Assets
and are set forth on Schedule 2.01(a)(5) of the Seller's
Disclosure Letter.
(6) MOTOR VEHICLES. All motor vehicles owned by the Seller and the
Seller's Affiliates, listed in Schedule 2.01(a)(6)(i) of the
Seller's Disclosure Letter and all motor vehicles leased by the
Seller and the Seller's Affiliates, listed in Schedule
2.01(a)(6)(ii) of the Seller's Disclosure Letter.
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(7) PERMITS AND LICENSES. All transferable business licenses,
permits, and equivalent documents, which are listed in Schedule
2.01(a)(7) of the Seller's Disclosure Letter.
(8) OWNED REAL PROPERTY. The real property described in Schedule
2.01(a)(8) of the Seller's Disclosure Letter (the "OWNED REAL
PROPERTY").
(9) TRANSFERRED MARKS. The registered and common law trademarks
and service marks, trademark and service mark registration
applications, both foreign and domestic, that are set forth in
Schedule 2.01(a)(9) of the Seller's Disclosure Letter (the
"TRANSFERRED MARKS").
(b) ASSETS NOT TRANSFERRED.
Except for the Assets set forth on Schedules 2.01(a)(1), 2.01(a)(2),
2.01(a)(3)(i) and (ii), 2.01(a)(4)(a) and (b), 2.01(a)(5), 2.01(a)(6)(i) and
(ii), 2.01(a)(7), 2.01(a)(8) and 2.01(a)(9) of the Seller's Disclosure Letter,
all other properties, assets and rights of every kind and description, whether
personal, tangible or mixed, are excluded from the Assets and shall be retained
by the Seller, Seller's Affiliates and their Affiliates ("EXCLUDED ASSETS").
Excluded Assets shall include, but shall not be limited to:
(1) CASH, CASH EQUIVALENTS AND ACCOUNTS RECEIVABLE. All cash on
hand and cash equivalents, including, without limitation, bank
accounts and temporary cash investments and all accounts
receivable of the Seller, Seller's Affiliates and their
Affiliates.
(2) REFUND CLAIMS. All claims of the Seller, Seller's Affiliates
and their Affiliates for refunds of taxes and other governmental
charges and the benefit, if any, of net operating loss
carry-forwards or carry-backs of the Seller, Seller's Affiliates
and their Affiliates.
(3) THIRD PARTY CLAIMS. All claims or rights of the Seller,
Seller's Affiliates and their Affiliates, if any, against third
parties based on facts or events occurring prior to the Applicable
Closing Date.
(4) INSURANCE. All insurance policies and rights thereunder,
including rights to any cancellation value on the Applicable
Closing Date.
(5) UNRELATED CONFIDENTIAL INFORMATION AND CERTAIN PROCESSES. All
proprietary or confidential business or technical information,
intellectual property, records and policies which relate to the
Seller, Seller's Affiliates and their Affiliates or their other
lines of business, except for licenses to those items listed in
Schedules
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2.01(a)(4)(a) and 2.01(a)(4)(b) of the Seller's Disclosure Letter
and those items listed in Schedule 2.01(a)(5) of the Seller's
Disclosure Letter.
(6) SELLER'S MARKS AND PROPRIETARY SYSTEMS AND PROCEDURES. Except
for the Transferred Marks set forth in Schedule 2.01(a)(9) of the
Seller's Disclosure Letter, all marks of the Seller, Seller's
Affiliates and their Affiliates, including, without limitation,
any and all trademarks or service marks, trade names, slogans or
other like property relating to or including the names Halliburton
Energy Services, Inc. or Halliburton Company; the marks of
Halliburton Energy Services, Inc. or Halliburton Company, or any
derivatives or variations thereof; the Halliburton Energy
Services, Inc. or Halliburton Company logos, or any derivatives
thereof ("SELLER'S MARKS").
(7) UNRELATED ASSETS. All assets of the Seller, Seller's
Affiliates and their Affiliates not used in connection with the
Business, including, without limitation, assets used by the
Seller, Seller's Affiliates and their Affiliates primarily in
their other businesses, whether or not used for the benefit of the
Business.
(8) EXCLUDED PERSONAL PROPERTY. Tangible personal property,
equipment, vehicles and inventory, other than that listed in
Schedules 2.01(a)(1), 2.01(a)(2), 2.01(a)(6)(i) and 2.01
(a)(6)(ii) of the Seller's Disclosure Letter.
(9) CONTRACTS NOT ASSIGNED. The Retained Contracts and contracts,
agreements, leases, sales orders, purchase orders, and other
arrangements and commitments which are not Assigned Contracts or
Additional Assigned Contracts.
(10) AFFILIATE ACCOUNTS. All intercompany accounts among Seller,
Seller's Affiliates and their Affiliates.
(11) EMPLOYEE BENEFIT PLANS. All assets related to any pension,
profit sharing, stock bonus, stock option, thrift or other
retirement plan, medical, hospitalization, dental, life,
disability, vacation or other insurance or benefit plan, employee
stock ownership plan, deferred compensation, stock ownership,
stock purchase, bonus, benefit or other incentive plan, severance
plan or other similar plan relating to the Seller, Seller's
Affiliates and their Affiliates or their employees (the "EMPLOYEE
BENEFIT PLANS").
(12) INTELLECTUAL PROPERTY. All of the Seller's, Seller's
Affiliates' and their Affiliates' right, title and interest in and
to "Intellectual Property" as defined in Section 5.07(a), except
for the licenses set forth in Section 2.01(a)(4)(a), Section 14.01
(a)(2)(a) and the marks transferred in accordance with Section
2.01(a)(9).
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(13) SOFTWARE. All of the Seller's, Seller's Affiliates' and their
Affiliates' right, title and interest in and to the "Software" as
defined in Section 5.07(c), except for the licenses set forth in
Section 2.01(a)(4)(b) and Section 14.01(a)(2)(b).
(c) GOVERNMENTAL ENTITY APPROVALS.
Notwithstanding Section 2.01(a), title may be retained for a period
not to exceed 12 months from the Primary Closing Date by Seller or Seller's
Affiliates if and to the extent necessary in order to comply with laws or
regulations, including without limitation, those of the Nuclear Regulatory
Commission, applicable to the transfer of Fixed Assets and Inventory.
2.02 INSTRUMENTS OF CONVEYANCE AND TRANSFER.
(a) At the Primary Closing, the Seller shall execute and deliver to
Purchaser (a) a Bill of Sale, Assignment and Assumption Agreement transferring
to Purchaser the properties and assets to be acquired by it under the terms of
this Agreement in substantially the form of Exhibit A annexed hereto, (b) an Act
of Sale transferring to Purchaser the Owned Real Property in substantially the
form of Exhibit B annexed hereto, and (c) such other bills of sale, instruments
of assignment, certificates of title, registrations, licenses and other
documents as may be reasonably necessary or appropriate to vest in Purchaser
good title to the Assets or to carry out the transactions contemplated by this
Agreement. The Seller shall assist Purchaser as reasonably required after the
Primary Closing to register and record with appropriate governmental authorities
the conveyance and transfer documents.
(b) The Seller shall also deliver at the Primary Closing the
Supplemental Purchase and Sale Agreements in substantially the form of Exhibit C
annexed hereto, executed by each of Seller's Affiliates.
2.03 NONASSIGNABLE CONTRACTS.
Nothing in this Agreement shall be construed as an attempt or
agreement to assign any contract or claim as to which a required third party
consent to assignment cannot be obtained. If, however, following the Applicable
Closing, there is any contract, agreement, license, lease, sales order, purchase
order or other commitment which would have constituted an Assigned Contract or
an Additional Assigned Contract had the required consent been obtained, or any
claim for which consent to the assignment thereof cannot be obtained, the Seller
and Purchaser agree to take such action, to the extent permitted by applicable
Law, as may be necessary in order for Purchaser to obtain the benefit and/or
assume the obligations thereunder, including (i) the Seller designating
Purchaser as the Seller's subcontractor or agent for purposes of performing such
contracts and the Seller collecting monies due under such contracts and paying
the same promptly over to Purchaser, or (ii) the Purchaser seconding personnel
and leasing equipment to the Seller, at no cost, in order for the Seller to
complete the contract for the account of the Purchaser.
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2.04 RETAINED CONTRACTS.
Notwithstanding Section 2.03, Seller and Seller's Affiliates shall
retain contracts to perform LWD services outside the United States, that exist
at the Applicable Closing Date or are awarded pursuant to a tender that is
outstanding at the Applicable Closing Date, that are not assignable or to the
extent the customer does not consent to assignment (the "RETAINED CONTRACTS").
Seller and Seller's Affiliates shall have the right to retain sufficient LWD and
MWD tools and Inventory, use the facilities of Purchaser or Purchaser's
Affiliates and utilize the services of employees of Purchaser ("SECONDED
EMPLOYEES") (initially, persons which were formerly employees of the Business)
as are reasonably required for Seller or Seller's Affiliates to complete the
Retained Contracts. As the Retained Contracts are completed, Seller's Affiliates
shall transfer possession of such retained tools and Inventory and facilities
to, and release the Seconded Employees to, Purchaser or Purchaser's Affiliates.
For such rental, Seller shall pay Purchaser on the Primary Closing on behalf of
Seller's Affiliates a prepaid, lump sum rental amount for all such retained LWD
and MWD tools, use of facilities of Purchaser and the services and Seconded
Employees of $1,250,000. Seller shall also pay Purchaser at the release of such
retained assets for the Inventory used or consumed during the retention period.
Nothing in this Section 2.04 shall result in the delay of a Secondary Closing or
delay the transfer of equitable title (and to the extent permissible, legal
title) of the retained tools, Inventory and facilities utilized and transfer of
employees utilized on the Retained Contracts to Purchaser. Notwithstanding the
preceding sentence, legal title may be retained by Seller or Seller's
Affiliates, if necessary, in order to comply with laws or regulations applicable
to such tools and Inventory. The Retained Contracts are listed on Schedule 2.04
of Seller's Disclosure Letter. Seller shall give Purchaser written notice of the
tools and Inventory it is retaining to perform the Retained Contracts within
thirty (30) days of the Primary Closing Date. All tools and Inventory retained
by the Seller and Seller's Affiliates after the Applicable Closing Date shall be
returned in serviceable condition to the Purchaser's facility in Lafayette,
Louisiana at the Seller's risk and expense: (i) within one hundred twenty (120)
days of the date of the end of any Retained Contracts the Seller is performing
using such tools and Inventory, or (ii) within one hundred twenty (120) days of
the Primary Closing Date if such tools and Inventory are not being used to
perform a Retained Contract. Seller shall pay Purchaser for tools lost or
damaged beyond repair in the hole the amount set forth on Purchaser's LIH Price
List attached as Schedule 2.04.1 of Seller's Disclosure Letter.
2.05 TRANSITION SERVICES AGREEMENT.
At the Primary Closing, the Seller and Purchaser shall enter into a
Transition Services Agreement in substantially the form of Exhibit D annexed
hereto.
2.06 CONDITION OF ASSETS; INTENDED USE.
BY THE PRIMARY CLOSING, PURCHASER WILL HAVE CAREFULLY INSPECTED THE
ASSETS AND KNOWINGLY AND VOLUNTARILY ACCEPTS THE
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SAME "AS IS", AND "WHERE IS", SUBJECT TO SELLER'S OBLIGATIONS TO RETURN TOOLS
AND INVENTORY PURSUANT TO SECTION 2.04. NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, HAS BEEN MADE BY OR ON BEHALF OF THE SELLER OR SELLER'S AFFILIATES
WITH RESPECT TO THE PRESENT CONDITION OF THE ASSETS OR THE PRESENT OR FUTURE
SUITABILITY THEREOF FOR ANY INTENDED USE BY PURCHASER. Purchaser represents that
it had an opportunity prior to execution hereof to undertake such investigations
of the Assets as Purchaser deemed necessary or appropriate and to examine and
review such records, documents, reports and other information of the Seller and
Seller's Affiliates as Purchaser deemed relevant to the consummation of this
Agreement, except that no such investigation or examination shall constitute a
waiver by Purchaser of its right to rely on the terms and conditions of this
Agreement.
The Seller and Seller's Affiliates make no warranty, express or
implied, regarding the commercial suitability or environmental condition of the
Owned Real Property or Leased Real Property for Purchaser's intended use.
Purchaser acknowledges that Purchaser's knowledge of its intended commercial
activity is superior to that of the Seller and Sellers Affiliates and
consequently the Seller cannot offer, and has not offered, any warranty, express
or implied, with regard to Purchaser's intended commercial use of the Owned Real
Property or Leased Real Property.
The location of Assets specified in Seller's Disclosure Letter is based
on the records of the Business at the time the schedule is prepared and is
believed by Seller to be accurate at the time prepared. Purchaser understands
that due to operational requirements, management of the Business may transfer
Assets to other locations. Purchaser agrees that the disclosure of Assets is
intended by the parties to be taken as a whole and to the extent the location of
the Asset is different from that specified in Seller's Disclosure Letter, such
discrepancy shall not be deemed a breach of this Agreement by Seller or a breach
of a Supplemental Purchase and Sale Agreement by Seller or Seller's Affiliates.
Without limiting the generality of the foregoing, it is understood that
Purchaser has inspected the Owned Real Property and Leased Real Property and has
conducted such investigation as Purchaser deems appropriate with respect to
compliance of the Owned Real Property and Leased Real Property with all federal,
state, provincial and local Laws regulating or protecting the environment and
all regulations, rules, orders, decrees or other governmental or administrative
pronouncements pursuant thereto and with respect to compliance of the Owned Real
Property and Leased Real Property with all Laws, rules, regulations, ordinances
or other governmental pronouncements, including but not limited to zoning,
planning subdivision, growth management, building and other codes, federal,
provincial, state and local Laws dealing with radiation or radioactive
contamination, the Americans with Disabilities Act, and any other matters
affecting the Owned Real Property or Leased Real Property or the operation
thereof.
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2.07 OWNED REAL PROPERTY.
(a) TITLE REVIEW.
Seller shall furnish Purchaser a survey of the Owned Real Property and
a standard form commitment for an owner's policy of title insurance relating to
the Owned Real Property in the amount set forth in Section 2.07 of Seller's
Disclosure Letter. The Title Commitment and legible copies of documents creating
exceptions contained in the Title Commitment and a survey supporting the same as
well as a Mortgage Certificate, Conveyance Certificate and Tax Research
Certificate relating to the Owned Real Property in the State of Louisiana, shall
be delivered to Purchaser no later than twenty (20) business days after
execution of this Agreement. Purchaser shall have ten (10) business days from
the date of delivery in which to raise title objections. If title objections are
raised by Purchaser then Seller shall have ten (10) days from the date such
objections are raised to cure the same. If objections are not satisfied by the
Primary Closing Date, unless Purchaser elects to waive the unsatisfied
objections, the Purchase Price shall be reduced by $1,500,000, the Primary
Closing shall occur and such Owned Real Property shall be conveyed at a later
date mutually agreed by the parties after the title objections are cured or
waived, at which time Purchaser shall pay Seller $1,500,000. At the Primary
Closing or at such later date as provided in the preceding sentence, Seller
shall furnish an Act of Sale duly executed in recordable form as per Exhibit B
hereto.
(b) ENVIRONMENTAL REVIEW.
Purchaser shall have thirty (30) days after execution of this Agreement
to complete a Phase II environmental study by an environmental consultant of
Purchaser's choice. In the event that the Phase II indicates significant
environmental conditions on the Owned Real Property, Seller shall be responsible
for remediating any such environmental conditions to industrial standards under
applicable Louisiana environmental laws. If the remediation efforts are not
satisfied by the Primary Closing Date, unless Purchaser elects to waive
completion of the remediation efforts or allows the Seller to complete the
remediation efforts after the Primary Closing Date, the Purchase Price shall be
reduced by $1,500,000, the Primary Closing shall occur and such Owned Real
Property shall be conveyed at a later date mutually agreed by the parties after
the remediation efforts are completed, at which time Purchaser shall pay Seller
$1,500,000.
(c) ADJUSTMENT.
Section 2.07(a) and (b) notwithstanding, in no event shall the Purchase
Price be reduced by more than $1,500,000.
2.08 TITLE POLICIES AND SURVEYS.
The cost of the owner's policy of title insurance and the survey relating to the
Owned Real Property shall be paid by Purchaser.
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2.09 TAXES ON OWNED REAL PROPERTY.
Any property taxes on the Owned Real Property for the year 1999 shall be pro
rated between the parties.
2.10 MANUFACTURING FACILITY.
The Seller will transfer to Purchaser and install and calibrate in accordance
with industry practices manufacturing, assembly, testing, calibration and other
machinery and equipment and will license related software, all of which shall be
included on Schedules 2.01(a)(1) or 2.01(a)(4)(b) of the Seller's Disclosure
Letter, to equip a building supplied by Purchaser that is suitable, configured
and ready for such installation, with equipment sufficient to permit Purchaser
to conduct the manufacturing, assembly, testing, and calibration of LWD tools
and MWD tools used in conjunction with the LWD tools currently performed by the
Business (with the exception of a test well). The Seller will make its current
test well in Fort Worth, TX available to Purchaser for a period of two (2) years
for a charge not to exceed the amount charged by AMOCO at its test well in
Catoosa, OK, which is available on a rental basis to the industry. This
transferred equipment shall include automated test equipment and accelerated
stress screen test equipment, and standard injection molding equipment used to
"pott" circuit boards in shock resistant elastomer. Also included will be a
hydraulic shake table used to perform tool chassis testing. The Seller will
provide Purchaser with copies of all drawing, histories, manuals, lab notebooks,
blueprints, designs, design protocols, specifications for materials,
specifications for parts and devices, and quality assurance control procedures
and other records maintained by the Seller related to the tools specified on
Schedule 2.01(a)(1) of the Seller's Disclosure Letter.
