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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
Offshore Tool & Energy Corporation
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 63-1210539
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
300 St. Francis Street, Mobile, Alabama 36602
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(Address of Principal Executive Offices) (Zip Code)
(334) 432-4472
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(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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___________________ ________________________________________
___________________ ________________________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 Par Value
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(Title of class)
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ITEM 1. BUSINESS
Offshore Tool & Energy Corporation ("Company") was incorporated in
Delaware on August 20, 1998. On November 17, 1998, we acquired all of the
outstanding membership interests of Aero International, L.L.C., a Louisiana
limited liability company ("Aero"), and all of the assets and liabilities of
International Tool & Supply, plc, a publicly-held company incorporated under the
laws of England ("ITS"), including its principal operating subsidiaries, ITS
Investments, Inc. and ITS Holding Limited (the "ITS Subsidiaries").
Aero was organized in 1997 to acquire the principal operating assets
of the American Aero Crane division of Weatherford Enterra U.S., Limited
Partnership (the "American Aero Cranes business unit"), which manufactures and
services cranes used in the marine and offshore oil and gas industries.
Effective May 31, 1998, Aero acquired the assets and related liabilities of
Titan Industries, Inc., also a manufacturer and servicer of offshore and marine
cranes (the "Titan business unit"). Effective May 31, 1998, IPC Industries, Inc.
contributed the assets and related liabilities of Mobile Pulley & Machine Works,
a division of IPC Industries, Inc. (the "Mobile Pulley business unit"), and the
assets and related liabilities of the Mobile Pulley Marine Services division of
Mobile Pulley Marine Services, Inc. (the "Mobile Marine business unit"), to Aero
for cash and preferred member interests of Aero. The Mobile Pulley and Mobile
Marine business units manufacture, fabricate and repair component and
replacement parts used in the marine and offshore oil and gas industries. The
operations of the American Aero Cranes and the Titan business units of Aero
constitute our Crane Division; the operations of the Mobile Pulley and Mobile
Marine business units of Aero constitute our Marine Equipment Division; the
operations of ITS Investments, Inc. constitute our Engineered Systems Division;
and the operations of ITS Holdings Limited constitute our Drilling Services
Division.
Our executive offices are located at 300 St. Francis Street, Mobile,
Alabama 36602, telephone (334) 432-4472.
Crane Division
Our Crane Division designs, manufactures, rebuilds, services and
provides replacement parts for cranes for marine and offshore oil and gas
drilling and production applications. These applications include offshore
platforms, offshore mobile drilling rigs, floating dry-docks, dockside and
shipboard services. The Crane Division also offers crane repair, overhaul and
refurbishment services. The principal manufacturing operations of the Crane
Division are located at our facilities in Theodore, Alabama. We also have crane
manufacturing yards in Covington, Louisiana and Houston, Texas.
The revenues of the Crane Division totaled $36,368,000 or approximately 69%
of our total revenues during the year ended December 31, 1998. Before our
acquisition of the Mobile Pulley and the Mobile Marine business units in June,
1998, the only business of Aero was the crane manufacturing and service
business.
Manufacturing and Design
The Crane Division manufactures pedestal-mounted hydraulic cranes.
Currently, the Crane Division offers four series of cranes, the Baymaster,
Gulfmaster and Oceanmaster, which are sold under the American Aero Cranes brand,
and the Titan, which is sold under the Titan brand. Cranes are built by the
Crane Division on customer order pursuant to customer specification within the
design allowances of the series selected by the customer. The series of cranes
offered by the Company are described further below.
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<TABLE>
<CAPTION>
Crane Series Boom Lengths Lift Capacity Applications
<S> <C> <C> <C>
Baymaster 20-60 feet up to 40 tons Used when space consideration and ease of
operation are critical
Suited to small or unmanned production platforms
Gulfmaster 50-120 feet 15-40 tons Combines control features associated with smaller
cranes and safety systems and sophistication
associated with larger cranes
Suited to 4-pile production platforms
Oceanmaster 200-600 feet 20-200 tons Designed for deep water extremes with widely
spaced boom fittings providing greater resistance
to side-loads in harsh environments
Used on 8-pile platforms, drilling rigs, floating
production vessels and floating dry docks
Titan 20-180 feet 5-120 tons Designed and built for small or unmanned
production platforms and for platforms in deep
water extremes
</TABLE>
In filling customer orders, the Crane Division purchases certain
components (for example, engines, winches, and bearings), fabricates the
structural crane components and assembles, blasts and paints the cranes. Our
cranes are manufactured in accordance with American Petroleum Institute
specifications. The components of each crane are built of high-strength, low
alloy steel for both durability and ease of repair. The primary raw material
used in the manufacturing operations is plate steel, which is available to us
from several competitive sources. The component parts that we purchase are
usually stock items that are readily available from industry parts sources.
The five person engineering and technical staff of the Crane Division
designs cranes to the specifications of customers, and develop new crane designs
for the Company. The engineering staff utilizes computer aided design
technology.
Servicing and Parts
The Crane Division provides crane service and inspection from eight
service centers located in Nigeria, Malaysia, Singapore, Houston, Texas,
Theodore, Alabama and Houma, Intracoastal City and Covington, Louisiana. Each
service center is staffed with experienced technicians and mechanics and stocked
with spare parts, tools and equipment. The Crane Division also offers
preventive maintenance services to crane owners and operators. The Crane
Division has master service agreements with many of its customers. The
agreements may be terminated by either party by giving 30 days written notice.
Rental Operations
The Crane Division has seven cranes available for rental in the Gulf
of Mexico and three available for rental in Malaysia. All of the rental cranes
are designed for use on a variety of platforms with substructures and beams that
allow rapid assembly and dismantling.
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Marketing and Customers
The primary markets for our cranes are the Gulf Coast region of the
United States and offshore drilling and production centers worldwide, with sales
approximately split between domestic and international markets. Typically,
offshore crane customers submit specifications and bid forms to competing crane
manufacturing companies. We are on the bid lists of most of the major marine
and offshore crane purchasers. We employ four sales representatives for
domestic and international Crane Division sales, and we also retain agents to
represent the Crane Division in international markets.
The customers of the Crane Division are primarily international
offshore platform construction companies, and independent and major oil and gas
exploration and production companies. The operations of the Crane Division are
not materially dependent upon the business of any one customer. The operations
of the Crane Division would be adversely affected, however, if we were removed
from the bid lists of our historical customers.
Competition
Both the offshore crane manufacturing business and crane servicing
business are highly competitive, with numerous competitors. In recent years the
crane manufacturing market has been characterized by over-capacity, which has
resulted in substantial pressure on pricing and operating margins. Crane
manufacturers compete on the basis of price, delivery schedules, reliability and
service. Crane service and repair companies compete primarily on the basis of
availability, accessibility of parts and quality of workmanship.
Backlog
At March 31, 1999, our backlog of firm crane orders was $1,638,315.
At March 31, 1998, before the acquisition of Titan, our backlog was $8,896,789.
We expect that the backlog will be filled during the current fiscal year.
Facilities
We lease the primary manufacturing and service facility of the Crane
Division located in Theodore, Alabama on approximately 11 acres of land. This
facility has approximately 40,700 square feet of manufacturing space under roof.
We also own a crane manufacturing and service facility in Covington, Louisiana
located on approximately 26 acres of land with approximately 39,500 square feet
of work area under roof. We also own a facility in Houston, Texas, which is
used by the Crane Division for servicing and limited manufacturing. This
facility consists of one manufacturing building with approximately 12,000 square
feet of manufacturing area under roof and approximately 5,000 square feet of
open air servicing facilities on approximately 8 acres of land. Also, we own a
facility in Houma, Louisiana with approximately 9,500 square feet of work area
under roof and lease a facility of approximately 4,000 square feet in
Intracoastal City, Louisiana for crane repair services. We also lease
facilities for servicing and repair in Warri, Nigeria, and in Malaysia and
Singapore, and we lease a sales office in New Orleans, Louisiana.
Trademarks
We own several trademarks registered with the United States Patent and
Trademark Office and which are used in conjunction with the business of the
Crane Division, including trademarks for "Baymaster", "Gulfmaster", "American
Aero" and "Oceanmaster", and we have pending a federal
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trademark application for the trademark "Titan". The term of a United States
trademark registration is 20 years, which is renewable perpetually for
additional 20 year terms for so long as the owner continues to use the
trademark.