2.11 RESEARCH AND DEVELOPMENT FACILITY.
The Seller will transfer to Purchaser and install and calibrate in accordance
with industry practices research and development equipment, will license related
software, and will transfer copies of tool histories, development records and
laboratory records pertinent to the LWD and related MWD tools transferred to
Purchaser by Seller, all of which shall be included on Schedules 2.01(a)(1),
2.01(a)(4)(b) or 2.01(a)(5) of the Seller's Disclosure Letter, at a location to
be supplied by Purchaser, that is suitable, configured and ready for such
installation, which tools and information shall be sufficient to operate a LWD
research laboratory capable of conducting the research projects with respect to
existing LWD or MWD tools or new tools that extend the technology contained in
the tools specified on Schedule 2.01(a)(1) of the Seller's Disclosure Letter.
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ARTICLE III - PRIMARY CLOSING, PURCHASE PRICE, ASSUMPTION OF
LIABILITIES, WORK IN PROCESS
3.01 PRIMARY CLOSING.
The primary closing of the transactions contemplated hereby (the "PRIMARY
CLOSING") shall take place on the business day next following the day the last
of the conditions precedent contained in Articles VIII and IX shall have been
satisfied or waived, but no earlier than March 1, 1999. The day on which the
Primary Closing actually takes place is herein sometimes referred to as the
"PRIMARY CLOSING DATE". The Primary Closing shall take place in the offices of
Halliburton Company, 3600 Lincoln Plaza, 500 N. Akard St., Dallas, Texas
75201-3391, at 10:00 a.m., Dallas, Texas time and shall be deemed to be
effective at 11:59 p.m., Dallas, Texas time on the Primary Closing Date.
3.02 SECONDARY CLOSING.
The closing of the transactions contemplated by a Supplemental Purchase and Sale
Agreement (the "SECONDARY CLOSING") shall occur on the business day next
following the day on which the last of the conditions to the obligations of the
parties contained in such Supplemental Purchase and Sale Agreement is fulfilled
or waived or such other date as agreed to by the parties hereto (the "SECONDARY
CLOSING DATE"). The parties intend that the transactions contemplated by each
Supplemental Purchase and Sale Agreement will be consummated on the Primary
Closing Date effective at 11:59 p.m. local time in the country in which the
Assets are transferred. To the extent that one or more of the conditions
precedent contained in one or more Supplemental Purchase and Sale Agreements
have not been fulfilled or waived by the Primary Closing Date, then the
Secondary Closing under any such Supplemental Purchase and Sale Agreement shall
be deferred until the appropriate Secondary Closing Date.
3.03 CONSIDERATION.
Upon the terms and subject to the conditions set forth in this Agreement and in
exchange and consideration for the Assets and other consideration set forth in
this Agreement, Purchaser shall:
(a) On and as of the Primary Closing Date, pay to Seller the "Purchase
Price" in accordance with, and to the extent provided in, Section 3.04; and
(b) Assume as of the Applicable Closing Date those certain debts,
liabilities, and obligations of the Seller and Seller's Affiliates in respect of
the Business specified in Section 3.05 (as limited by Section 3.06) in
accordance with, and to the extent provided in, Section 3.05.
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3.04 PURCHASE PRICE AND PAYMENT THEREOF.
(a) PURCHASE PRICE.
Purchaser shall on the Closing Date, pay to Seller for the account of Seller and
Seller's Affiliates by wire transfer of immediately available United States
funds, to Seller's bank account at Citibank N.A., 399 Park Avenue, New York, NY
10043, Account No. 00032969, ABA Routing No. 021000089, $37,500,000 (the
"PURCHASE PRICE").
(b) ALLOCATION OF PURCHASE PRICE.
The amount of the Purchase Price allocated to the Assets sold by PT Halliburton
Drilling Systems Indonesia to the Purchaser shall be agreed upon by the Seller
and Purchaser by the Primary Closing Date. The balance of the Purchase Price
shall be allocated among the Assets in accordance with section 1060 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the regulations
under the Code. A schedule setting forth such proposed allocations shall be
prepared by Purchaser and delivered to the Seller within one hundred twenty
(120) days following the Primary Closing Date. The allocation as set forth on
such schedule shall be reasonably satisfactory to the Seller. Purchaser and the
Seller agree to make such allocation in filing their respective tax returns or
declarations for applicable income tax purposes both within and outside the
United States.
3.05 ASSUMPTION OF LIABILITIES.
Purchaser shall assume as of the Applicable Closing Date and Purchaser agrees to
pay, honor and discharge in accordance with the terms thereof all of the Assumed
Liabilities. The term "ASSUMED LIABILITIES" shall mean only the following
liabilities and obligations relating to the Business or the Assets:
(a) Any and all liabilities, obligations and commitments relating to
the Business which arise out of, or relate to (i) events or occurrences after
the Applicable Closing Date, including, without limitation, any violation of any
applicable federal, state, provincial or local Laws or regulations, or (ii) the
Assigned Contracts and the Additional Assigned Contracts (excluding the Retained
Contracts), but in any case, not including any liability for any obligations
under or breach thereof occurring on or prior to the Applicable Closing Date;
(b) Any and all taxes which may be applicable to the Business or the
Assets arising from events or occurrences after the Applicable Closing Date,
including without limitation, sales, use or transfer taxes resulting from the
sale of the Assets to Purchaser;
(c) Any and all liabilities, obligations and commitments specifically
undertaken by Purchaser pursuant to the other terms of this Agreement; and
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(d) All risks associated with the use of any equipment purchased
hereunder as part of the Assets, including liability to any third party, for any
injury or damage to persons or property and any damage to the equipment and
tools, arising after the Applicable Closing Date, due to any condition of,
defect in or design of the equipment and tools, latent or otherwise, whether now
existing or hereafter occurring.
3.06 EXCLUDED LIABILITIES.
Purchaser shall not assume and shall not be responsible for any
liabilities, obligations or commitments of the Seller or the Seller's Affiliates
relating to or arising out of the operation of the Business on or prior to the
Applicable Closing Date (the "EXCLUDED LIABILITIES") other than the Assumed
Liabilities.
3.07 UNBILLED ACCOUNTS RECEIVABLE, WORK IN PROCESS.
The nature of the Business is such that on the Applicable Closing Date, the
Seller and the Seller's Affiliates will have unbilled accounts receivable and
work in process for which the Seller and the Seller's Affiliates have not
invoiced their customers. With respect to any unbilled accounts receivable for
jobs completed prior to the Applicable Closing Date, the Seller or Seller's
Affiliates, as applicable, shall invoice the customer. With respect to any jobs
being performed over a period that includes and continues beyond the Applicable
Closing Date, Purchaser shall invoice the customer on completion of the job. The
monies received from the customer shall be allocated between the Seller and
Seller's Affiliates, on the one hand, and Purchaser, on the other, so that the
Seller and Seller's Affiliates are compensated for work performed or
reimbursable expenses incurred (such as mobilization fees) prior to and on the
Applicable Closing Date and Purchaser is compensated for work performed or
reimbursable expenses incurred (such as demobilization fees) after the
Applicable Closing Date. Purchaser shall remit the proceeds to which Seller and
Seller's Affiliates are entitled net of any normal operating business expenses
incurred by Purchaser which are allocable to the Seller for liabilities and
obligations incurred before the Applicable Closing Date within ten (10) business
days of receipt of payment from the customer.
ARTICLE IV - PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants that the following are true and
correct as of the date of this Agreement:
4.01 ORGANIZATION AND GOOD STANDING.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation and is duly qualified and
licensed to do business as a foreign corporation and is in good standing in the
jurisdictions in which it conducts its business. On the Applicable Closing Date,
Purchaser or Purchaser's Affiliates, as applicable, will be duly qualified
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and licensed to conduct the Business and will be in good standing in each
jurisdiction in which the Assets are located and the Business is conducted.
Purchaser has all requisite corporate power and authority to acquire, own, lease
and operate the Assets and the Business, to perform its obligations hereunder
and to execute and deliver this Agreement.
4.02 AUTHORIZATION AND VALIDITY.
The execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Purchaser. This Agreement has
been duly executed and delivered by Purchaser and constitutes the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization moratorium and other similar laws and equitable principles
relating to or limiting creditor's rights generally.
4.03 NO VIOLATION.
Neither the execution and performance of this Agreement nor the consummation of
the transactions contemplated hereby will (a) result in a violation or
breach of the charter or bylaws of Purchaser or any agreement or other
instrument under which Purchaser is bound or to which any assets of Purchaser
are subject, or (b) violate any applicable law or regulation or any judgment or
order of any Governmental Entity or any indenture, agreement or other instrument
to which Purchaser is a party or by which Purchaser or its properties or assets
are bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under, or result in the creation or
imposition of any lien, charge or encumbrance pursuant to, any such indenture,
agreement or other instrument. Purchaser has complied in all material respects
with all applicable laws, regulations and licensing requirements, and has filed
with the proper authorities all necessary statements and reports.
4.04 LITIGATION.
There is no legal action, suit, arbitration, governmental investigation or other
legal or administrative proceeding, nor any order, decree or judgment in
process, pending or in effect, or to the knowledge of Purchaser, threatened
against or relating to Purchaser in connection with or relating to the
transactions contemplated by this Agreement, and Purchaser does not know nor
have any reason to be aware of any basis for the same.
4.05 CONSENTS.
Except as set forth in Schedule 4.05 of the Purchaser's Disclosure Letter, no
authorization, consent, approval, permit or license of, or filing with, any
governmental or public body or authority, any lender or lessor or any other
person or entity is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement on the part of
Purchaser.
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4.06 FINDERS' FEES.
Except as set forth in Schedule 4.06 of the Purchaser's Disclosure Letter,
Purchaser has made no agreement with any person or entity nor taken any action
which would cause any person or entity to become entitled to agents', brokers',
investment bankers' or finders' fees in connection with the transactions
contemplated hereby.
4.07 CONDITION OF ASSETS.
PURCHASER HAS CAREFULLY INSPECTED THE ASSETS AND KNOWINGLY AND VOLUNTARILY
ACCEPTS THE ASSETS "AS IS" AND "WHERE IS", SUBJECT TO SELLER'S OBLIGATIONS TO
RETURN TOOLS AND INVENTORY PURSUANT TO SECTION 2.04, WITH NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, HAVING BEEN MADE BY OR ON BEHALF OF THE SELLER OR
SELLER'S AFFILIATES WITH RESPECT TO THE PRESENT CONDITION OF THE ASSETS OR THE
PRESENT OR FUTURE SUITABILITY THEREOF FOR ANY INTENDED USE BY PURCHASER.
PURCHASER HAS HAD AN OPPORTUNITY PRIOR TO EXECUTION HEREOF TO UNDERTAKE SUCH
INVESTIGATIONS OF THE ASSETS AS PURCHASER DEEMED NECESSARY OR APPROPRIATE AND TO
EXAMINE AND REVIEW SUCH RECORDS, DOCUMENTS, REPORTS AND OTHER INFORMATION OF THE
SELLER AS PURCHASER DEEMED RELEVANT TO THE CONSUMMATION OF THIS AGREEMENT,
EXCEPT THAT NO SUCH INVESTIGATION OR EXAMINATION SHALL CONSTITUTE A WAIVER BY
PURCHASER OF ITS RIGHT TO RELY ON THE TERMS AND CONDITIONS OF THIS AGREEMENT.
4.08 HSR ACT.
In accordance with Title 16 C.F.R. Section 801.10(c)(3) promulgated under the
Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder ("HSR ACT") the ultimate parent entity of
the Purchaser has determined that the fair market value of the Additional Assets
it is acquiring from the Seller is less than $15 million. In addition the
acquisition price of the Additional Assets is less than $15 million. Thus, no
filing under the HSR Act is required for the acquisition of the Additional
Assets.
ARTICLE V - SELLER'S REPRESENTATIONS AND WARRANTIES.
The Seller represents and warrants that the following are true and
correct as of the date of this Agreement:
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5.01 ORGANIZATION AND GOOD STANDING.
The Seller and Seller's Affiliates, as applicable, are corporations duly
organized, validly existing and in good standing under the Laws of the
jurisdictions of their incorporation, with all requisite power and authority to
carry on the Business as it is now conducted and to own and operate the Assets
and the Business as and in the places where the Business is now conducted and
such Assets are now owned, located or operated. The Seller and Seller's
Affiliates, as applicable, are duly qualified and licensed to do business and
are in good standing in each jurisdiction where the nature of the Business makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the Assets and the Business taken as a whole. Each
such jurisdiction is listed in Schedule 5.01 of the Seller's Disclosure Letter.
The Seller and the Seller's Affiliates have aH necessary licenses, franchises
and permits to own and operate the Assets and to carry on the Business as
presently conducted.
5.02 AUTHORIZATION AND VALIDITY.
The execution, delivery and performance of this Agreement by the Seller and the
Supplemental Purchase and Sale Agreements by Seller's Affiliates and the
consummation of the transactions contemplated hereby and thereby have been or
will be duly authorized by all necessary corporate action on the part of the
Seller and the Seller's Affiliates. This Agreement has been duly executed and
delivered by the Seller and the Supplemental Purchase and Sale Agreements will
be duly executed and delivered by Seller's Affiliates and shall constitute
legal, valid and binding obligations of the Seller and the Seller's Affiliates,
enforceable against them in accordance with their terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium and other similar Laws and
equitable principles relating to or limiting creditor's rights generally.
5.03 EMPLOYEE BENEFIT PLANS.
As a result of the sale of Assets and Business contemplated herein, Purchaser
will not incur any liability to fund contributions or any other liability or
obligation to the Employee Benefit Plans now or at any time in the future.
5.04 ABSENCE OF CERTAIN CHANGES.
Except as set forth in Schedule 5.04 of the Seller's Disclosure Letter, since
August 31, 1998, (i) there has been no material adverse change in the financial
condition of the Business, Assets, results of operations of the Business, or the
Business taken as a whole and (ii) there have been no dispositions or
acquisitions of capital assets with a book value over $100,000, except in the
ordinary course of the Business.
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5.05 TITLE.
Except as set forth in Schedule 5.05 of the Seller's Disclosure Letter and
except for Permitted Liens, the Seller and Seller's Affiliates own good and
marketable title to, or have a valid leasehold interest in or hold a valid right
under contract or agreement to use all Assets and such property is owned, leased
or so held free and clear of any and all, liens, claims and encumbrances.
5.06 COMMITMENTS.
(a) Except as set forth in Schedule 5.06(a) of the Seller's Disclosure
Letter, the Seller and Seller's Affiliates have not entered into, nor are the
Assets bound by, whether or not in writing, any commitment which may, in any
material respect, prevent or interfere with the Seller's or Seller's Affiliates'
transfer of the Assets in accordance with this Agreement.
(b) Except as contemplated herein or as set forth in Schedule 5.06(b)
of the Seller's Disclosure Letter, (i) the Seller and Seller's Affiliates do not
currently contemplate, nor do they have any reason to believe any other person
or entity currently contemplates, any amendment or change to any Assigned
Contract which would have a material adverse effect on the Business taken as a
whole; and (ii) since August 31, 1998, none of the major suppliers of the
Business has refused, or communicated that it will or may refuse, to supply
goods or services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to sell
to the Seller and Seller's Affiliates.
5.07 INTELLECTUAL PROPERTY AND SOFTWARE.
(a) "INTELLECTUAL PROPERTY" shall mean any and all intellectual
property rights of Seller or Seller's Affiliates that covers any subject matter
that is used or has been used in the conduct of the Business through the Primary
Closing Date, including, but not limited to, all works, inventions, including
inventions embodied in patents and pending patent applications and any
divisionals, continuations continuations-in-part, reissues, reexaminations and
foreign counterparts of such patents and patent applications, discoveries,
domestic and foreign patent rights, domestic and foreign trademark rights,
domestic and foreign service mark rights, domestic and foreign copyright rights,
technology rights, confidentiality rights, third party rights, software rights,
covenant not to sue rights, warranty rights, indemnity rights, license rights,
trade dress rights, trade secrets rights, know-how, factual information,
confidential information and proprietary information of Seller or Seller's
Affiliates. With respect to continuation and divisional patent applications, any
such applications filed following the Primary Closing Date shall be included in
the definition of Intellectual Property, but continuations-in-part shall not be
included in such definition. The intellectual property held by or obtained from
NUMAR Corporation, Baroid Technologies, Inc. and Dresser Industries, Inc. is
hereby expressly excluded from the definition of Intellectual Property. Seller
and Seller's Affiliates agree to maintain keep in force all Intellectual
Property set forth in Schedule 2.01(a)(4)(a) and Schedule 14.01(a)(2)(a) for a
period of ten (10) years following the Primary Closing or until the term of such
Intellectual Property expires. Seller and Seller's
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Affiliates further agree to continue to prosecute any patent applications set
forth in Schedule 2.01(a)(4)(a) and Schedule 14.01(a)(2)(a) subject to
reasonable prospects of patentability.
(b) The Seller and Seller's Affiliates own, subject to the licenses (x)
granted to third parties by the Seller and Seller's Affiliates, and (y) granted
to the Seller and Seller's Affiliates by third parties which are listed in
Schedules 5.07(b)(i) of the Seller's Disclosure Letter, all the Intellectual
Property, or possess licenses or other rights, if any, therefor without
conflict, except as set forth in Schedule 5.07(b)(ii) of the Seller's Disclosure
Letter, with the rights of others.