Marine Equipment Division
The Mobile Pulley business unit of the Marine Equipment Division is
the oldest dredging equipment manufacturer in the United States, with operations
dating from 1892. The Marine Equipment Division designs, manufactures,
fabricates and assembles original equipment, and component and replacement parts
used in the dredging, marine, offshore oil and gas and mining industries, such
as gears, winches, ball joints, pumps, valves and fittings. The principal
operations of the Marine Equipment Division are conducted at our facility
located in Mobile, Alabama. Smaller fabrication and machining facilities are
located on Pinto Island in Mobile, Alabama and at two vessel dry docks located
along the Mobile River in Mobile, Alabama.
The revenues of the Marine Equipment Division totaled $14,997,000 or
approximately 28% of our total revenues during the year ended December 31, 1998.
The Mobile Pulley and Mobile Marine business units constituting the Marine
Equipment Division were contributed by their respective parents to Aero
effective May 31, 1998, and seven months of the Division's operations are
reflected in our 1998 fiscal year financial statements.
Manufacturing and Design
At our Mobile, Alabama facility, the Marine Equipment Division designs
and manufactures customized pumps, cutter-heads and ball joint products for the
dredging and mining industries. We design most of the pumps manufactured by the
Marine Equipment Division to customer requirements. At our Pinto Island
facility, the Marine Equipment Division manufactures components for dredging
companies and the shipyard industry, including pontoons, valve thrusters for
semi-submersible drilling rigs, lifeboat platforms, gas compressors and cable
drums. The Marine Equipment Division also performs repairs to marine vessels at
its dry dock facilities.
The Marine Equipment Division has a five person engineering and
technical staff which meets with customers to develop product specifications.
The engineers create unique designs utilizing, wherever possible,
characteristics taken from earlier designs of similar products supplied to the
customer. The engineering department maintains an extensive library of original
designs and files. The designs are translated into wooden patterns by
experienced craftsmen. We maintain over 7,000 patterns in storage that can be
used to manufacture replacement parts for our customers. Our ownership of these
unique patterns give us a competitive advantage in supplying replacement parts
to our customers.
Marketing and Customers
The primary market for the manufactured products of the Marine
Equipment Division is the United States dredging industry. The Marine Equipment
Division also sells dredging equipment overseas, primarily in Holland and
Belgium, and to the Suez Canal Authority. Historically, domestic sales have
accounted for approximately 80% of the revenues of the Mobile Pulley business
unit of the Marine Equipment Division. The Marine Equipment Division markets
its fabrication capacities to the dredging industry and the Gulf Coast region
shipyard industry. The Marine Equipment Division has a sales staff of six
persons, three of which make sales calls on domestic customers. We also retain
agents to represent the Marine Equipment Division in international markets. The
Marine Equipment Division has historically been materially dependent on the
business of several large dredging companies.
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Competition
The business of manufacturing components for the dredging industry is
competitive. There are four major domestic manufacturers of dredging equipment,
including the Company. Competition for dredge equipment orders is based on
price, manufacturing schedules and reliability. If an order is for custom
replacement equipment, the availability of the pattern used in the original
manufacture of the equipment is an additional competitive factor. The
competition for fabrication and repair work is extremely fragmented, and very
competitive, and is largely based on price, availability and workmanship.
The principal manufacturing customers of the Marine Equipment Division
are domestic and overseas dredging companies. The fabrication and repair
customers of the Marine Equipment Division include dredging companies and
shipyards operating domestically.
Backlog
At March 31, 1999, the Marine Equipment Division had a backlog of firm
orders of $7,159,407. The Marine Equipment Division was not a division of the
Company at the corresponding date in 1997. The Company expects that the backlog
will be filled during the current year.
Facilities
The Marine Equipment Division's principal facility is located on
approximately 25 acres in Mobile, Alabama. These facilities include a foundry
and a machine shop, each with approximately 100,000 square feet under roof. We
also lease a fabrication and machining facility with approximately 25,000 square
feet of work area under roof with water access on Pinto Island in Mobile,
Alabama. We also own two dry docks, with capabilities of servicing vessels with
a maximum length of 120 feet and 100 feet, respectively, located at a leased
facility with approximately 300 feet of waterfront dock space on the Mobile
River in Mobile, Alabama.
Patents
We hold the following patents material to the business of the Marine
Equipment Division.