(c) "SOFTWARE" shall mean a computer program or any part of such
computer program whether in source code, object code or in any other form,
whether recorded on tape or on any other media, and all modifications,
enhancements or corrections made to such program, and all documentation relating
to such program, including any flow charts, designs, instructions, job control
procedures and manuals relating to such program in printed or machine readable
form that is used or has been used in the conduct of the Business through the
Primary Closing Date.
(d) The Seller and Seller's Affiliates own, subject to the licenses (x)
granted to third parties by the Seller and Seller's Affiliates, and (y) granted
to the Seller and Seller's Affiliates by third parties which are listed in
Schedules 5.07(d)(i) of the Seller's Disclosure Letter, all the Software, or
possess licenses or other rights, if any, therefor without conflict, except as
set forth in Schedule 5.07(d)(ii) of the Seller's Disclosure Letter, with the
rights of others.
(e) The Seller and Seller's Affiliates shall grant to Purchaser
sublicenses covering third party intellectual property and software, embodied
in the LWD tools and MWD tools included as Fixed Assets, to the extent permitted
by the Seller's and Seller's Affiliates' licenses with such parties and to the
extent not permitted, will identify such third party licenses and use their best
efforts to assist Purchaser in obtaining a license from the third party.
(f) There are no third party patents or technology licenses to Seller
or Seller's Affiliates necessary for conducting the Business other than those
identified in the Seller's Disclosure Letter.
(g) There are no liens, security interests, or encumbrances on any
Intellectual Property to be licensed to Purchaser, including, but not limited
to, the licenses referred to in Schedule 2.01(a)(4)(a) and the Transferred Marks
referred to in Schedule 2.01(a)(9).
(h) Seller shall indemnify and hold harmless Purchaser from and against
any claim, suit, demand or action that the Fixed Assets or Additional Fixed
Assets, the manufacture or use of same, or the methods of use thereof as of the
Primary Closing Date infringe or misappropriate the intellectual property, such
as patents, copyrights, trade secrets, and trademarks, of any third party,
including, but not limited to the conflict set forth in Schedule 5.07(b)(ii),
for a period of two years after the Primary Closing Date; provided, however,
that (a) Purchaser shall give Seller prompt written notice of such claim, suit,
demand, or action; and (b) Purchaser shall cooperate with Seller in the defense
and settlement thereof, and (c) Purchaser shall have control of the defense of
such
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claim, suit, demand, or action and the settlement or compromise thereof. The
above notwithstanding, Seller's obligation under this Section 5.07(h) shall not
extend to any claim of infringement or misappropriation based upon (a) the Fixed
Assets or Additional Fixed Assets which have been modified after the Primary
Closing Date, where such claim of infringement or misappropriation would have
been avoided but for such modification; (b) a change in the methods of use of
the Fixed Assets or Additional Fixed Assets, where such claim of infringement or
misappropriation would have been avoided but for the change in use; (c) the
combination of the Fixed Assets or Additional Fixed Assets, or the methods of
use thereof, with other products, equipment, methods or processes not provided
by the Seller where such infringement or misappropriation would have been
avoided by the use of the Fixed Assets or Additional Fixed Assets and the
methods of use thereof without such other products, equipment, methods or
processes.
5.08 NO VIOLATION.
Except as set forth in Schedule 5.08 of the Seller's Disclosure Letter, neither
the execution and performance of this Agreement nor the consummation of the
transactions contemplated hereby will (a) result in a violation or breach of the
charter or bylaws of the Seller and Seller's Affiliates or any indenture,
agreement or other instrument to which the Seller and Seller's Affiliates is a
party or by which the Seller and Seller's Affiliates or the Assets are bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under, or result in the creation or imposition of any
lien, charge or encumbrance pursuant to, any such indenture, agreement or
instrument, or (b) violate any applicable law or regulation or any judgment or
order of any Governmental Entity.
5.09 TAXES.
Except where the failure to do so would not have an adverse effect on the Assets
and the Business taken as a whole, the Seller and Seller's Affiliates have
taken, or will take, all required actions relative to taxes of every type,
including, but not limited to, income, excise, corporate, franchise, property,
sales, payroll and withholding taxes, as they relate to the Assets and the
Business for the periods ending on or prior to the Applicable Closing Date.
5.10 GOVERNMENT APPROVALS.
Except as set forth in Schedule 5.10 of the Seller's Disclosure Letter, no
authorization, consent, approval, permit or license of, or filing with, any
Governmental Entity is required to be obtained by the Seller for the execution
and delivery of this Agreement or the consummation by the Seller of the
transactions contemplated hereby.
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5.11 LABOR RELATIONS.
Except as set forth in Schedule 5.11 of the Seller's Disclosure Letter, the
Seller and Seller's Affiliates have not experienced within the last two years
and are not experiencing as of the date of this Agreement, nor do the Seller and
Seller's Affiliates know of any reason to expect, any labor disputes, including
strikes, work stoppages, slow-downs or other material interference with or
impairment of the Business by labor, nor have the Seller and Seller's Affiliates
received in the year prior to the date of this Agreement any complaints of any
unfair labor practice with regard to the employees of the Business. The Seller
and Seller's Affiliates are not experiencing, nor does the Seller know of, any
current or contemplated union organization efforts or negotiations, or requests
for negotiations, representation or any labor contract relating to the employees
of the Business.
5.12 COMPLIANCE WITH LAWS.
Except as described in Schedule 5.12 of the Seller's Disclosure Letter, to the
knowledge of the Seller's management, there are no existing violations or
notices of violations received by the Seller and Seller's Affiliates of any
applicable federal, state, provincial or local Law or regulation that would have
an adverse effect on the Assets or the Business.
5.13 LITIGATION.
Except as described in Schedule 5.13(a) of the Seller's Disclosure Letter, the
Seller and Seller's Affiliates have not had any legal action or administrative
proceeding or investigation instituted or, to the knowledge of the Seller's
management, threatened which will have a material adverse effect on the Assets
or the Business. Except as disclosed in Schedule 5.13(b) of the Seller's
Disclosure Letter, the Seller and Seller's Affiliates are not (i) subject to any
continuing court or administrative order, writ, injunction or decree applicable
specifically to the Business, Assets or employees of the Business or (ii) in
default with respect to any such order, writ, injunction or decree. Schedule
5.13(c) of the Seller's Disclosure Letter sets forth all litigation with regard
to the Business claiming damages or losses in excess of $50,000 which is pending
as of the date of this Agreement.
5.14 EMPLOYEES.
Set forth in Schedule 5.14(a) of the Seller's Disclosure Letter is a list of all
employees of the Business as of January 13, 1999 showing such employees'
locations, positions, base compensation rate, employment date and service date.
Since August 31, 1998, except as set forth in Schedule 5.14(b) of the Seller's
Disclosure Letter, the Seller and Seller's Affiliates have not granted or become
obligated to grant any increases in the wages or salary of, or paid or become
obligated to pay any bonus or made or become obligated to make any similar
payment to, or grant any benefit to or on behalf of, any officer, employee or
agent (except in the ordinary course of business consistent with past practices
or pursuant to any plan, arrangement or policy in effect on that date). Set
forth in Schedule 5.14(c) of the Seller's Disclosure Letter is a list of
employees, showing such employees' expertise, qualifications, position, base
compensation rate, employment date and service date, whose qualifications are
suited to conduct the management of the manufacturing facility described in
Section 2.10. Set forth in Schedule 5.14(d) of the Seller's Disclosure Letter
is
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a list of employees, who are not included in Schedule 5.14(a) of the Seller's
Disclosure Letter, showing such employees' expertise, qualification, position,
base compensation rate, employment date and service date, whose technical
qualifications are suited to conduct the types of LWD research and development
described in Section 2.11. The Seller will work with Purchaser to make
reasonable arrangements to encourage the employees listed in Schedules 5.14(c)
and (d) of the Seller's Disclosure Letter to whom Purchaser extends offers of
employment to accept such employment with Purchaser.
5.15 ASSIGNED CONTRACTS:
Set forth in Schedule 2.01(a)(3)(i) of the Seller's Disclosure Letter is a list
of the Assigned Contracts, whether written or oral, (a) by which any of the
Assets are bound or (b) to which the Seller or one of Seller's Affiliates is a
party or by which they are bound and which relate exclusively to the Business
or the Assets. The Seller will make available to Purchaser complete and correct
copies of all Assigned Contracts, and accurate descriptions of all oral
Assigned Contracts, listed in Schedule 2.01(a)(3)(i) of the Seller's Disclosure
Letter or required to be listed thereon together with all amendments thereto.
Except as set forth in Schedule 5.15 of the Seller's Disclosure Letter, each
Assigned Contract is valid and enforceable in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar Laws and equitable principles relating to or limiting creditor's
rights generally; to the knowledge of the Seller's management, there are not
threatened cancellations thereof nor outstanding disputes thereunder; and, to
the knowledge of the Seller's management, there is no existing default or
event (including the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby) which, with the giving of
notice or the passage of time or both, would constitute a default under any
such Assigned Contract.
5.16 FINDER'S FEES.
Except as set forth in Schedule 5.16 of the Seller's Disclosure Letter, the
Seller has made no agreement with any person or entity nor taken any action
which would cause any person or entity to become entitled to agent's, brokers',
investment bankers' or finders' fees in connection with the transactions
contemplated hereby.
5.17 GROSS CASH MARGIN RESULTS.
A statement setting forth the gross cash margin of the Business for the
two-month period ended November 30, 1998 and pro from statements setting
forth the gross cash margin of the Business for the nine-month period ended
September 30, 1998 and the year ended December 31, 1997 are attached as
Exhibit E hereto. Such statements are herein sometimes referred to collectively
as the ""GROSS CASH MARGIN RESULTS''. The Gross Cash Margin Results have been
prepared from the books and records of Seller, but have not been audited. The
Gross Cash Margin Results fairly present, in all material respects, the gross
cash margin of the Business for the periods indicated, except as may be set
forth in Section 5.17 of the Seller's Disclosure Letter. While the transactions
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underlying the Gross Cash Margin Results were accounted for in conformity with
U.S. generally accepted accounting principles ("GAAP"), the Gross Cash Margin
Results are special purpose statements prepared for purposes of this Agreement
and are not prepared in accordance with GAAP.
5.18 YEAR 2000 READINESS DISCLOSURES.
Seller's Year 2000 Readiness Disclosure is set forth as Schedule 5.19 of
Seller's Disclosure Letter and sets forth Seller's Program Strategy, Project
Methodology and Program Organization.
5.19 HSR ACT.
Seller has entered into a Consent Decree (as defined in Section 6.09). No filing
under the HSR Act is required for the Assets that are being sold to Purchaser
which are subject to the divestiture requirements of the Consent Decree
pursuant to Title 16 C.F.R. Section 802.70 promulgated under the HSR Act.
ARTICLE VI - PURCHASER'S COVENANTS
Purchaser covenants and agrees as follows:
6.01 RETENTION OF RECORDS, COOPERATION AND ACCESS.
(a) Purchaser shall retain all original books and records of the Business
that Purchaser receives from the Seller or Seller's Affiliates. After the
Applicable Closing, the Seller, Seller's Affiliates and their representatives
shall have reasonable access to all such books and records during normal
business hours. In addition, the Seller and Seller's Affiliates shall have the
right to make abstracts or copies of any such books or records at their expense.
If Purchaser intends to dispose of any such original documents it shall give the
Seller or Seller's Affiliates written notice of such intention. The Seller or
Seller's Affiliates shall have ninety (90) days from receipt of notice either to
advise Purchaser that they do not desire to have such original documents or to
collect such documents from Purchaser at the Seller's or Seller's Affiliates'
sole cost and expense.
(b) Purchaser shall cooperate to the best of its ability with the Seller,
Seller's Affiliates and their representatives and agents (i) with respect to
performing the Seller's and Seller's Affiliates obligations under Sections
10.06 and 10.07 hereof, or (ii) in prosecuting or defending any legal or
administrative proceeding not transferred to or assumed by Purchaser.
Cooperation, as it relates to matters covered under (i) through (ii) above,
shall include, but not be limited to, causing Purchaser's employees to furnish
documents in Purchaser's possession as requested and using its best efforts to
encourage its employees to testify as witnesses, appear for depositions and
take other similar actions as the Seller or Seller's Affiliates may reasonably
request. The Seller or Seller's
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Affiliates shall reimburse Purchaser for Purchaser's out-of-pocket costs and
expenses incurred with respect to the foregoing.
(c) Prior to the Applicable Closing, Purchaser agrees that it shall not
contact customers and suppliers of the Business unless accompanied by a
representative of the Seller or Seller's Affiliates or, if such contact is in
writing, unless the writing is signed by duly authorized representatives of
Purchaser and the Seller or one of Seller's Affiliates.
6.02 TIMELY PAYMENT AND PERFORMANCE OF ASSUMED LIABILITIES.
Purchaser agrees to pay, perform and discharge each and every Assumed Liability
in due course and in accordance with the terms thereof.
6.03 SELLER'S MARKS.
Except for the limited right of Purchaser to identify its LWD tools and MWD
tools of the type acquired from Seller as being manufactured pursuant to a
license from Seller and the Business as having been acquired from Seller,
Purchaser acknowledges that the transactions contemplated hereby do not
encompass any rights with respect to the Seller's Marks. Purchaser covenants and
agrees not to publish or distribute to third parties printed matter depicting,
or otherwise use after the Applicable Closing Date, the Seller's or Seller's
Affiliates names or the Seller's Marks, or any variations thereof, except as
permitted hereby or with the prior express written consent executed by duly
authorized officers of the Seller or Seller's Affiliates. Within sixty (60) days
after the Applicable Closing Date, Purchaser agrees to delete permanently the
Seller's and Seller's Affiliates names and the Seller's Marks from all Assets,
including, without limitation, promotional materials, drawings and signage.
6.04 WARRANTY WORK.
Purchaser shall perform all service, repair, replacement and similar work
required under the Seller's and Seller's Affiliates written warranties for
services provided and products sold by the Business prior to the Applicable
Closing Date ("WARRANTY WORK"), in a workmanlike manner and consistent with the
Seller's and Seller's Affiliates past practices. Prior to commencing any such
Warranty Work, Purchaser shall notify the Seller or Seller's Affiliates in
writing of such Warranty Work claim, specifying the contractual basis therefor,
the scope of the Warranty Work proposed to be performed and the estimated
expense to be incurred in connection therewith. Upon receipt of notice of a
claim for Warranty Work, the Seller or Seller's Affiliate shall promptly advise
Purchaser in writing of any objections the Seller or Seller's Affiliate may have
that the proposed scope of Warranty Work exceeds that required under the
Seller's or Seller's Affiliate's pre-closing written warranty requirements,
specifying the basis therefor, and the parties shall thereafter attempt to
negotiate, diligently and in good faith, a mutually satisfactory resolution to
any matters in dispute. Purchaser may proceed with the Warranty Work upon the
earlier to occur of (i) fifteen (15) days after the Seller's or Seller's
Affiliate's receipt of notice of the claim for Warranty Work, if
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Purchaser has not received notification of the Seller's or Seller's Affiliate's
objections thereto or (ii) the parties' resolution of all disputed matters with
respect to such claim. The Seller or Seller's Affiliate shall reimburse
Purchaser for any such Warranty Work in an amount equal to (a) the original
ticket price for service work and product replacement, and (b) Purchaser's shop
level cost (direct materials cost plus actual overhead-burdened labor not to
exceed $45.00/hour) for repair work.
6.05 EMPLOYMENT BY PURCHASER.
Purchaser agrees that an offer of employment will be made to certain of the
Seller's or Seller's Affiliates' active employees working for the Business on
the Applicable Closing Date who are listed in Schedule 5.14(a) of the Seller's
Disclosure Letter, effective on such date and who are selected by Purchaser
immediately prior to the Applicable Closing Date. Purchaser will be responsible
for selecting from the employees specified in Schedules 5.14(c) and (d),
respectively, of the Seller's Disclosure Letter a suitable number of employees
to operate the Business, and will offer such employees compensation and benefit
programs with the intent to induce such persons voluntarily to agree to leave
the Seller's employment and become employees of Purchaser. All such persons who
may accept employment with Purchaser are hereinafter referred to as "EMPLOYEES."
Each such person offered employment on the Applicable Closing Date shall be
offered employment at equal to or greater than his or her rate of monthly or
hourly compensation in effect on the Applicable Closing Date together with
employee benefits generally available to Purchaser's other employees with
comparable years of service and rate of pay. For all applicable employee benefit
purposes, Purchaser shall give each such Employee credit for his or her prior
service with the Seller and Seller's Affiliates as shown in Schedules 5.14(a),
(c) and (d) of the Seller's Disclosure Letter. Purchaser shall be responsible
for and shall indemnify the Seller from and against any and all liability under
the Worker Adjustment and Retraining Notification Act, in the event Purchaser
fails or refuses to offer employment to a sufficient number of the Seller's
employees to avoid liability under the act.
6.06 NOTICE OF CHANGE.
To the extent of Purchaser's knowledge, Purchaser shall give the Seller prompt
written notice of any material changes in any of the information contained in
the representation and warranties made in Article IV or elsewhere in this
Agreement or the Purchaser's Disclosure Letter that occur on or prior to the
Primary Closing.
6.07 COMPETITION FILINGS.
Purchaser shall as soon as practicable after the date of this Agreement make
filings under competition laws of jurisdictions other than the United States as
required, if any. Purchaser agrees to use its good faith efforts to eliminate
any concern on the part of any Governmental Entity regarding the legality of the
transactions contemplated under this Agreement or the acceptability of
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Purchaser as the purchaser of the Business and in that regard shall cooperate
with Seller and Seller's Affiliates in providing information requested by any
Governmental Entity.