U.S. Patent
Number Description Expiration
------------ ----------- ----------
4,443,030 Ball Joint 2001
4,891,893 Cutterhead Tooth Assembly 2007
5,379,535 Replaceable Excavating Tooth
Assembly 2012
5,526,593 Replaceable Adapter 2013
Engineered Systems Division
The Engineered Systems Division manufactures enhanced oil recovery ("EOR")
and oil and gas production equipment, and industrial water treatment equipment,
and it provides custom fabrication services to the refining, petrochemical and
oilfield industries. The operations of the Engineered Systems Division are
conducted from our facilities located in Katy, Texas.
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We acquired ITS Investments, Inc., the operations of which constitute the
Engineered Systems Division, on November 17, 1998, and approximately six weeks
of the Division's operations are reflected in our 1998 fiscal year financial
statements. Total revenues of the Engineered Systems Division reflected in our
1998 fiscal year financial statements are $937,000.
Manufacturing and Design
The Engineered Systems Division designs, manufactures and installs EOR
injection equipment and ancillary products which are used to inject steam, gas,
water or dilutants into subsurface oil and gas formations for the retrieval of
low gravity crude oil. The Engineered Systems Division also manufactures a
range of oil and gas production and pipeline gathering and transmission
equipment, including multiphase production separators, wellhead test separators,
free water knockout equipment, gas dehydration packages, indirect fired heaters,
pressure regulating components and metering skids. In addition, the Engineered
Systems Division manufactures, installs, retrofits and services industrial water
treatment systems. Products include deaereators and demineralizers, systems for
ion exchange, waste neutralization, waste water treatment, boiler feed water and
purified water for industrial processes. The Engineered Systems Division also
undertakes custom fabrication services.
The primary raw material used in the manufacturing and fabrication
operations of the Engineered Systems Division is plate steel, which is readily
available to us from a number of sources. Purchased components such as pumps,
burners, controls, switches and instruments are ordered from third party
manufacturers and vendors with whom we have established relationships.
Alternative sources of supply are available to us for all purchased components.
The Engineered Systems Division has an engineering and design staff of 12
persons who design EOR equipment to meet customer requirements and develop
advanced EOR technology.
Marketing and Customers
The principal market areas for the EOR equipment manufactured by the
Engineered System Division are California, Venezuela, Russia, Canada, Brazil and
China, all of which have significant deposits of low gravity crude oil, which is
difficult to recover by traditional drilling methods. The water treatment
equipment of the Engineered Systems Division is marketed to oil and gas drilling
and production companies worldwide, and to domestic engineering firms. The
custom fabrication services of the Engineered Systems Division are marketed
primarily to the refining, petrochemical and offshore and onshore oilfield
industries.
Typically, EOR and water treatment equipment customers submit
specifications and bid forms to competing manufacturers. The Company is on the
bid list of most of the existing customers for EOR equipment. The water
technology equipment of the Engineered Systems Division is not widely recognized
in its respective industry. The Engineered Systems Division has a sales staff
of four persons for domestic sales of the Engineered Systems Division, and it
retains agents to represent the Division in international markets.
An EOR equipment order typically includes multiple large EOR vessels for
steam injection of multiple wells in an area characterized by low gravity oil,
and each such order is material to the operations of the Engineered Systems
Division. Although the operations of the Engineered Systems Division are not
dependent upon the business of any one customer, the Division would be adversely
affected if it were removed from the bid lists of customers for EOR equipment.
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Competition
There are several competitors in the manufacture of EOR equipment. Due to
conditions in the oil and gas markets (see "Dependence on Oil and Gas Industry
and Governmental Appropriations" below in this Item 1), EOR equipment orders are
substantially depressed and competition for scarce orders is significant.
Competition in the EOR market is based primarily on price and reliability.
There are a number of competitors in the water treatment equipment industry
which have much greater financial resources and industry recognition than the
Engineered Systems Division, and we have experienced difficulty in penetrating
these markets.
Backlog
At March 31, 1999, the Engineered Services Division had a backlog of firm
orders of $772,484. The Engineered Systems Division was not a division of the
Company at the corresponding date in 1998. We expect that the current backlog
will be filled during the 1999 fiscal year.
Facilities
We own the manufacturing facilities of the Engineered Systems Division
located on approximately 8.6 acres near Katy, Texas. The facilities include
approximately 70,000 square feet of manufacturing area under roof.
Drilling Services Division
The Drilling Services Division designs, manufactures or assembles, sells
and leases certain proprietary environmental services product lines to the
offshore oil and gas and marine industries. The operations of the Drilling
Services Division are conducted from facilities located in Aberdeen, Scotland,
Houston, Texas, Singapore and Port Harcourt, Nigeria.
We acquired ITS Holdings Limited, our subsidiary whose operations
constitute the Drilling Services Division, on November 17, 1998, and
approximately six weeks of the Division's operations are reflected in our 1998
fiscal year financial statements. Total revenues of the Drilling Services
Division reflected in our 1998 fiscal year financial statements were
$590,000.
Products
The Drilling Services Division has five product lines. The Aberlan line
includes the LRU Liquid Recovery Unit, a portable vacuum system for the recovery
of spilled fluids on offshore rigs and land locations; Sludge Gulper and Rig Vac
for the recovery of fluids and sludges with high solids contents such as those
found in mud pits and rig drainage systems; VPW and GRACO, which are high
pressure wash systems for cleaning in offshore and shipyard locations such as
drill floors and pit rooms; and Expo Clean Zone One, a hot water high pressure
water system.
The Scavenger product line consists of mobile waste compaction systems,
designed to use minimal deck space on drilling and production platforms. The
Scavenger is marketed in three separate models, each with optional attachments
and each designed for different applications. The largest Scavenger has a 30
cubic foot compaction bin; the mini Scavenger has a 10 cubic foot bin; and the
Recycler has a 4 X 10 foot bin.
The SECO mud mixing and shearing system is a low pressure, high volume
shearing system which reduces the time required to prepare drilling fluids.
This system is effective in remote drilling
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locations when the costs of transporting chemicals and drilling fluids is high.
SECO systems are used both offshore and onshore to enhance the mixing and
shearing capabilities of existing mud systems.
The Drilling Services Division offers an integrated waste compaction to
incineration system package which disposes of waste generated from both offshore
and land based drilling operations. Bags from the Division's Scavenger trash
compactors are collected from customers and taken to incinerators manufactured
by the Division. In addition, in 1998 the Drilling Services Division developed
the DSD System, which separates oil from mud drill cuttings and permits the
incineration of the cuttings at a rate of up to 3 tons per hour. The Drilling
Services Division has one incineration system operating in Nigeria and has
another in Abu Dhabi that will be operational in May 1999.
The STS product line is a filtering screen for use on the Shale Shakers of
drilling rigs. The screens act as a sieve for removing large cuttings from the
well. The screens are mounted over a support cradle which is fitted into a
Shale Shaker basket. The screen, when torn beyond repair through solids
abrasion, is discarded and replaced by a new one.
Product Development and Intellectual Property
The Drilling Services Division has a one person engineering and technical
staff which maintains a development program for new and existing products. We
hold or have applied for the following patents material to the Drilling Services
Division.
Patent
Number Description Expiration or Filing Date
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0162074 (U.K.) Liquid Recovery Unit 2004
4,691407 (U.S.) Liquid Recovery Unit 2004
GB98/103134 (U.K.) Incinerator Apparatus Pending - October 20, 1997
GB98/103355 (U.K.) Filtering Screen Pending - November 10, 1997
In addition, we also hold limited rights of use with respect to the patent for
the DSD System, which is owned by a third party. We also hold under English law
a number of trademarks used in connection with the business of the Drilling
Services Divisions, including the marks "Aberlan", "Hippo", "LRU", "Sludge
Gulper", "Rig Vac", "VPW", "SECO", "Polygater" and "Scavenger".
Marketing and Customers
The primary markets for the products of the Drilling Services Division are
the oil and gas production areas of the North Sea, the Far East, the Americas,
including the United States Gulf Coast, Venezuela and West Africa. Sales are
conducted from the offices of the Drilling Services Division located in
Aberdeen, Scotland (three sales personnel), Singapore (one sales person),
Houston, Texas (one sales person) and Port Harcourt, Nigeria (one sales person).
The customers of the Drilling Services Division are major and independent
oil and gas exploration and production companies. The operations of the
Drilling Services Division are not dependent upon the business of one customer.
Competition
There is a limited market for the specialized products of the Drilling
Services Division and the number of direct competitors is relatively small,
ranging from one to several depending upon the product
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line and the geographic area. The products of the Drilling Services Division
compete with all the numerous ancillary products offered to the oil and gas
drilling and production industries for inclusion in the exploration and
production operating budgets of its customers. Competition for products such as
those marketed by the Drilling Services Division is based primarily on price and
service.