6.08 INTENDED USE.
The Purchaser acknowledges that the Seller makes no warranty, express or
implied, regarding the commercial suitability or environmental quality of the
Owned Real Property or Leased Real Property for Purchaser's intended use.
Purchaser's knowledge of its intended commercial activity is superior to that of
the Seller and consequently the Seller cannot offer, and has not offered, any
warranty, express or implied, with regard to Purchaser's intended commercial use
of the Owned Real Property or Leased Real Property.
6.09 COMPLIANCE WITH CONSENT DECREE.
In accordance with Section III. B. of the proposed Final Judgment filed with the
court in United States of America v. Halliburton Company and Dresser Industries,
Inc. Civil Action Number 98CV02340 (D.C.D.C. September 29, 1998) (the "CONSENT
DECREE"), a copy of which is attached hereto as Exhibit G, the Purchaser agrees
that the Consent Decree shall be binding on the Purchaser.
6.10 LICENSE REQUEST.
Purchaser shall promptly after execution of this Agreement request and execute
licenses for the intellectual property listed in Schedule 6.10 of Purchaser's
Disclosure Letter.
6.11 PHASE II STUDY.
After execution of this Agreement, the Seller shall give Purchaser access to the
Owned Real Property for purposes of Purchaser performing a Phase II
environmental study.
ARTICLE VII - SELLER'S COVENANTS
The Seller covenants and agrees that from the date of this Agreement until the
Applicable Closing:
7.01 BUSINESS OPERATIONS.
The Seller shall conduct, and shall cause Seller's Affiliates to conduct, the
Business only in the ordinary course consistent with past practices and the
requirements of the Consent Decree, and the Seller shall use, and shall cause
Seller's Affiliates to use, commercially reasonable efforts to preserve intact
the Business and the goodwill of its customers and suppliers. The Seller shall
not take, and shall cause Seller's Affiliates not to take, any action that will
materially impair the Business or Assets without the prior written consent of
Purchaser, or take or fail to take any action
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that would cause or permit the representations made in Article V hereof to be
inaccurate at the time of the Applicable Closing or preclude the Seller from
making such representations and warranties at the Applicable Closing, except to
the extent such action is necessary to protect the business or assets of the
Seller and Seller's Affiliates.
7.02 ACCESS.
The Seller shall permit, and shall cause Seller's Affiliates to permit,
Purchaser or its authorized representatives, during normal business hours, full
access to, and make available for inspection, all of the Assets and the
documents, records and information, including, but not limited to, documents,
records and information concerning the Business' customers and suppliers, which
pertain to such Assets and to the Business, all for the sole purpose of
permitting Purchaser to become familiar with the Assets and the Business. In
that connection, the Seller shall cause, and shall cause Seller's Affiliates to
cause, its officers and employees and the management personnel of the Business
to cooperate fully with Purchaser's reasonable requests.
7.03 APPROVALS OF THIRD PARTIES.
As soon as practicable after the execution of this Agreement, through the
Applicable Closing Date and to the extent reasonably required, the Seller will
use, and will cause Seller's Affiliates to use, all reasonable efforts to secure
all necessary approvals, consents, permits and authorizations of third parties
to the consummation of the transactions contemplated by this Agreement,
including consents necessary to assign to Purchaser and have Purchaser assume
all Assigned Contracts and Additional Assigned Contracts (other than Retained
Contracts). Such efforts shall include, to the extent necessary, providing such
third parties with information about Purchaser and Purchaser's Affiliates.
7.04 EMPLOYEE COMPENSATION AND BENEFIT MATTERS.
Except with Purchaser's prior written consent or pursuant to contracts or plans
in existence as of the date of this Agreement, and except for normal annual
salary increases consistent with past practices, prior to the Applicable
Closing, no increase will be made in the compensation or rate of compensation
payable or to become payable to the employees of the Business, no bonus, profit
sharing, retirement, insurance, death benefits, fringe benefit or other
extraordinary or indirect compensation shall accrue, be set aside or be paid to,
for or on behalf of any of such officers or employees other than pursuant to the
terms of the Employee Benefit Plans as presently constituted, and no employment
or benefit related agreement or plan other than those now in effect shall be
committed for or adopted.
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7.05 CONTRACTS.
Except with Purchaser's prior written consent, the Seller shall not waive, and
shall cause Seller's Affiliates not to waive, any material right or cancel any
material contract or claim related to the Business.
7.06 CAPITAL ASSETS; PAYMENTS OF LIABILITIES.
Except with Purchaser's prior written consent, the Seller will not acquire or
dispose of, and shall cause Seller's Affiliates not to acquire or dispose of,
any Assets which are capital assets used in the Business, except in the ordinary
course of business consistent with past practices. The Seller shall, and shall
cause Seller's Affiliates to, discharge or satisfy all liens on the Assets other
than Permitted Liens and shall pay all other liabilities of the Seller and
Seller's Affiliates which relate to the Business as they become due through the
Applicable Closing Date.
7.07 MORTGAGES, LIENS.
Except with Purchaser's prior written consent or except in the ordinary course
of the Business consistent with the conduct of the Business at the date of this
Agreement, the Seller will not, and shall cause Seller's Affiliates to not,
enter into or assume any mortgage, pledge, conditional sale or other title
retention agreement relating to the Assets, or voluntarily permit any lien,
encumbrance or claim of any kind, other than a Permitted Lien, to attach to any
of the Assets, whether now owned or hereafter acquired.
7.08 NOTICE OF CHANGE.
To the extent of the knowledge of the Seller's management, the Seller shall give
Purchaser prompt written notice of any material changes in any of the
information contained in the representations and warranties made in Article V or
elsewhere in this Agreement or the Seller's Disclosure Letter that occur on or
prior to the Applicable Closing.
7.09 COMPETITION FILINGS.
Seller shall as soon as practicable after the date of this Agreement make
filings under competition laws of jurisdictions other than the United States as
required, if any. Seller agrees to use its good faith efforts to eliminate, and
cause Seller's Affiliates to use their good faith efforts to eliminate, any
concern on the part of any Governmental Entity regarding the legality of the
transactions contemplated under this Agreement.
7.10 AUDIT.
Following the Applicable Closing Date the Purchaser may seek to offer its
securities in a public offering or offerings. In this connection Purchaser may
need as yet to be determined financial information concerning the Business for
the year ended December 31, 1998, and the period from January 1, 1999 to the
Applicable Closing Date. Purchaser may need to have certain of such
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financial information audited by an independent public accounting firm that is
registered with the Securities and Exchange Commission. In order to assist
Purchaser in this regard, for a period of 12 months following the Applicable
Closing Date Seller shall, upon written notice by Purchaser, provide full access
and cooperation to an independent public accounting firm selected to conduct
such audit work. Seller will use commercially reasonable efforts to provide the
requested information to the Purchaser as soon as possible. Such independent
public accounting firm shall be selected and retained by Purchaser with the
approval of Seller, which approval shall not be unreasonably withheld. Seller
agrees to pay the fees and expenses such independent public accounting firm
charges for performing such audit work up to a total of $50,000. In addition,
for a period of twelve (12) months following the Applicable Closing Date, Seller
shall provide full access and cooperation to the independent public accounting
firm selected by Purchaser for any further historical information required in an
offering or by the SEC. Seller does not warrant that the information provided or
that the audit results will be suitable for Purchaser's intended purpose.
7.11 IMMUNITY FROM PROSECUTION.
Seller agrees on behalf of itself and its Affiliates not to prosecute a claim
against Purchaser for intellectual property infringement or misappropriation of
the Intellectual Property listed in Schedule 2.01(a)(4)(a)(i), subject to the
limitations set forth therein, or the Additional Intellectual Property listed in
Schedule 14.01(a)(2)(a), subject to the limitations set forth therein, and other
intellectual property embodied in the tools or equipment included in Fixed
Assets and the Additional Equipment or that have been embodied therein as of the
Primary Closing Date.
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ARTICLE VIII - PURCHASER'S CONDITIONS PRECEDENT
TO THE PRIMARY CLOSING
Except as may be waived in writing by Purchaser (with the exception of
Section 8.07 which cannot be waived), the Purchaser's obligation to close the
transactions contemplated under this Agreement is subject to the fulfillment at
or prior to the Primary Closing of each of the following conditions:
8.01 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Seller contained herein shall be true
and correct in all material respects as of the Primary Closing (except where
such representation and warranty is made as of a date specifically set forth
therein), subject to any changes contemplated by this Agreement, and Purchaser
shall not have discovered any material error, misstatement or omission therein.
8.02 COVENANTS.
The Seller shall have performed and complied in all material respects with all
covenants or conditions required by this Agreement to be performed and complied
with by it prior to the Primary Closing.
8.03 PROCEEDINGS.
No action, proceeding or order by any Governmental Entity shall have been
threatened or instituted to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement, and the waiting period and any
statutory extension thereof applicable to the consummation of the transactions
contemplated hereby under the HSR Act, if applicable, shall have expired or been
terminated and no action, suit or proceeding shall have been initiated by the
Antitrust Division of the United States Department of Justice or the Federal
Trade Commission challenging the transactions contemplated hereby under the
Clayton Act or the Sherman Act.
8.04 NO MATERIAL ADVERSE CHANGE.
Other than as contemplated by Section 12.17, no material adverse change in the
Assets or the Business taken as a whole shall have occurred after the date of
this Agreement and prior to the Primary Closing.
8.05 BILL OF SALE.
The parties hereto shall have executed and delivered the Bill of Sale,
Assignment and Assumption Agreement.
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8.06 DELIVERY OF DOCUMENTS.
All other documents, including the Transition Services Agreement and the
Supplemental Purchase and Sale Agreements, required under the terms of this
Agreement to be executed and delivered by the Seller to Purchaser at or prior to
the Primary Closing shall have been so delivered.
8.07 APPROVAL PURSUANT TO CONSENT DECREE.
Pursuant to the Consent Decree, the United States of America, as plaintiff,
shall have provided written notice to Seller that it has no objection to the
consummation of the transactions contemplated hereby and the closing of such
transactions.
8.08 CERTIFICATE.
The Seller shall have delivered to Purchaser a certificate dated as of the
Primary Closing and signed by an authorized officer of the Seller to the effect
that all of the covenants, terms and conditions of this Agreement to be complied
with and performed by the Seller at or before the Primary Closing have been
complied with and performed in all material respects.
8.09 TRANSFER OF INTELLECTUAL PROPERTY LICENSES.
The Seller shall have obtained the right to transfer the third party licenses
set forth in Schedule 8.09 of Purchaser's Disclosure Letter to the Seller and
such licenses shall have been transferred to Purchaser; and, subject to
Purchaser's prompt request for the licenses set forth in Schedule 6.10 of
Seller's Disclosure Letter, Purchaser shall have received new licenses from the
previous licensors of Seller.
ARTICLE IX - SELLER'S CONDITIONS PRECEDENT TO THE PRIMARY CLOSING
Except as may be waived in writing by the Seller (with the exception
of Section 9.07 which cannot be waived), the Seller's obligation to close the
transactions contemplated under this Agreement is subject to fulfillment at or
prior to the Primary Closing of each of the following conditions:
9.01 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Purchaser contained herein shall be true
and correct in all material respects as of the Primary Closing (except where
such representation and warranty is made as of a date specifically set forth
therein), subject to any changes contemplated by this Agreement, and the
Seller shall not have discovered any material error, misstatement or omission
therein.
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9.02 COVENANTS.
Purchaser shall have performed and complied in all material respects with all
covenants or conditions required by this Agreement to be performed and complied
with by it prior to the Primary Closing.
9.03 PROCEEDINGS.
No action, proceeding or order by any Governmental Entity shall have been
threatened or instituted to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement, and the waiting period and any
statutory extension thereof applicable to the consummation of the transactions
contemplated hereby under the HSR Act, if applicable, shall have expired or been
terminated and no action, suit or proceeding shall have been initiated by the
Antitrust Division of the United States Department of Justice or the Federal
Trade Commission challenging the transactions contemplated hereby under the
Clayton Act or the Sherman Act.
9.04 PURCHASE PRICE.
Purchaser shall have paid the Purchase Price in accordance with Section 3.04(a).
9.05 BILL OF SALE.
The parties hereto shall have executed and delivered the Bill of Sale,
Assignment and Assumption Agreement.
9.06 DELIVERY OF OTHER DOCUMENTS.
All other documents, including the Transition Services Agreement and the
Supplemental Purchaser and Sale Agreements, required under the terms of this
Agreement to be executed and delivered by Purchaser to the Seller at or prior to
the Primary Closing shall have been so delivered.
9.07 APPROVAL PURSUANT TO CONSENT DECREE.
Pursuant to the Consent Decree, the United States of America, as plaintiff,
shall have provided written notice to Seller that it has no objection to the
consummation of the transactions contemplated hereby and the Primary Closing of
such transactions.
9.08 CERTIFICATE.
Purchaser shall have delivered to the Seller a certificate dated as of the
Primary Closing and signed by an authorized officer of Purchaser to the effect
that all of the covenants, terms and conditions of this Agreement to be complied
with and performed by Purchaser at or before the Primary Closing have been
complied with and performed in all material respects.
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ARTICLE X - LIABILITY AND INDEMNIFICATION
10.01 SELLER'S LIABILITY AND INDEMNITY.
Subject to the terms and conditions of this Article X, the Seller hereby agrees
to be liable for and to indemnify, defend and hold Purchaser and its officers,
directors, agents and attorneys harmless from and against all losses, claims,
obligations, demands, assessments, penalties, liabilities, costs, damages,
reasonable attorneys' fees and expenses (collectively, "DAMAGES") asserted
against or incurred by any or all of them by reason of or resulting from:
(a) An Excluded Liability;
(b) A breach or failure of any representation, warranty or covenant of
the Seller contained in this Agreement or in any agreement executed pursuant to
this Agreement and not waived in writing by Purchaser;
(c) The use of retained tools, use of the facilities of Purchaser or
utilization of employees of Purchaser by Seller's Affiliates to complete a
Retained Contract; and
(d) The failure to comply with applicable bulk sales laws.
10.02 PURCHASER'S LIABILITY AND INDEMNITY.
Subject to the terms and conditions of this Article X, Purchaser hereby agrees
to be liable for and to indemnify, defend and hold the Seller and Seller's
Affiliates and their officers, directors, agents and attorneys harmless from and
against all Damages asserted against or incurred by any or all of them by reason
of or resulting from:
(a) An Assumed Liability; and
(b) A breach or failure of any representation, warranty or covenant of
Purchaser contained in this Agreement or in any agreement executed pursuant to
this Agreement and not waived in writing by the Seller or Seller's Affiliates.
10.03 BASKET.
Subject to the provisions of this Section 10.03, the Seller shall not be liable
to Purchaser or required to indemnify Purchaser pursuant to Section 10.01 unless
and until the aggregate amount of the Damages suffered or incurred by Purchaser,
other than those Damages described in Section 10.04 below, exceeds two percent
(2%) of the Purchase Price (the "BASKET"). In the event that the
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aggregate amount of such Damages exceeds the Basket, the Seller shall be
responsible for such Damages, but only to the extent that they are in excess of
the Basket.
10.04 NON-BASKET ITEMS.
The following Damages shall not be included in the calculation of the Basket:
(a) Finder's fees for which the Seller is liable pursuant to
Section 5.16;
(b) Any and all claims related to Excluded Liabilities; and
(c) Any and all claims related to Retained Contracts.
10.05 CAP.
The Seller's liability to Purchaser for Damages described in Section 10.01(b)
shall not exceed the Purchase Price; provided, however, that those Damages
described in Section 10.04 above shall not be subject to this Section 10.05.
10.06 RESPONSIBILITY FOR BREACH OF AGREEMENT.
The respective obligations and liabilities of the Seller and Purchaser to the
other for Damages pursuant to Sections 10.01(b) and 10.02(b) hereof are
subject to the provisions of Section 12.16.
10.07 CONDITIONS OF INDEMNIFICATION.
The respective obligations and liabilities of the Seller and Purchaser (the
"INDEMNIFYING PARTY") to the other (the "INDEMNIFIED PARTY"), for Damages
pursuant to Sections 10.01(a), 10.01(c) and 10.02(a) hereof shall be subject to
the following terms and conditions:
(a) Within twenty (20) days (or such earlier time as might be required
to avoid prejudicing the Indemnifying Party's position) after receipt of notice
of commencement of any action evidenced by service of process or other legal
pleading, or with reasonable promptness after the assertion in writing of any
claim by a third party, the Indemnified Party shall give the Indemnifying
Party written notice thereof together with a copy of such claim, process or
other legal pleading, and the Indemnifying Party shall have the right to
undertake the defense thereof by representatives of its own choosing and at its
own expense; provided, however, that the Indemnified Party may participate in
the defense with counsel of its own choice and at its own expense.
(b) In the event that the Indemnifying Party, by the thirtieth (30th)
day after receipt of notice of any such claim (or, if earlier, by the tenth
(10th) day preceding the day on which an answer or other pleading must be served
in order to prevent judgment by default in favor of the
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person asserting such claim), does not elect to defend against such claim, the
Indemnified Party will (upon further notice to the Indemnifying Party) have the
right to undertake the defense, compromise or settlement of such claim on behalf
of and for the account and risk of the Indemnifying Party and at the
Indemnifying Party's expense, subject to the right of the Indemnifying Party to
assume the defense of such claim at any time prior to settlement, compromise or
final determination thereof upon reimbursement to the Indemnified Party of all
costs and expenses incurred by the Indemnified Party in conjunction with such
defense to that date.