Facilities
The Drilling Services Division operates from four facilities. We lease the
Aberdeen, Scotland facility, which is the headquarters of the Drilling Services
Division and is responsible for supplying the Division's products in the
European market. The Aberdeen facility consists of approximately 3,600 square
feet of warehouse space and approximately 2,410 square feet of office space.
The Singapore facility supports all the Drilling Services Division's products in
the Far East region. We lease this facility, which consists of warehouse,
workshop and office space. Our leased facilities in Port Harcourt, Nigeria, are
the base for all sales, rentals and services of the Drilling Services Division
in Nigeria. The incineration and servicing facilities are located at Onne,
Nigeria. The facilities of the Engineered Systems Division in Houston, Texas
and Houma, Louisiana provide support for the Division's product lines in the
Americas, including the United States and Venezuela.
Environmental Compliance
Compliance by the Company with federal, state and local environmental
protection laws and regulations do not have a material effect on the capital
expenditures, earnings and competitive position of the Company of any of its
divisions. The Company has no plans for material capital expenditures for
environmental control facilities.
Dependence on Offshore Oil and Gas Industry and Governmental Appropriations
The operations of the Crane Division and the Drilling Services Division are
substantially affected by the level of offshore drilling and production
activities of the oil and gas industry, which is substantially affected by
prevailing market prices of oil and gas. The decline in the market price of oil
during the last year has significantly reduced the level of offshore oil and gas
exploration and has adversely impacted the business of the Crane Division and
the Drilling Services Division.
The operations of the Engineered Systems Division are also substantially
affected by the price of oil, since the cost of the recovery of oil by EOR
equipment is greater than the cost of recovery by traditional drilling methods.
The decline in the market price of oil during the last year has adversely
impacted the industry for the recovery of low gravity oil, and the business of
the Engineered Systems Division.
Most dredging in United States waters is funded by the United States Army
Corps of Engineers. The extent of dredging activity is therefore affected by
Congressional appropriations to the United States Army Corps of Engineers. A
reduction of dredging activities due to a reduction in appropriations or for
other reasons would have an adverse impact on the operations of the Marine
Equipment Division.
Employees
At March 31, 1999, the Company had 487 employees.
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Financial Information About Segments
See the information presented in note 14 to the Consolidated Financial
Statements of the Company included in Item 13.
Financial Information About Geographical Areas
See the information presented in note 14 to the Consolidated Financial
Statements of the Company included in Item 13.
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL INFORMATION
The following table presents selected historical consolidated financial
data for Offshore Tool & Energy Corporation and the Company's predecessor,
American Aero Cranes, a division of Weatherford Enterra U.S., Limited
Partnership (the "Predecessor"). The financial information has been derived
from the Company's and Predecessor's audited financial statements as of and for
the years ending December 31, 1998, 1997, 1996 and 1995. The financial
information as of and for the year ending 1994 has been derived from the
unaudited financial data of the Predecessor. As this table only contains
selected financial data, it should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
Company Predecessor
Year September 19, January 1,
Ended 1998 to 1998 to Year Ended December 31
December 31, December September ---------------------------
1998(1) 31, 1997(2) 18, 1997(3) 1996 1995 1994
------------ ------------ ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data (in thousands, except per share data)
Revenues $52,892 $11,020 $24,395 $23,696 $17,891 $16,444
Gross profit 11,047 1,681 2,096 2,702 1,274 1,059
Operating income (loss) 3,370 858 814 625 (613) (725)
Net income (loss) 1,297 670 527 406 (399) (725)
Pro forma net income per
common share (4) 0.02 -- -- -- -- --
Other Financial Data
EBITDA(6) 4,218 868 1,107 964 (207) (477)
Balance Sheet Data
Total assets 72,428 17,925 15,517 13,022 6,742 6,197
Long term debt 44,168 8,881 -- -- -- --
</TABLE>
_________________________________
(1) Includes the operations of the Marine Equipment Division beginning May 31,
1998, and the operations of the Engineered Systems Division and the Drilling
Services Division beginning November 17, 1998. See Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
(2) Period from the date of the acquisition by Aero International, L.L.C. of the
American Aero Cranes business unit from Weatherford Enterra U.S., Limited
Partnership, to year end. Includes the
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operations of the Titan business unit beginning on November 5, 1997, the
date of its acquisition by Aero.
(3) Periods during which the American Aero Cranes business unit was operated as
a division of Weatherford Enterra U.S., Limited Partnership
(4) Pro forma net income per share is calculated by dividing net income by the
pro forma weighted average shares outstanding. Pro forma net income has been
computed assuming the Company was a taxable entity for the entire year ended
December 31, 1998. Pro forma weighted average shares outstanding has been
calculated as if the 29,500,000 shares of Common Stock issued to the Aero
Holders were outstanding for the entire year and as if the 20,500,000 shares
of Common Stock issued to the stockholders of ITS were outstanding from
November 17, 1998, the date of the Company's acquisition of the ITS
Subsidiaries. Basic and diluted net income per share were not materially
different for the years presented.
(5) Earnings before interest expense, income taxes, depreciation and
amortization. The Company calculates EBITDA as operating income plus
depreciation and amortization. EBITDA 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 measures of financial
performance. The Company's measurement of EBITDA may not be comparable to
similarly titled measures reported by other companies.
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The following unaudited pro forma statement of operations present the
combined operations of the Company, the Marine Equipment Division, and the ITS
Subsidiaries as if the acquisition of the Marine Equipment Division and the ITS
Subsidiaries had occurred as of January 1, 1998. The unaudited pro forma
statement of operations has been derived from the application of pro forma
adjustments to the historical financial statements. The pro forma financial
information does not purport to represent the actual results of operations of
the Company had the acquisition actually occurred as of January 1, 1998 or
project the future results of operations of the Company.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------- Year Ended
Marine December 31,
The Equipment ITS 1998
Company Division Subsidiaries Adjustments Total
-------- ---------- ------------- ----------- -------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Pro Forma Statement of
Operations
Net sales
Manufacturing $28,642 $7,951 $ 8,494 $45,087
Service and other 24,250 1,470 2,854 28,574
--------------------------------------------------------------------------------------
Total net sales 52,892 9,421 11,348 73,661
--------------------------------------------------------------------------------------
Cost of sales
Manufacturing 24,531 7,292 6,572 $ 96(1) 38,491
Service and other 17,314 944 389 18,647
--------------------------------------------------------------------------------------
Total cost of sales 41,845 8,236 6,961 96 57,138
--------------------------------------------------------------------------------------
Gross profit 11,047 1,185 4,387 (96) 16,523
Selling, general, and
administrative expenses 7,677 1,185 5,304 227(2) 14,393
--------------------------------------------------------------------------------------
Income from operations 3,370 0 (917) (323) 2,130
Other income, net 38 11 17 0 66
Interest expense 1,944 259 187 1,650(3) 4,040
--------------------------------------------------------------------------------------
Income (loss) before taxes 1,464 (248) (1,087) (1,973) (1,844)
Income tax expense
(benefit) 167 0 102 (269)(4) 0
--------------------------------------------------------------------------------------
Net income (loss) $ 1,297 $ (248) $(1,189) $(1,704) $(1,844)
======================================================================================
Pro forma shares 50,000,000
Pro forma basic and
diluted loss per share $ (0.04)
============
</TABLE>
___________________________
(1) Represents additional depreciation resulting from the recording of property
and equipment of the Marine Equipment Division and ITS Subsidiaries at fair
values.
(2) The Marine Equipment Division and the ITS Subsidiaries acquisitions have
been accounted for using the purchase method of accounting. The preliminary
purchase price allocations for these acquisitions are based on available
information and certain assumptions that management believes are reasonable.
Total goodwill recognized for these transactions is approximately $14,122.
Based on a 40 year estimated life for goodwill, amortization would have been
approximately $353. The adjustment represents pro forma goodwill
amortization less amounts recorded in the historical financial statements of
$126.
12
<PAGE>
(3) Reflects additional interest expense in connection with additional debt
incurred from the acquisitions of the Marine Equipment Division and the ITS
Subsidiaries. Based on assumed principal balances outstanding for the year
ended of approximately $47,816 and a weighted average interest rate of
approximately 8.4%, pro forma interest expense would be approximately
$4,040. The adjustment represents pro forma interest expense less amounts
recorded in the historical financial statements of approximately $2,390.
(4) Adjusts effective tax to zero as the Company would have incurred a loss for
the pro forma period. No benefit has been recognized relating to possible
loss carryforwards associated with pro forma statement of operations as it
is inconclusive as to whether future periods would be benefited.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Information" above in this Item 2 and the financial statements and the
notes thereto included elsewhere in this registration statement.