(c) Anything in this Section 10.07 notwithstanding, the Indemnifying
Party shall not settle any claim without the consent of the Indemnified Party
unless such settlement involves only the payment of money and the claimant
provides to the Indemnified Party a release from all liability in respect of
such claim. If the settlement of the claim involves more than the payment of
money, the Indemnifying Party shall not settle the claim without the prior
consent of the Indemnified Party, which consent shall not be unreasonably
withheld.
(d) The Indemnified Party and the Indemnifying Party will each
cooperate with all reasonable requests of the other.
10.08 REMEDIES EXCLUSIVE.
In the event of breach of this Agreement or default hereunder, the remedies of
the parties shall be limited to those set forth in this Article X and Section
12.07. No right to rescission or other common law right of action shall exist
with respect to any breach of this Agreement or default hereunder.
ARTICLE XI - GUARANTIES
11.01 GUARANTY OF HALLIBURTON COMPANY.
For and in consideration of the benefits to be derived directly and indirectly
from this Agreement, Guarantor covenants and agrees to indemnify Purchaser
(i) from any and all obligations assumed by Seller pursuant to Section 10.01 and
(ii) performance of all other obligations of Seller and Seller's Affiliates
hereunder. Guarantor's obligations pursuant hereto are subject to Purchaser
complying with Article X and other applicable provisions of this Agreement.
Guarantor's obligation is a guarantee of payment and performance and it shall
not be necessary for Purchaser to first proceed against Seller. Guarantor's
obligation shall extend for the same period as Seller's obligations under
Section 10.01. Guarantor further agrees to, and to cause all its Affiliates (for
so long as they are Affiliates) to, comply with the noncompetition obligation of
the Seller set forth in Section 12.18.
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11.02 GUARANTY OF SELLER.
For and in consideration of the benefits to be derived directly and indirectly
from this Agreement, the Seller covenants and agrees to indemnify Purchaser from
any and all obligations of Seller's Affiliates under this Agreement and the
Supplemental Purchase and Sale Agreements.
11.03 GUARANTY OF PURCHASER.
For and in consideration of the benefits to be derived directly and indirectly
from this Agreement, Purchaser covenants and agrees to indemnify the Seller and
Seller's Affiliates from any and all obligations of Purchaser's Affiliates under
this Agreement and the Supplemental Purchase and Sale Agreements.
ARTICLE XII - MISCELLANEOUS
12.01 AMENDMENT.
This Agreement may be amended, modified or supplemented only by an instrument in
writing executed by a duly authorized officer of each party to this Agreement.
12.02 ASSIGNMENT.
This Agreement and all the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
but neither party may assign their rights and obligations hereunder, by
operation of law or otherwise, without the prior written consent of the other
party, which consent may be withheld for any reason whatsoever. Notwithstanding
the preceding sentence, (i) Purchaser may direct the Seller and Seller's
Affiliates in writing to transfer all or a portion of the Assets to one or more
of Purchaser's Affiliates, provided such Purchaser's Affiliates shall agree to
assume the obligations of Purchaser under this Agreement or a Supplemental
Purchase and Sale Agreement, as applicable, with respect to such Assets;
however, such allocation of Assets and assumption of obligations by Purchaser's
Affiliates shall not affect the obligations of Purchaser to the Seller under
this Agreement and (ii) Seller's obligations may be assumed by an Affiliate
which is a successor by merger to the Seller.
12.03 NOTICE.
Any notice or communication must be in writing and given by depositing the same
in the United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or by
delivering the same in person or by courier or by sending such notice or
communication by facsimile transmission. Such notice shall be deemed received on
the earlier of the date on which it is hand-delivered or otherwise actually
received or on the third business day
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following the date on which it is so mailed. For purposes of notice, the
addresses of the parties shall be:
If to the Seller: Halliburton Energy Services, Inc.
4100 Clinton Drive
Houston, Texas 77020
Attention: Vice President & Associate
General Counsel
Telephone: (713) 676-5162
Telecopy: (713) 676-4414
with a copy (which shall not
constitute notice) to: Halliburton Company
3600 Lincoln Plaza
500 N. Akard St.
Dallas, Texas 75201-3391
Attention: Executive Vice
President and General Counsel
Telephone: (214) 978-2600
Telecopy: (214) 978-2783
If to Purchaser: W-H Energy Services, Inc.
10370 Richmond Avenue, Suite 990
Houston, Texas 77042
Attention: Chairman
Telephone: (713) 974-9071
Telecopy: (713) 974-7029
with a copy to: Gardere Wynne Sewell & Riggs, L.L.P.
Three Allen Center,
333 Clay Avenue, Suite 800
Houston, Texas 77002-4086
Attention: David Jungman
Telephone: (713) 308-5603
Telecopy: (713) 276-6603
with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1177 West Loop South, Tenth Floor
Houston, Texas 77027-9095
Attention: Lester L. Hewitt
Telephone: (713) 850-0909
Telecopy: (713) 850-0165
Any party may change its address for notice by written notice given to the
other party.
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12.04 PRE-CLOSING CONFIDENTIALITY.
Except for a joint press release to be issued upon execution of this Agreement,
each party shall keep this Agreement and its terms confidential until the
Primary Closing, unless in the opinion of its counsel disclosure is required by
Law or the rules of a national securities exchange. In the event that the
transactions contemplated by this Agreement are not consummated for any reason
whatsoever, Purchaser and the Seller hereby (i) acknowledge and agree to be
bound by all the terms and conditions set forth in the Confidentiality
Agreement attached hereto as Exhibit F and (ii) agree that, notwithstanding the
execution and delivery of the Agreement, the Confidentiality Agreement will
remain in full force and effect.
12.05 POST-CLOSING CONFIDENTIALITY.
Neither party shall disclose nor use to compete with the other any confidential
information pertaining to such party which is obtained from such other party
pursuant to this Agreement or any document delivered in connection herewith or
with the transactions contemplated hereby, except as such use or disclosure may
be required in the course of performance hereof and such disclosure as may, in
the opinion of such party's counsel, be required by law. After the Primary
Closing, the Seller shall not (except at the request of Purchaser) use or
disclose to any third party any of the technical, financial, operational or
marketing information pertaining to the Business except after and to the extent
such information is or becomes generally available to the public through no
fault of the Seller or as may be necessary in connection with the Seller's
remaining or future businesses or as may, in the opinion of the Seller's
counsel, be required by Law. In conducting the Business, the Seller has
collected digital or paper records of LWD log data collected from customer
wells. Such data is the property of the respective customer, not of the Seller.
This data shall be made available to Purchaser as successor to the Business.
Seller may retain copies of any or part of these log files at Seller's expense.
Purchaser and Seller each agree to maintain as confidential and secret the log
data from customer wells, unless specifically released by the customer. The
parties shall take all reasonable efforts to cause their respective directors,
officers, employees and agents to observe the provisions of this Section 12.05.
12.06 ENTIRE AGREEMENT.
This Agreement, the Exhibits hereto (including the Confidentiality Agreement)
and the Supplemental Purchaser and Sale Agreements supersede all prior
agreements and understandings relating to the subject matter hereof, except that
the obligations of any party under any agreement executed pursuant to this
Agreement shall not be affected by this Section.
12.07 COSTS, EXPENSES AND LEGAL FEES.
Whether or not the transactions contemplated hereby are consummated, each party
hereto shall bear its own costs and expenses (including, without limitation,
attorneys', brokers', agents', investment bankers' and finders' fees), except
that each party hereto agrees to pay the costs and expenses,
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<PAGE> 46
including reasonable attorneys' fees, incurred by the other party in
successfully (a) enforcing any of the terms of this Agreement or a Supplemental
Purchase and Sale Agreement, or (b) proving that the other party breached any of
the terms of this Agreement or a Supplemental Purchase and Sale Agreement in any
material respect.
12.08 SEVERABILITY.
If any provision of this Agreement or a Supplemental Purchase and Sale Agreement
is held to be illegal, invalid or unenforceable, such provision shall be fully
severable and this Agreement and the Supplemental Purchase and Sale Agreements
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof or thereof, and the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom or
therefrom.
12.09 WAIVER.
All of the original rights and powers of either party hereunder shall remain in
force notwithstanding any neglect, forbearance or delay in enforcement thereof
and neither party shall be deemed to have waived any of its rights or any
provision of this Agreement or a Supplemental Purchase and Sale Agreement or any
notice given hereunder or thereunder unless such waiver is in a writing signed
by an officer of the waiving party. No such waiver by either party of any breach
by the other party of this Agreement or a Supplemental Purchase and Sale
Agreement shall be deemed a waiver of any continuing, future or recurring
breach.
12.10 GOVERNING LAW.
THIS AGREEMENT AND THE SUPPLEMENTAL PURCHASE AND SALE AGREEMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE CHOICE OF LAW PROVISIONS THEREOF OR SUCH PROVISIONS OF ANY OTHER
JURISDICTION.
12.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
Any legal action, suit or proceeding in law or equity arising out of or relating
to this Agreement or a Supplemental Purchase and Sale Agreement or any of the
transactions contemplated herein or therein shall be instituted in any state or
federal court in Harris County, Texas, and each party agrees not to assert, by
way of motion, as a defense or otherwise, in any such action, suit or
proceeding, any claim that it is not subject personally to the jurisdiction of
such court, that its property is exempt or immune from attachment or execution,
that the action, suit or proceeding is brought in an inconvenient forum, that
the venue of the action, suit or proceeding is improper or that this Agreement
or a Supplemental Purchase and Sale Agreement or the subject matter hereof or
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thereof may not be enforced in or by such court. Each party further irrevocably
submits to the jurisdiction of any such court in any such action, suit or
proceeding. Any and all service of process and any other notice in any such
action, suit or proceeding shall be effective against either party if given by
registered or certified mail, return receipt requested or by any other means of
mail which requires a signed receipt, postage prepaid, mailed to such party at
the address listed in Section 12.03 herein.
12.12 CAPTIONS.
The captions in this Agreement are for convenience of reference only and shall
not limit or otherwise affect any of the terms or provisions hereof.
12.13 COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.
12.14 ADDITIONAL AGREEMENTS.
Subject to the terms and conditions herein provided, each of the parties hereto
agrees to use all reasonable efforts to take, or cause to be taken, all actions
and to do, or to cause to be done, all things necessary, proper or advisable to
consummate and to make effective as promptly as practicable the transactions
contemplated by this Agreement, including without limitation using all
reasonable efforts to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings.
12.15 BULK SALES COMPLIANCE.
The parties hereto waive compliance with all applicable provisions, if any, of
the bulk sales Laws of the countries and states in which the Assets are located,
or similar Laws of any jurisdiction.
12.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
All representations, warranties, covenants and agreements of the parties
contained in this Agreement or in the Seller's Disclosure Letter and the
Purchaser's Disclosure Letter shall survive the execution and delivery of this
Agreement and consummation of the transactions provided for in this Agreement
and any related agreements, notwithstanding any investigation made by or on
behalf of the parties. With the exception of Sections 4.02, 5.02, 5.03 and 5.05,
the representations and warranties contained in Articles IV and V shall
terminate and be of no further force or effect on the second anniversary of the
Primary Closing Date. The covenant contained in Section 6.01 shall continue in
full force and effect until the tenth anniversary of the Primary Closing Date.
The covenant contained in Section 6.09 shall continue in full force and effect
until expiration of the Consent Decree. The representations and warranties
contained in Sections 4.02, 5.02, 5.03 and 5.05
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and any other covenants and agreements of the parties set forth in this
Agreement shall continue in full force and effect until the expiration of the
applicable statute of limitations (if any). Any representation, warranty,
covenant or agreement as to which a bona fide claim thereto is asserted during
the applicable survival period shall, with respect to such claim, survive such
survival period. No representation, warranty, covenant or agreement shall merge
into any acts of sale, bills of sale, assignments, documents, agreements and
instruments to be delivered at the Applicable Closing.
12.17 RISK OF LOSS.
The risk of any loss, damage, impairment, confiscation or condemnation of the
Assets, or any part thereof, shall be upon the Seller or Seller's Affiliates at
all times prior to the Applicable Closing. In any such event, the proceeds of,
or any claim for any loss payable under any insurance policy, judgment or award
with respect thereto shall be payable to the Seller or Seller's Affiliates. In
such event, the Seller or Seller's Affiliates shall either: (i) repair, replace
or restore any such property as soon as possible after its loss, impairment,
confiscation or condemnation; or (ii) if insurance proceeds are sufficient to
repair, replace or restore the property, pay such proceeds to the Purchaser on
the Applicable Closing Date; provided that in the event of damage that would
have a material adverse effect on the Business or the Assets taken as a whole,
either party may, by written notice made pursuant to Section 12.03, terminate
this Agreement.
12.18 NONCOMPETITION.
The Seller agrees that after the Primary Closing Date it will not, (and after
the Applicable Closing Date will cause Seller's Affiliates to refrain from),
directly or indirectly, including by a licensee other than Purchaser, offer LWD
services using the CWRGM Resistivity - GR Tool, the DNSC Density-Neutron Tool
and the SCWR Slim Resistivity Tool, provided (i) the Seller may provide LWD
services using such tools to complete the Retained Contracts, (ii) the Seller
may continue to offer sonic LWD tools and services using sonic LWD tools of the
type sold to Purchaser, and (iii) the Seller may continue to use, license,
transfer or sell the underlying Intellectual Property and Software licensed to
Purchaser. For the purpose of clarity, nothing in the preceding sentence shall
prevent Seller from offering LWD services (i) using LWD tools acquired by
Halliburton Company ("Halliburton") from Dresser Industries, Inc. ("Dresser")
and its Affiliates or subsequently developed by the LWD business which was
conducted by Dresser and is now conducted by Halliburton by virtue of the merger
of a wholly-owned subsidiary of Halliburton with and into Dresser on September
29, 1998, (ii) using LWD tools developed by NUMAR Corporation, a wholly owned
subsidiary of Halliburton ("NUMAR") and its Affiliates and (iii) using LWD tools
acquired from a third party.
12.19 RESTRICTION ON TRANSFER.
Purchaser agrees that it will not, and that it will obligate any Person to whom
Purchaser transfers any of the Assets to not, transfer by any means any of the
Assets or Additional Assets Purchaser acquires from Seller or Seller's
Affiliates to Schlumberger Limited or Baker Hughes Incorporated
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or any of their Affiliates during the life of the Consent Decree, provided that
Purchaser shall be entitled to make the Assets or Additional Assets available to
any joint venture in which Purchaser participates.
ARTICLE XIII - TERMINATION
13.01 TERMINATION RIGHTS.
This Agreement and the transactions contemplated hereby may be terminated at any
time prior to the Primary Closing:
(a) by mutual agreement as evidenced by execution and delivery of a written
agreement to that effect by duly authorized officers of Purchaser and the
Seller; or
(b) by written notice given by one of the parties hereto to the other party
hereto if the Primary Closing hereunder has not occurred by March 28, 1999,
through no fault of the party providing said notice; or
(c) by notice pursuant to Sections 12.17 or 13.02.
13.02 PERFORMANCE EXCUSED.
The Seller and Purchaser shall be excused from performance of this Agreement to
the extent required by the notice, order or judgment of any Governmental Entity
prohibiting or delaying performance by any of the parties. In the event Primary
Closing is delayed beyond March 28, 1999 by a Governmental Entity, either party
may terminate this Agreement upon three (3) days' written notice to the other,
and the parties shall have no further obligation or liability to each other
thereafter under this Agreement.
13.03 CONTINUING OBLIGATIONS.
Any termination pursuant to this Article XIII shall not affect the obligations
of the parties hereto under Sections 12.04, 12.05 and 12.11 hereof.
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ARTICLE XIV - ADDITIONAL ASSETS
14.01 SALE AND PURCHASE OF ADDITIONAL ASSETS.
(a) ADDITIONAL ASSETS TRANSFERRED.
Subject to and upon the terms and conditions contained herein, at the
Primary Closing, the Seller, and at the Secondary Closing, the Seller's
Affiliates, shall sell, transfer, assign, grant, convey and deliver to Purchaser
and Purchaser shall purchase, accept and acquire from the Seller and the
Seller's Affiliates, all of the Seller's and Seller's Affiliates' rights, titles
and interests in and to the properties, assets and rights which are set forth on
Schedules 14.01(a)(1)(a), 14.01(a)(1)(b), 14.01(a)(1)(c), 14.01(a)(1)(d), (the
"ADDITIONAL EQUIPMENT") 14.01(a)(2)(a) and 14.01(a)(2)(b) (the "ADDITIONAL
LICENSES") of the Seller's Disclosure Letter (collectively and individually, the
"ADDITIONAL ASSETS"). The Additional Assets are not subject to the Consent
Decree and shall be limited to the following:
(1) ADDITIONAL EQUIPMENT. The Additional Equipment shall consist of
the following tools in the quantities and subject to the delivery
schedules set forth in the applicable Schedules of Seller's Disclosure
Letter:
(a) STRATATRACKER TOOLS. The StrataTracker tools listed in
Schedule 14.01(a)(1 )(a) of the Seller's Disclosure Letter.
(b) DYNAMIC PRESSURE MODULE TOOLS. The Dynamic Pressure Module
tools listed in Schedule 14.01 (a)(1)(b) of the Seller's
Disclosure Letter.
(c) TRACS ADJUSTABLE STABILIZER TOOLS. The TRACS Adjustable
Stabilizer tools listed in Schedule 14.01(a)(1)(c) of the
Seller's Disclosure Letter.
(d) HDS1 MWD TOOLS. The HDS1 MWD Tools listed in Schedule
14.01(a)(1)(d) of the Seller's Disclosure Letter.
(2) ADDITIONAL LICENSES.
(a) ADDITIONAL INTELLECTUAL PROPERTY. Subject to the third party
licenses granted to the Seller and Seller's Affiliates as set
forth in Schedule 5.07(b)(i) of the Seller's Disclosure Letter,
non-exclusive, non-sublicensable, irrevocable, royalty-free,
worldwide licenses to intellectual property set forth in Schedule
14.01 (a)(2)(a) of the Seller's Disclosure Letter (the
"ADDITIONAL INTELLECTUAL PROPERTY"), together with the right to
use, manufacture, have manufactured for it, lease and sell the
Additional
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Equipment and the right to use the Additional Intellectual
Property embodied in the Additional Equipment.
(b) ADDITIONAL SOFTWARE. Subject to the third party licenses
granted to the Seller and Seller's Affiliates as set forth in
Schedule 5.07(d)(i) of the Seller's Disclosure Letter,
non-exclusive, non-sublicensable, irrevocable, royalty-free,
worldwide licenses as set forth in Schedule 14.01(a)(2)(b) the
Seller's Disclosure Letter to use and copy the additional
software and create derivative works based thereon.
14.02 RIGHT OF FIRST REFUSAL.
The Seller grants to Purchaser a right of first refusal to purchase any
of the equipment currently in the inventory of Seller and its Affiliates of the
same type and version as the Additional Equipment retained by Seller and its
Affiliates at a price and on terms equivalent to that offered to the Seller by a
third party. The term of this right of first refusal shall be for a period of
five (5) years after the Primary Closing Date. Purchaser shall have one (1) week
after written notice of Seller's intended sale of such equipment in which to
match the third party offer. If Purchaser fails to respond with a matching
offer, then Seller shall be free to sell to such third party the quantity of
equipment offered to Purchaser. For purposes of this Section 14.02, a transfer
from Seller to its Affiliates or amongst Affiliates of Seller shall not be
deemed a sale to which this right of first refusal applies. Nothing contained in
this Section 14.02 shall require Seller or its Affiliates to manufacture or
offer such equipment for sale to third parties. Equipment of the same type,
regardless of version, as the Additional Equipment that is manufactured after
the Closing Date shall not be subject to Purchaser's right of first refusal.
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IN WITNESS WHEREOF, this Purchase and Sale Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
SELLER:
Halliburton Energy Services, Inc.,
a Delaware corporation
/s/ LESTER L. COLEMAN
-------------------------------------
By: Lester L. Coleman
Its: Vice President
PURCHASER:
W-H Energy Services, Inc.
a Texas corporation
/s/ KENNETH T. WHITE, JR.
-------------------------------------
By: Kenneth T. White, Jr.
Its: Chairman and Chief Executive
Officer
Guarantor is executing this Agreement for the limited purpose of evidencing its
guaranty as set forth in Section 11.01 and its noncompetition obligation set
forth in Section 12.18 of this Agreement. Except for such purposes, Guarantor
shall not otherwise be deemed a party to this Agreement.
GUARANTOR:
Halliburton Company,
a Delaware corporation
/s/ LESTER L. COLEMAN
- ------------------------------
By: Lester L. Coleman
Its: Executive Vice President and General Counsel
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EXHIBIT A
FORM OF BILL OF SALE, ASSIGNMENT
AND ASSUMPTION AGREEMENT
BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT ("BILL OF SALE")
dated *, 1999, by and between Halliburton Energy Services, Inc. ("SELLER" and *
("PURCHASER").
Purchaser desires to buy and the Seller desires to sell and to cause
Seller's Affiliates to sell, on the terms and conditions set forth herein,
certain assets and properties exclusively related to or exclusively used or held
for use in connection with business of providing logging-while drilling ("LWD")
services, together with the measurement-while-drilling ("MWD") business used in
conjunction with the LWD business (the "BUSINESS"), together with the Additional
Equipment and Additional Licenses, conditioned upon the assumption of certain
liabilities arising out of the Business by the Purchaser.
All terms used but not defined herein shall have the meanings ascribed
thereto in the Purchase and Sale Agreement, dated as of the * day of January,
1999, by and among the Seller, Purchaser and the Guarantor (the "AGREEMENT").
Schedule references are to Schedules to the Seller's Disclosure Letter. This
Bill of Sale is being executed and delivered in order to effect the transfer of
Assets and Additional Assets (to the extent owned by Seller) to, and the
assumption of the Assumed Liabilities by, the Purchaser, all as provided for in
the Agreement.
NOW, THEREFORE, in consideration of the Purchase Price paid by the
Purchaser to the Seller and the assumption of the Assumed Liabilities by the
Purchaser, the receipt and sufficiency of which by each Purchaser and the Seller
is hereby acknowledged:
1.0 ASSIGNMENT. The Seller hereby sells, transfers, assigns, grants,
conveys and delivers unto the Purchaser, its successors and assigns, all of the
Seller's right, title and interest in and to the properties, assets, and rights
described in this Bill of Sale owned by Seller and listed in the Seller's
Disclosure Letter as the "Assets" and the "Additional Assets" respectively:
(1) FIXED ASSETS. All fixtures, machinery, equipment, tools
and supplies listed in Schedule 2.01(a)(1) (the "FIXED ASSETS").
(2) INVENTORY. The inventory of spare parts, replacements,
component parts and supplies that are set forth in Schedule 2.01(a)(2) (the
"INVENTORY").
(3) ASSIGNED CONTRACTS. To the extent assignable, all rights
(or the portion pertaining to the Business only for contracts involving services
other than those performed by the Business and then only to the extent
specified) under the contracts, agreements, leases, sales orders, purchase
orders, and other arrangements and commitments listed in Schedule 2.01(a)(3)(i)
<PAGE> 54
("ASSIGNED CONTRACTS"), and all contracts, agreements, leases, sales orders,
purchase orders and other arrangements and commitments (or the portion
pertaining to the Business only for contracts involving services other than
those performed by the Business and then only to the extent specified) entered
into in the ordinary course of business of the Business by the Seller or
Seller's Affiliates after the date of the Agreement and through the Closing Date
and listed in Schedule 2.01(a)(3)(ii) ("ADDITIONAL ASSIGNED CONTRACTS).
(4) LICENSES.
(a) INTELLECTUAL PROPERTY. Subject to the third party
licenses granted to the Seller and Seller's Affiliates as set forth in Schedule
5.07(b)(i), non-exclusive, non-sublicensable, irrevocable, royalty-free,
worldwide licenses as set forth in Schedule 2.01(a)(4)(a) to use, manufacture,
have manufactured for it, lease and sell the equipment and tools and the right
to use the Seller's Intellectual Property embodied in such equipment and tools
as are used in the conduct of operations of the Business.
(b) SOFTWARE. Subject to the third party licenses granted to
Seller and Seller's Affiliates as set forth in Schedule 5.07(d)(i),
non-exclusive, non-sublicensable, irrevocable, royalty-free, worldwide licenses
as set forth in Schedule 2.01(a)(4)(b) to use and copy the Software and create
derivative works based thereon, as is used in the conduct of the Business as
embodied in the equipment and tools.
(5) BOOKS AND RECORDS. Originals or copies of documents,
papers, agreements, drawings, designs, plans, methods, engineering and
manufacturing specifications, formulas, procedures, computer programs and
customer lists which relate exclusively to the Assets and are set forth on
Schedule 2.01(a)(5).
(6) MOTOR VEHICLES. All motor vehicles owned by the Seller,
listed on Schedule 2.01(a)(6)(i), and all rights of the Seller to such motor
vehicles leased by the Seller, listed on Schedule 2.01(a)(6)(ii).
(7) PERMITS AND LICENSES. All transferable business licenses,
permits, and equivalent documents, listed on Schedule 2.01(a)(7).
(8) INTENTIONALLY LEFT BLANK
(9) TRANSFERRED MARKS. The registered and common law
trademarks and service marks, trademark and service mark registration
applications, both foreign and domestic, that are set forth in Schedule
2.01(a)(9).
(10) ADDITIONAL EQUIPMENT. The Additional Equipment that is
set forth in Schedules 14.01(a)(1)(a), 14.01(a)(1)(b), 14.01(a)(1)(c) and
14.01(a)(1)(d).
(11) ADDITIONAL LICENSES. The Additional Licenses that are set
forth in Schedules 14.01(a)(2)(a) and 14.01(a)(2)(b).
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The Purchaser acknowledges that the Seller's Disclosure Letter lists
Assets and Additional Assets that are owned by Seller's Affiliates, in addition
to the Assets and Additional Assets owned by the Seller. This Bill of Sale
sells, transfers, assigns, conveys and delivers only the Assets and Additional
Assets owned or leased by the Seller.
TO HAVE AND TO HOLD, all and singular, the Assets and Additional Assets
and properties hereby sold, conveyed, transferred, assigned and delivered, or
intended so to be, unto the Purchaser, and its successors and assigns, to and
for its own use forever.
2.0 ASSETS NOT TRANSFERRED. Except for the Assets set forth on
Schedules 2.01(a)(1), 2.01(a)(2), 2.01(a)(3)(i) and (ii), 2.01(a)(4)(a) and (b),
2.01(a)(5), 2.01(a)(6)(i) and (ii), 201(a)(7) and 2.01(a)(9), and the Additional
Assets set forth on Schedules 14.01(a)(1)(a), 14.01(a)(1)(b) 14.01(a)(1)(c),
14.01(a)(1)(d), 14.01(a)(2)(a) and 14.01(a)(2)(b) or the Assets transferred
pursuant to the Act of Sale, as described more particularly in the Agreement,
all other properties, assets and rights of every kind and description, whether
personal, tangible or mixed, are excluded from the Assets and Additional Assets
and shall be retained by the Seller and Seller's Affiliates and their
Affiliates.
3.0 ASSUMPTION OF LIABILITIES BY THE PURCHASER.
3.1 ASSUMED LIABILITIES. In consideration of the sale,
conveyance, transfer, assignment and delivery of the Assets and Additional
Assets by the Seller to the Purchaser, its successors and assigns, the Purchaser
hereby assumes and agrees to pay, honor and discharge in accordance with the
terms thereof all of the Assumed Liabilities. The term "ASSUMED LIABILITIES"
shall mean only the following liabilities and obligations relating to the
Business, Assets and Additional Assets:
3.1.1 ASSIGNED CONTRACTS. Any and all liabilities,
obligations and commitments of the Business that arise out of or relate to the
Assigned Contracts listed on Schedule 2.01(a)(3)(i) and the Additional Assigned
Contracts listed on Schedule 2.01(a)(3)(ii), but in any case, not including any
liability for any breach thereof occurring prior to the Applicable Closing Date.
3.1.2 TAXES. Any and all taxes which may be
applicable to the Business, Assets and Additional Assets with respect to periods
beginning with the Applicable Closing Date, or arising from events or
occurrences on or after the Applicable Closing Date, including without
limitation, income, ad valorem, personal property, sales, value added, goods and
services, use or transfer taxes resulting from the sale of the Assets and
Additional Assets to Purchaser and/or the Purchaser's ownership of the Assets
and Additional Assets. The burden of ad valorem taxes, real property taxes,
personal property taxes and other similar taxes for the tax year in which the
Applicable Closing occurs based on the ownership of the Assets and Additional
Assets shall be prorated based on the Seller's and Purchaser's respective
ownership of the Assets and Additional Assets during the tax year in which the
Applicable Closing occurs.
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Any sum required to be paid by one party to the other as a result of such
proration shall be paid by wire transfer of immediately available funds.
3.1.3 SPECIFIC UNDERTAKINGS. Any and all liabilities,
obligations and commitments specifically undertaken by the Purchaser pursuant to
the other terms of the Agreement.
3.1.4 PRODUCT LIABILITIES. All risks associated with
the use following the Applicable Closing Date of any equipment purchased
hereunder as part of the Assets and Additional Assets, including liability to
any third party for any injury or damage to persons or property and any damage
to the equipment itself, due to any condition of, defect in or design of the
equipment, latent or otherwise, whether such condition, defect or design now
exists or hereafter occurs.
3.1.5 CERTAIN OTHER COSTS AND OBLIGATIONS. Any and
all costs and obligations, whether direct or indirect including, without
limitation, administrative costs, related to any unassigned contract or claim of
which the Purchaser obtains the benefit pursuant to Section 2.03 of the
Agreement.
3.2 EXCLUDED LIABILITIES. The Purchaser shall not assume and
shall not be responsible for any liabilities, obligations or commitments of the
Seller other than the Assumed Liabilities (the "EXCLUDED LIABILITIES").
3.3 SHARED LIABILITIES. Liabilities relating to the Business
for utility charges or with respect to rentals payable on leased property
included as part of the Assets and Additional Assets, which in either case are
for periods beginning before and ending after the Applicable Closing Date, shall
be shared by the Seller and Purchaser on the basis of the proportionate number
of calendar days in such period.
4.0 POWER OF ATTORNEY. The Seller covenants and agrees with the
Purchaser that the Seller will, whenever and as often as required to do so by
the Purchaser, execute, acknowledge and deliver any and all such other deeds,
assignments, transfers, conveyances, confirmations, powers of attorney, and any
instruments of further assurance, approval and consent, and take such other
action as the Purchaser may hereafter reasonably deem necessary or proper in
order to complete or perfect the conveyance and transfer to the Purchaser of the
assets, properties and rights conveyed and transferred hereby or intended to be
so conveyed and transferred.
5.0 BINDING INSTRUMENT. This instrument shall be binding on the parties
hereto and their respective successors and assigns. Nothing in this instrument,
express or implied, is intended to confer upon any person other than the
foregoing, any rights, remedies, obligations or liabilities under or by reason
of this instrument, except as expressly provided herein.
6.0 FURTHER BILLS OF SALE. The Seller and the Purchaser shall execute
such further individual bills of sale and assignment and assumption agreements
as may be appropriate to effect the transfer of specific Assets and Additional
Assets to the Purchaser from the Seller. The
4
<PAGE> 57
Seller and the Purchaser specifically recognize that, with regard to this Bill
of Sale, such further bills of sale and assignment and assumption agreements
shall be deemed to be corrective bills of sale and assignment and assumption
agreements to the extent that they purport to convey the same Assets and
Additional Assets as are covered by this Bill of Sale and to such extent shall
be deemed to have replaced this Bill of Sale without requiring the parties to
specifically amend this Bill of Sale. Except as provided in this Paragraph 6.0,
this Bill of Sale shall continue in full force and effect without change.
7.0 SELLER'S AFFILIATES BILLS OF SALE. The Seller shall cause Seller's
Affiliates to enter into such individual bills of sale and assignment and
assumption agreements as may be appropriate to effect the transfer of specific
Assets and Additional Assets to the Purchaser from the Seller's Affiliate.
8.0 COUNTERPARTS. This Bill of Sale may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Purchaser and the Seller have caused this Bill
of Sale to be executed in their respective corporate names by their respective,
duly authorized officers on and as of the day and year first written above.
SELLER:
Halliburton Energy Services, Inc.,
a Delaware corporation
By:
---------------------------
Its:
---------------------------
PURCHASER:
*
a * corporation
By:
---------------------------
Its:
---------------------------
5
<PAGE> 58
STATE OF TEXAS )
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public in and for said State, on
this day personally appeared ___________________, the ___________________ of
Halliburton Energy Services, Inc., a Delaware corporation, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed, and in the capacity therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this ____ day of
____________________, 1999.
-----------------------------------
[Seal] Notary Public
My commission expires:
-------------
STATE OF _______)
COUNTY OF _______)
BEFORE ME, the undersigned, a Notary Public in and for said State, on
this day personally appeared ___________________, the ___________________ of *,
a * corporation, known to me to be the person and officer whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, and in the
capacity therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this ____ day of
____________________, 1999.
-----------------------------------
[Seal] Notary Public
My commission expires:
-------------
6
<PAGE> 1
EXHIBIT 10.13
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of July 27, 1998, is between DRILL MOTOR
SERVICES, INC., a Louisiana corporation (herein referred to as the "Buyer"), W-H
ENERGY SERVICES, INC., a Texas corporation ("W-H Energy"), and Steve Goree,
Travis Goree and E. Ashford Brock (herein referred to as the "Stockholders"),
being the owners of all of the issued and outstanding shares of capital stock of
AGRI-EMPRESA INC., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Stockholders own all of the issued and outstanding shares
of capital stock of the Company (herein called the "Stock"); and
WHEREAS, the Stockholders, whether one or more, own all of the issued
and outstanding shares of capital stock of Agri-Empresa, Inc., Agri-Empresa
Transportation, Inc., Lonestar Distribution, Inc. and Superior Packaging &
Distribution, Inc. (herein collectively called the "Companies"); and
WHEREAS, Buyer is a wholly-owned subsidiary of W-H Energy, and desires
to acquire, upon the terms and subject to the conditions and for the
consideration herein set forth, the Stock as well as the capital stock of each
of the Companies pursuant to Stock Purchase Agreements between the Buyer and the
stockholders of each of the Companies.
NOW, THEREFORE, the parties hereto agree as follows:
I. SALE AND TRANSFER OF STOCK
1.1. CLOSING DATE. The closing of the purchase and sale of the Stock
shall take place at the offices of Vinson & Elkins L.L.P., 3600 First City
Tower, Houston, Texas at 9:00 a.m. on July
<PAGE> 2
27, 1998, or such other place or date as may be agreed upon by the parties
hereto, such date being herein referred to as the "Closing Date".
1.2 SALE AND PURCHASE. On the Closing Date the Stockholders shall
deliver to Buyer certificates representing the Stock of the Company, duly
endorsed in blank, or accompanied by duly executed stock powers in blank, and in
proper form for transfer. Upon the consummation of the transactions contemplated
herein, the Stock shall be reissued in the name of the Buyer. In consideration
therefor, Buyer shall on the Closing Date deliver to the Stockholders the
following:
(i) $4,500,000 cash; and
(ii) warrants (the "Warrants"), in the form attached hereto as
Exhibit A to each of the Stockholders to purchase the number
of shares of Class A Common Stock of W-H Energy set opposite
their names on the signature page hereto at $135.00 per share
for a term of five (5) years.
The cash and Warrants are collectively referred to herein as the "Purchase
Price" and shall be allocated among the Stockholders as set forth on the
signature page hereto. The parties hereto agree to use for all tax reporting
purposes $22.03 as the value of each of the Warrants.
1.3 ESCROW. Concurrently with the Closing Date, the Buyer shall cause
$430,000 of the Purchase Price (the "Escrow Deposit") to be placed in escrow
with Republic National Bank of New York (the "Escrow Agent") pursuant to an
Escrow Agreement, a copy of which is attached hereto as Exhibit B. The Escrow
Deposit shall be held by the Escrow Agent together with an escrow deposit of the
Stockholders of the other Companies, which together with the Escrow Deposit
shall aggregate $2,000,000 on behalf of the stockholders of all of the
Companies, the $2,000,000 shall be
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<PAGE> 3
held in escrow for twenty-four (24) months from the Closing Date to reimburse
the Buyer for any breaches of the representations and warranties made by the
Stockholders in this Agreement and the stockholders in the Stock Purchase
Agreements for all the Companies.
II. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The Stockholders hereby represent and warrant to Buyer as follows:
2.1 OWNERSHIP OF STOCK. Each Stockholder is the record and beneficial
owner of the number of duly authorized, issued, fully paid and nonassessable
shares of Stock of the Company set forth opposite his name on the signature page
hereof and holds, and will on the Closing Date hold, such shares free and clear
of all security interests, encumbrances, pledges, options, charges and
assessments, with full right and power to sell, assign, exchange, transfer and
deliver the Stock to Buyer as herein provided.
2.2 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, has all
corporate power to carry on its business as is now being conducted, and is duly
qualified and authorized to do business and is in good standing in each
jurisdiction where the failure to so qualify could have an adverse effect on the
Company's assets, business or financial condition.
2.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, $1.00 par value, of which 1,389
shares at the date hereof are issued and outstanding; and all of which issued
and outstanding shares have been validly issued and are fully paid and
nonassessable and none of which were issued in violation of the preemptive
rights of any
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<PAGE> 4
stockholder of the Company or of any applicable federal or state securities
laws. There are no agreements or understandings that affect or relate to the
voting or transfer of rights or interests in the Stock.
2.4 OPTIONS, ETC. The Company does not have outstanding any option,
warrant or other right to purchase or convert any obligation into, any shares of
its capital stock, and as of the date hereof it has not agreed to issue or sell
any shares of its capital stock.
2.5 FINANCIAL STATEMENTS. Except as set forth on Exhibit C attached
hereto, the unaudited balance sheets of the Company as of December 31, 1996 and
December 31, 1997, and the related reviewed statements of income for the twelve
(12) months ending December 31, 1996 and December 31, 1997 and the unaudited
balance sheets and statements of income for the five (5) months ending May 31,
1997 and May 31, 1998 (the "Financial Statements"), copies of each of which have
been previously delivered to and reviewed by Buyer, have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with that of prior years or periods, are complete and fairly present
the financial position and results of operations of the Company as of the dates
and for the periods indicated; the Financial Statements make full and adequate
provision for all obligations and liabilities, whether accrued, absolute,
contingent, known or unknown, or otherwise, of the Company and the Company had
no obligation or liability, whether accrued, absolute, contingent or otherwise,
not reflected or reserved against in the Financial Statements at such dates.
2.6 NO CHANGES. Except as set forth on Exhibit C attached hereto, since
the dates of the Financial Statements, there has not been and prior to the
Closing Date there shall not have been (i)
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<PAGE> 5
any adverse change in the financial condition, business, properties or assets of
the Company, (ii) any loss or damage to any of the properties or assets of the
Company (whether or not covered by insurance), (iii) any labor trouble or any
other event or condition of any character which has adversely affected or might
adversely affect the business of the Company, (iv) any mortgage or pledge of any
of the properties or assets or any indebtedness incurred by the Company, except
in the ordinary course of business, (v) any issuance, sale or other disposition
by the Company of any of its shares of capital stock or of any evidences of
indebtedness or other securities of the Company, or any rights, warrants or
options with respect to any such securities, (vi) any change in any existing
material contract or any new contract, commitment or obligation entered into by
the Company, other than in the ordinary course of business, (vii) any sale or
other disposition of any properties or assets of the Company which were material
or potentially material to its business or operations, except inventory,
equipment and supplies sold or disposed of in the ordinary course of business,
(viii) any loan or advance or payment of any kind to any person or corporation,
except payments in respect of liabilities set forth in the Financial Statements,
current liabilities incurred in the ordinary course of business since such dates
and ordinary expense advances to employees, (ix) any dividend or other
distribution made or declared on the capital stock of the Company, (x) any
significant change in any method of management, operation or accounting of the
Company, or (xi) any increase in compensation to the Company's employees.
2.7 TAXES. The Company has prepared and filed with the appropriate
federal, state and local governmental agencies, and all political subdivisions
thereof, all tax returns heretofore required to be filed and has paid all
amounts shown to be due and claimed to be due on such tax returns. As
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<PAGE> 6
of the date hereof, the Company is not a party to any pending action or
proceeding by any federal, state or local governmental authority for assessment
or collection of taxes, nor has any claim for assessment or collection of taxes
been asserted against the Company. No tax returns of the Company have been or
are currently being audited by the Internal Revenue Service or any other taxing
authority. The Company has not executed or filed with the Internal Revenue
Service or any other taxing authority any agreement extending the period for
assessment or collection of any taxes. Any tax which is imposed upon The Company
by reason of Internal Revenue Code Section 1374 shall be for the account of
Buyer and the Stockholders shall not directly or indirectly indemnify Buyer or
W-H Energy for all or any part thereof.
All such tax returns and the information and data contained therein
have been properly and accurately compiled and completed and reflect all
liabilities for taxes for the periods covered by such tax returns.
A valid Subchapter S election, as described in Internal Revenue Code
Section 1362(a) is presently in effect and has been in effect since March 14,
1997 (the "S Period"); no event has occurred, nor has any action been taken by
the Company or the Stockholders during the S Period that would terminate the
Company's status as a Subchapter S corporation. Concurrently with the Closing
Date, the Stockholders shall cause a Section 338(h)(10) election to be filed
with the Internal Revenue Service.
2.8 TITLE. The Company has good and indefeasible title to all of its
properties and assets, including those reflected in the Financial Statements,
except as since sold or otherwise disposed of in the ordinary course of
business, free and clear of all security interests, liens, charges, claims or
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<PAGE> 7
encumbrances, except (i) as reflected on the Financial Statements, (ii) the lien
of taxes not yet due or payable or being contested in good faith by appropriate
proceedings, and (iii) such imperfections of title and encumbrances, if any, as
do not materially detract from the value, or interfere with the present or
future use, of the properties of the Company or otherwise materially impair its
business operations; and all leases pursuant to which the Company leases any
real or personal property are valid and effective with respect to the Company
and, to the best knowledge of the Stockholders with respect to the lessors, in
accordance with their respective terms, and there is not any existing default or
event of default or event which with notice or lapse of time or both would
constitute a default under any of such leases.
2.9 LIST OF CONTRACTS, ETC. Attached as Exhibit D is a list of the
following, which is complete and accurate, except to the extent that any
omission would not have an adverse effect on the Company:
(1) All real property owned by the Company, and all leases,
options or other rights in real property to which the Company
is a party, with a brief description of all principal
buildings and structures thereon and the termination date of
options and leases, and the conditions of renewal and annual
rentals under such leases;
(2) All policies of insurance in force with respect to and
covering the business and properties of the Company with an
indication as to expiration dates and premiums paid and
payable thereon;
(3) All existing contracts and commitments involving more than
$10,000 to which the Company is a party;
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<PAGE> 8
(4) All employment and consulting agreements, executive
compensation plans, employee pension or retirement plans and
employee profit sharing plans of the Company, and all of which
will be terminated by the Company on the Closing Date;
provided, however, the Company has not previously maintained
and does not presently maintain any employee plan that was or
is subject to the Employment Retirement Income Security Act of
1974, as amended;
(5) All material contracts or agreements, oral or written,
presently outstanding and not referred to above; and
(6) The name of each bank in which the Company has an account or
safe deposit box and the names of all persons authorized to
draw thereon or to have access thereto.
2.10 NO DEFAULT. The Company is not in default in any material respect
under the terms of any contract, agreement, lease, license or instrument to
which it is a party and the consummation of this Agreement will not result in a
breach or default in any contract, agreement, lease, license or instrument to
which the Company is a party.
2.11 LITIGATION. Except as set forth on Exhibit E attached hereto,
there are no actions, suits or proceedings pending or, to the knowledge of the
Stockholders threatened, against or affecting the Company, at law or in equity,
or pending before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
2.12 CORPORATE ACTION; CHARTER AND BYLAWS. The Stockholders have
heretofore delivered to Buyer true and complete copies of the Articles of
Incorporation and Bylaws of the Company as in effect on the date hereof. The
Stockholders have heretofore delivered to Buyer true and complete
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<PAGE> 9
copies of the minute books and stock records of the Company. Buyer has inspected
and reviewed all such corporate documents. Such minute books and stock records
correctly reflect in all material respects all corporate actions taken at all
meetings of, or by written consents of, directors of the Company (including
committees thereof) and stockholders, including but not limited to actions taken
at such meetings relating to the organization of the Company, the issuance of
shares of capital stock of the Company and the incurrence by the Company of any
indebtedness.
2.13 RECEIVABLES. Except as set forth in the Financial Statements or on
Exhibit C attached hereto, the Company has good and valid title to all of its
receivables (both billed and unbilled), free and clear of all security interests
or liens, and all such receivables are free of any defenses, counterclaims and
setoffs and are collectible in full, except to the extent of any reserve for bad
debts included in the Financial Statements.
2.14 MACHINERY AND EQUIPMENT. A list of the machinery, rental tools and
other equipment owned by the Company is attached hereto as Exhibit F and all of
the same are in generally good repair, reasonable wear and tear excepted, and
suitable for the purposes for which they are presently being used.
2.15 COMPLIANCE WITH LAWS; ENVIRONMENTAL MATTERS.
(a) The business of the Company is not currently and has not been
during the past ten (10) years conducted in violation of any
law or any ordinance or regulation of any governmental entity,
the violation of which would result in an adverse effect on
the Company. No investigation or review by any governmental
entity (including without limitation any audit or similar
review by any federal, state or local taxing authority)
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<PAGE> 10
with respect to the Company is pending for which the Company
has received notice or, to the knowledge of the Company,
threatened. A copy of all environmental studies or reports
conducted on behalf of the Company during the past five (5)
years have been delivered to the Buyer and Buyer has reviewed
all such studies and reports.
(b) Attached hereto as Exhibit G is a list of all material
licenses, permits and certifications (federal, state, foreign
and local) required by law for the Company to conduct its
businesses in the cities and states in which it conducts its
business, and such licenses, permits and certifications are in
full force and effect. During the past two years, the Company
has not had any such licenses, permits or certifications
suspended or revoked. No proceeding is pending for which the
Company has received notice or, to the knowledge of the
Stockholders, threatened, seeking the revocation or limitation
of any of such licenses, permits and certifications.
(c) Specifically, without limiting the other representations and
warranties contained herein, the Company and its properties
are in compliance with all applicable published rules and
regulations (and applicable standards and requirements) of the
United States Environmental Protection Agency ("EPA") and of
all similar state and local agencies in those states in which
the Company owns assets or conducts business, the failure to
comply with which would result in an adverse effect on the
Company. There is no suit, claim, action or proceeding now
pending for which the Company has received notice before any
court, governmental agency or board or, to the knowledge of
the Stockholders, threatened, by any person or entity for
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<PAGE> 11
noncompliance by the Company (or by any other person with
respect to any of the Company's properties) with any material
environmental law, rule or regulation. There are no citations,
fines or penalties heretofore assessed against the Company or
with respect to any of its properties for which the Company
has received notice under any federal, state or local law that
remain unpaid, nor has the Company received any notices or any
other communications expressly addressed to it from the EPA,
the Occupational Safety and Health Administration or any other
federal, state or local agency or other governmental entity
with respect to any violations or alleged violations of any
federal, state or local law or regulation.
2.16 EMPLOYEE AND LABOR MATTERS.
(a) The Company does not provide employee post-retirement medical
or health coverage.
(b) To the best of the Stockholders' knowledge, there are no labor
disputes or disruptions to which the Company is a party. The
Company is not a party to or bound by any contract, agreement
or understanding with any labor union. The Company has not
received and has no reasonable basis from which to expect to
receive notice from any union or employees setting forth
demands for representation, elections or for present or future
changes in wages, terms of employment or working conditions.
(c) To the best of the Stockholders' knowledge, there are no
claims, pending or threatened, involving any pension or
welfare plans, or other plans or arrangements by a current or
former employee (or beneficiary thereof) of the Company that,
individually or in the aggregate, would have an adverse effect
on the Company.
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<PAGE> 12
2.17 BROKERAGE FEES. The Company and the Stockholders have not retained
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby that would result in any liability to the
Company or Buyer.
2.18 TRADE NAMES, TRADEMARKS, PATENTS, ETC. Attached hereto as Exhibit
H is a list of all trademarks, patents, know-how, trade names, service marks,
copyrights, registrations or applications, whether pending or contemplated, with
respect thereto, renewals, assignments, or expectancies, and all rights in, to
or respecting such renewals and licenses or rights under the same currently
owned or being used by the Company in connection with its business, and to the
extent indicated in Exhibit H the same have been duly registered in the offices
as are indicated therein. The Company is the owner of its trademarks, patents,
trade names, service marks, copyrights, renewals and related rights, and the
holder of the full record title to the trademark registrations that it purports
to own, which registrations are in full force and effect and are free and clear
of any liens, encumbrances, equities, claims and obligations to other persons,
of whatever kind or character. There are no claims or demands of any other
person, firm or corporation pertaining to any of such rights; and no proceedings
have been instituted, are pending or, to the knowledge of the Stockholders, are
threatened which challenge any of the right of the Company in respect thereto.
2.19 ADDITIONAL FACTS. At the date hereof, the Stockholders are not,
and on the Closing Date will not be, aware of any specific matter relating
specifically to the Company which could reasonably be expected to have an
adverse effect on the business or financial condition of the Company as
presently being conducted or of any material facts or circumstances not
disclosed to
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<PAGE> 13
Buyer in writing which should be disclosed to Buyer in order to make any of the
representations or warranties made on the part of the Stockholders herein not
misleading.
III. REPRESENTATIONS AND WARRANTIES OF BUYER AND W-H ENERGY
Buyer and W-H Energy jointly and severally make the following
representations and warranties:
3.1 ORGANIZATION OF BUYER AND W-H ENERGY . Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana with all requisite corporate power and authority to own and to lease
property and to carry on its business as now conducted. W-H Energy is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas with all requisite corporate power and authority to own
and to lease property and to carry on its business as now conducted.
3.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
of this Agreement by Buyer and W-H Energy and the issuance of the Purchase Price
has been duly authorized by all necessary corporate action of Buyer and W-H
Energy. This Agreement and the Warrants constitute valid and binding obligations
of Buyer and W-H Energy.
3.3 INVESTMENT INTENT. The Stock is being acquired by Buyer as an
investment and not with a view to the distribution thereof in violation of the
Securities Act of 1933, as amended.
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<PAGE> 14
3.4 CAPITALIZATION. The authorized capital stock of W-H Energy consists
of 900,000 shares of Class A Common Stock, $1.00 par value, of which 275,000
shares at the date hereof are issued and outstanding and 100,000 shares of Class
B Common Stock, $1.00 par value, none of which shares are issued and
outstanding; and all of which issued and outstanding shares of Class A Common
Stock have been validly issued and are fully paid and nonassessable and none of
which were issued in violation of the preemptive rights of any stockholder of
the Company or of any applicable federal or state securities laws. In addition,
W-H Energy has issued or has authorized the issuance of options and/or Warrants
to its officers, directors, employees and stockholders to purchase 98,594 shares
of Class A Common Stock of W-H Energy at $73.00 per share, 750 shares at $100.00
per share, 6,750 shares at $115.00 per share and 700 shares at $125.00 per
share. All of the outstanding capital stock of Buyer has been validly issued, is
fully paid and nonassessable and is owned by W-H Energy. W-H Energy has
reserved, and will at all times reserve, sufficient shares of its Class A Common
Stock for issuance upon exercise of the Warrants.
3.5 FINANCIAL STATEMENTS. The consolidated balance sheet as of
September 30, 1997, and the related consolidated statement of operations for the
twelve (12) months ending September 30 and the unaudited consolidated balance
sheet as of May 31, 1998 and the unaudited consolidated statement of operations
for the five (5) months ended May 31, 1998 (the "Financial Statements of W-H
Energy"), copies of which have been delivered to the Stockholders, have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with that of prior years or periods, are complete and fairly
present the financial position and results of operations of W-H Energy as of the
dates and for the periods indicated; the Financial Statements of W-H
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<PAGE> 15
Energy make full and adequate provision for all material obligations and
liabilities, whether accrued, absolute, contingent, known or unknown, or
otherwise, of W-H Energy and W-H Energy had no material obligation or liability,
whether accrued, absolute, contingent or otherwise, not reflected or reserved
against in the Financial Statements of W-H Energy at such dates.
3.6 SECTION 338(h)(10) ELECTION. Concurrently with the Closing Date,
Buyer shall join in the filing of a Section 338(h)(10) election with the
Internal Revenue Service. In connection therewith, Buyer shall cause any
necessary consents to be given and elections made so that the Stockholders take
into account under sections 1366 and 1367 of the Internal Revenue Code gain from
the deemed sale of the Company's assets and do not recognize any gain on the
sale of their Company Stock to Buyer. Buyer and W-H Energy agree to indemnify
and reimburse the Stockholders for any additional taxes that may become payable
by the Stockholders as a result of the filing by the Company of said Section
338(h)(10) election. In particular, Buyer and W-H Energy shall pay to
Stockholders from time to time and within fifteen (15) days of written demand
from Stockholders, such additional amounts which when reduced by all taxes which
are payable by reason of the receipt thereof are equal to the taxes, interest
and penalties which are payable by the Stockholders on or before that time and
which would not have been payable by the Stockholders if the Section 338(h)(10)
election had not been made. The obligations to make payments pursuant to the
preceding sentence shall not be subject to the provisions of Section 4.1 or of
any other provision hereof which limits the time at which any such amount is
payable.
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<PAGE> 16
3.7 INDEMNIFICATION FOR VENDOR GUARANTEES. Buyer agrees to indemnify
and hold the Stockholders harmless from all liability for all personal
guarantees made by them to the Company's Vendors for goods purchased by the
Company from and after the date of this Agreement.
3.8 ADDITIONAL FACTS. At the date hereof, Buyer is not, and on the
Closing Date will not be, aware of any material facts or circumstances not
disclosed to the Stockholders in writing which should be disclosed to the
Stockholders in order to make any of the representations or warranties made on
the part of the Buyer herein not misleading. All information heretofore
furnished by Buyer and W-H Energy to the Stockholders in writing as to the
business, operations, assets, properties, prospects or condition (financial or
otherwise) of W-H Energy does not contain any untrue statement of a material
fact and when read together with the provisions of this Agreement does not omit
to state any fact necessary to make a statement herein or therein not
misleading.
IV. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
4.1 SURVIVAL. All representations, warranties, covenants and agreements
of Buyer and W-H Energy contained in this Agreement or in any certificates,
instruments or documents delivered pursuant hereto shall survive the Closing
Date and all representations, warranties, covenants and agreements of the
Stockholders contained in this Agreement or in any certificates, instruments or
documents delivered pursuant hereto shall survive the Closing Date and continue
in full force and effect until twenty-four (24) months from the Closing Date
(the "Survival Date"), regardless of any investigation or "due diligence"
performed or made by or on behalf of any Indemnified Party prior to the Closing
Date or any actual knowledge of an Indemnified Party prior to the Closing Date
with
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<PAGE> 17
respect to any matter as to which indemnification is sought. From and after the
Survival Date, no party hereto shall be under any liability whatsoever pursuant
to this Article IV with respect to any matter for which indemnification may be
sought, except with respect to matters for which notice has been received in
accordance with the provisions of this Article IV. No party hereto shall have
any indemnification obligation pursuant to this Article IV with respect to any
matter for which indemnification may be sought unless before the applicable
Survival Date, it (the "Indemnifying Party") shall have received from the party
seeking indemnification (an "Indemnified Party") written notice as to the matter
or matters for which indemnification is sought. The notice (a "Notice of Claim")
to be provided by the Indemnified Party to the Indemnifying Party shall be
provided promptly and in any event, within thirty (30) calendar days after
receiving any written notice from a third party; provided, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party will relieve
the Indemnifying Party from any obligation hereunder unless, and then solely to
the extent that, the Indemnifying Party is materially prejudiced thereby.
4.2 INDEMNIFICATION BY STOCKHOLDERS. Subject to the terms and
provisions of this Article IV, the Stockholders shall, to the extent of the Cap
Amount (as defined in Section 4.6(b)) hereof, defend, indemnify and hold Buyer
and its successors and assigns (collectively the "Buyer Group") harmless at all
times from and after the Closing Date immediately on written demand against and
in respect of any damages incurred, sustained, suffered by or resulting to the
Buyer Group, or any of them, arising out of, resulting from, incurred in
connection with, or sustained as a result of:
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<PAGE> 18
(a) any inaccurate representation made by or on behalf of the
Stockholders in, or pursuant to this Agreement or any
certificate, instrument or document delivered pursuant hereto;
or
(b) any breach of any warranty made by or on behalf of the
Stockholders in or pursuant to this Agreement or any
certificate, instrument or document delivered pursuant hereto;
or
(c) any breach, default, nonfulfillment, nonperformance or
nonobservance by the Stockholders in the performance,
fulfillment, or observance of any of the obligations,
covenants or agreements which are to be performed, fulfilled
or observed by the Stockholders in or pursuant to this
Agreement or any certificates, instruments or documents
delivered pursuant hereto.
The foregoing provisions of this Section 4.2 are the sole remedy of the Buyer or
W-H Energy for money damages in respect of any breach of the representations,
warranties, covenants and agreements made herein by the Stockholders and any
such damages payable by the Stockholders under this Article IV shall be payable
out of and only to the extent of the funds held by the Escrow Agent under the
Escrow Agreement.
4.3 INDEMNIFICATION BY BUYER. Subject to the terms and conditions of
this Article IV, W-H Energy and Buyer agree to defend, indemnify and hold the
Stockholders harmless at all times from and after the Closing Date immediately
on written demand, against and in respect of any damages incurred, sustained,
suffered by or resulting to the Stockholders, or any of them, arising out of,
resulting from, incurred in connection with or sustained as a result of:
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<PAGE> 19
(a) any inaccurate representation made by or on behalf of Buyer or
W-H Energy in, or pursuant to this Agreement or any
certificate, instrument or document delivered pursuant hereto
or thereto; or
(b) any breach of any warranty made by or on behalf of Buyer in or
pursuant to this Agreement or any certificate, instrument or
document delivered pursuant hereto or thereto; or
(c) any breach, default, nonfulfillment, nonperformance or
nonobservance by Buyer or W-H Energy in the performance,
fulfillment, or observance of any of the obligations,
covenants or agreements which are to be performed, fulfilled
or observed by or on behalf of Buyer or W-H Energy in or
pursuant to this Agreement or any certificates, instruments or
documents delivered pursuant hereto or thereto.
4.4 PROCEDURE FOR INDEMNIFICATION. If and whenever an Indemnified Party
desires to claim indemnification for any of the matters for which
indemnification may be sought pursuant to the provisions of this Article IV,
such Indemnified Party shall deliver to the Indemnifying Party a Notice of Claim
specifying each of the matters for which indemnification is sought. Upon
receiving the Notice of Claim, the Indemnifying Party shall have the right,
exercisable at any time during a ten (10) day period from the day of the receipt
of the Notice of Claim, to elect to compromise or defend against any of the
matters for which indemnification is sought through counsel of its own choosing
and at its expense, or at the election of the Indemnifying Party, exercisable at
any time within such ten (10) day period, the Indemnified Party shall have the
right to compromise or defend against any of the matters for which
indemnification is sought, through counsel of its own choosing and at the
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<PAGE> 20
expense of the Indemnifying Party. If the Indemnifying Party does not make
either of the elections called for by this Section 4.4 within said ten (10) day
period, or to the extent the Indemnifying Party fails to make such election,
then and in that event, the Indemnified Party shall have the right to compromise
or defend against any of the matters for which indemnification is sought through
counsel of its own choosing and at the expense of the Indemnifying Party. If any
action or claim for which indemnification is sought is asserted both against the
Indemnifying Party and the Indemnified Party, and in good faith it is determined
there is a conflict of interest which renders it inappropriate for the same
counsel to represent both the Indemnifying Party and the Indemnified Party, the
Indemnifying Party shall be responsible for paying for separate counsel for the
Indemnified Party; provided, however, that if there is more than one Indemnified
Party, the Indemnifying Party shall not be responsible for paying for more than
one separate firm of attorneys to represent the Indemnified Party, regardless of
the number of Indemnified Parties. The Indemnified Party will not consent to the
entry of a judgment or enter into any agreement with respect to any matter for
which indemnification is sought without the written consent of the Indemnifying
Party (not to be withheld or delayed unreasonably). The Indemnifying Party shall
not consent to the entry of a judgement with respect to any matter for which
indemnification is sought or enter into any settlement with respect thereto
which does not include a provision whereby the plaintiff or claimant in the
matter releases the Indemnified Party from all liability with respect thereto,
without the written consent of the Indemnified Party (not to be withheld or
delayed unreasonably). All attorneys and other representatives employed by the
Indemnifying party shall be subject to approval by the Indemnified Party, which
approval shall not be unreasonably withheld or delayed.
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<PAGE> 21
4.5 DISPUTE AS TO RIGHT OF INDEMNIFICATION. In the event the question
of the right to indemnification is submitted to a court of competent
jurisdiction for determination, all attorneys' fees and other costs and expenses
in litigating the question of the right of an Indemnified Party to
indemnification shall be awarded to the prevailing party against the party
against whom such determination is rendered.
4.6 INDEMNIFICATION CAP AND DEDUCTIBLE.
(a) Stockholders shall not be liable for any claim for
indemnification pursuant to the provisions of this Article IV
for any matter for which indemnification is sought unless and
until, and only to the extent that, the aggregate amount of
damages for which the Stockholders would otherwise be
responsible pursuant to Section 4.2 or any other provision
hereof (including any obligation to defend the Buyer pursuant
hereto) to the Buyer Group exceeds an aggregate of $50,000 for
all of the Companies (the "Deductible").
(b) At the Closing, Buyer shall deposit the Escrow Deposit
(heretofore referred to in Section 1.3 hereof) with the Escrow
Agent pursuant to the Escrow Agreement which, together with
the escrow deposits of the other Companies, shall be
$2,000,000 in the aggregate and which is also herein referred
to as the "Cap Amount". The Stockholders shall not be liable
for damages with respect to any matter for which
indemnification may be sought except to the extent of the
amount of the Cap Amount and then only to the extent that the
Escrow Deposit has not been distributed to the Stockholders
pursuant to the provisions hereof. At such time as the damages
of the
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<PAGE> 22
Buyer Group with respect to any matter for which
indemnification may be sought by the Buyer Group under this
Article IV is agreed upon by the Stockholders or is finally
determined by a court of competent jurisdiction, the Escrow
Agent shall pay to the Buyer Group such portion or portions of
the Cap Amount to which the Buyer Group is entitled. The
Escrow Deposit shall be invested by the Escrow Agent in an
interest bearing account and all earned interest on the Escrow
Deposit shall belong and be paid quarterly to the Stockholders
and shall not be included for determination of the Cap Amount.
(c) Immediately following the Survival Date, the remaining portion
of the Escrow Deposit not theretofore paid or distributed to
or for the benefit of a member of the Buyer Group shall be
distributed by the Escrow Agent to the Stockholders in the
percentage amount reflected on the signature page hereto;
provided however, that the Escrow Agent shall continue to hold
and not distribute to the Stockholders such remaining portion
of the Escrow Deposit sufficient to cover any damages of the
Buyer Group with respect to any amount for which
indemnification may be sought and for which a Notice of Claim
was given prior to the Survival Date. Any amount which remains
in the Escrow Deposit after any such damages have been
determined and the Buyer Group has been paid pursuant to the
terms hereof shall be distributed to the Stockholders as
provided herein.
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<PAGE> 23
V. CONDITIONS TO BUYER'S OBLIGATIONS HEREUNDER
The obligation of Buyer to acquire the Stock from the Stockholders
hereunder is, except as may be waived in writing by Buyer, subject to the
fulfillment at or prior to the Closing Date of each of the following conditions:
5.1 REPRESENTATIONS. The representations and warranties of the
Stockholders contained in this Agreement shall be true, and in addition, shall
be deemed to have been made again at and as of the Closing Date and shall
(except as affected by transactions permitted by this Agreement) then be true in
all material respects.
5.2 COMPLIANCE WITH TERMS. The Stockholders shall have performed and
complied with all terms and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing Date. In addition,
there shall not have occurred any event, change, development or trend in the
business or financial condition of the Company which would materially adversely
affect the business, properties, earnings or assets of the Company or the value
thereof, nor shall any action or proceeding have been commenced or threatened or
any judgment, decree or order entered which would materially adversely affect
the business, assets or financial condition of the Company or the transactions
contemplated by this Agreement, nor shall any law, regulation or order have been
adopted, issued or announced by any governmental entity or agency which would
materially adversely affect the business, assets and financial condition of the
Company or the transactions contemplated by this Agreement.
-23-
<PAGE> 24
5.3 ADVERSE OCCURRENCES. On the Closing Date, the property, business or
assets of the Company shall not have been materially and adversely affected by
any fire, earthquake, explosion, accident, flood, riot or Act of God or the
public enemy (whether or not insured) or by any strike, lockout, or other labor
disturbance, nor shall there be any actual or threatened litigation or
proceeding challenging or seeking to restrain or invalidate this Agreement.
5.4 TRANSFER OF REAL PROPERTY. The Stockholders shall have caused the
Company to transfer to the Stockholders or to an affiliate of the Stockholders
the Company's present operating facilities (land and improvements) in Midland,
Texas and Carlsbad, New Mexico, and the Company and the Stockholders, or a
designated affiliate of such Stockholders, shall have entered into five (5) year
triple net lease of the same (the "Lease") in the form of Exhibit I attached
hereto.
5.5 EMPLOYMENT AGREEMENTS. The Company shall have entered into a four
(4) year Employment Agreement, in the form of Exhibit J attached hereto, with
each of the Stockholders and which Employment Agreements shall contain
non-compete provisions applicable to the employee in the event of a voluntary
termination of employment by the employee or a discharge of the employee by the
Company for "cause" (as defined in the Employment Agreement).
VI. CONDITIONS TO STOCKHOLDERS' OBLIGATIONS HEREUNDER
The obligation of the Stockholders hereunder to exchange and deliver to
Buyer the Stock is, except as may be waived in writing by the Stockholders,
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
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<PAGE> 25
6.1 REPRESENTATIONS. The representations and warranties of Buyer and
W-H Energy contained in this Agreement shall be true, and in addition, shall be
deemed to have been made again at and as of the Closing Date and shall (except
as affected by transactions permitted by this Agreement) then be true in all
material respects.
6.2 COMPLIANCE WITH TERMS. Each of W-H Energy and Buyer shall have
performed and complied with all terms and conditions required by this Agreement
to be performed or complied with by it at or prior to the Closing Date.
6.3 EMPLOYMENT AGREEMENTS. The Company shall have entered into the
Employment Agreements referred to in Section 5.5 hereof.
6.4 DISTRIBUTION TO STOCKHOLDERS. Concurrently with the Closing Date,
the Company shall have distributed to the Stockholders the book balance of all
cash on hand in the Company in excess of $25,000.
VII. EXPENSES
Each of the parties hereto shall be responsible for their own legal and
accounting expenses in connection with the preparation and consummation of this
Agreement, and no such expenses shall be paid by or charged to the Company.
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<PAGE> 26
VIII. BINDING EFFECT AND AMENDMENTS
This Agreement constitutes the entire contract between the parties
hereto and no party shall be liable or bound to any other person by reason of
this Agreement in any manner by any other agreements, warranties or
representations, except as specifically set forth herein, or in the exhibits
attached hereto or referred to herein. This Agreement may be amended only by a
written instrument duly executed by or on behalf of all of the parties hereto.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, successors, representatives and assigns of
the parties hereto. Nothing in this Agreement, express or implied, is intended
to confer upon any party, other than the parties hereto, and their successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
IX. ARTICLE AND OTHER HEADINGS
The article and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
X. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Texas.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed effective as of the date set forth above.
DRILL MOTOR SERVICES, INC.
By: /s/ Kenneth T. White
--------------------------
Chairman
W-H ENERGY SERVICES, INC.
By: /s/ Kenneth T. White
--------------------------
President
-27-
<PAGE> 28
LIST OF EXHIBITS
Exhibit A - Form of Warrants
Exhibit B - Form of Escrow Agreement
Exhibit C - Exceptions to Financial Statements and Business
Exhibit D - List of Contracts
Exhibit E - Litigation
Exhibit F - List of Machinery and Equipment
Exhibit G - List of Licenses and Permits
Exhibit H - List of Trademarks, etc.
Exhibit I - Form of Lease
Exhibit J - Form of Employment Agreement
-1-
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
1. Agri-Empresa, Inc. (TX)
2. Agri-Empresa Transportation, Inc. (TX)
3. Charles Holston, Inc. (LA)
4. Diamond Wireline Services, Inc. (TX)
5. Drill Motor Services, Inc. (LA)
6. Dyna Drill Technologies, Inc. (TX)
7. Grinding and Sizing Company, Inc. (TX)
8. Integrity Industries, Inc. (TX)
9. PathFinder Energy Services, Inc. (LA)
10. PathFinder Energy Services Limited (UK)
11. PathFinder Energy Services AS (Norway)
12. Perf-O-Log, Inc. (TX)
13. STG Transportation, Inc. (TX)
14. Thomas Energy Services, Inc. (LA)
15. Well Safe, Inc. (TX)
16. W-H Drilling Solutions, Inc. (TX)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
Houston, Texas
May 8, 2000
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
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<CURRENT-ASSETS> 59,219 62,197
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