Overview
On November 17, 1998, the Company, which had no prior operating history,
acquired (i) Aero International, L.L.C. and (ii) substantially all the assets
and liabilities of International Tool & Supply plc, including ITS Investments,
Inc. and ITS Holdings Limited (the "ITS Subsidiaries"), the principal operating
subsidiaries of International Tool & Supply plc, in exchange for Common Stock
and other consideration. As a result of the acquisition, the Company acquired
four business segments, (a) the Crane Division, comprised of the American Aero
Cranes and the Titan business units of Aero, (b) the Marine Equipment Division,
comprised of the Mobile Pulley and the Mobile Marine business units of Aero, (c)
the Engineered Systems Division, comprised of the ITS Investments, Inc. business
unit and (d) the Drilling Services Division, comprised of the ITS Holdings
Limited business unit. Upon completion of the acquisition, the former owners of
Aero received a controlling interest in the Company, and Aero's management team
assumed control of the Company. As a result, the acquisition was accounted for
as an acquisition of the ITS Subsidiaries by Aero under the purchase method of
accounting. Accordingly, the Company's financial statements and other financial
information, including the information in this section, reflect the historical
operations of Aero for periods and dates prior to the acquisition.
Effective May 31, 1998, IPC Industries, Inc. contributed the assets and
related liabilities of the Mobile Pulley and Machine Works division of IPC
Industries, Inc. and substantially all the assets and related liabilities of the
Mobile Pulley Marine Services division of Mobile Pulley Marine Services, Inc. to
Aero for cash and preferred member interests of Aero. These acquisitions were
accounted for under the purchase method of accounting and the results of
operations of the Mobile Pulley and the Mobile Marine business unit are included
in Aero's financial statements as of the date of the acquisition.
Also effective May 31, 1998, Aero acquired the assets and liabilities of
Titan Industries, Inc. Because Aero and Titan Industries, Inc. were under common
control on the date of the acquisition, Aero's financial statements have been
restated to include the operations of the Titan business unit since November 6,
1997, the date both Aero and Titan Industries, Inc. came under common control.
On September 18, 1997, Aero, which had no prior operating history, acquired
American Aero Cranes, a division of Weatherford Enterra U.S., Limited
Partnership.
Thus, the financial statements of the Company include (i) the results of
operations of the American Aero Cranes business unit for the year ended December
31, 1996, (ii) the results of operations of the American Aero Cranes business
unit for the period from January 1, 1997 to September 18, 1997,
13
<PAGE>
(iii) the results of operations of Aero for the period from September 18, 1997
to December 31, 1997, which include the results of operations of the Titan
business unit commencing on November 6, 1997, and (iv) the results of operations
of Aero for the year ended December 31, 1998, which include the operations of
the Mobile Pulley and Mobile Marine business units commencing on May 31, 1998,
and the results of operations of the ITS Subsidiaries commencing on November 17,
1998. For analytical purposes, the results of operations of the American Aero
Cranes business unit for the period from January 1, 1997 to September 18, 1997
and the results of operations of Aero for the period from September 18, 1997 to
December 31, 1997 have been combined in the comparison below of the Company's
results of operations for the year ended December 31, 1996 to the year ended
December 31, 1997.
Results of Operations
Comparison of Results of Operations for the Years Ended December 31, 1998 and
1997
Revenues. Total revenues of the Company for 1998 were $52.9 million, an
increase of $17.5 million, or 49.4% compared to 1997. The increase was
attributable to the acquisition of the Marine Equipment Division and the ITS
Subsidiaries. Revenues from the respective dates of acquisition included in the
Company's financial statements for the Marine Equipment Division business units
and the ITS Subsidiaries were $15 million and $1.5 million, respectively.
Crane manufacturing revenues for 1998 were $12.7 million, a decrease of
$1.9 million, or 13.0% compared to 1997. The decrease in manufacturing revenue
over the period was a result of the general downturn in the oil and gas industry
with the price of oil dropping to a ten-year low in the second half of 1998. In
addition, the Company incurred significant downtime in connection with the
relocation of its principal crane manufacturing facility from Houston, Texas to
Theodore, Alabama as manufacturing capabilities were suspended for approximately
four weeks. The Company's service revenues for 1998 were $23.7 million, an
increase of $3.0 million, or 14.5% compared to 1997. The resulting increase was
primarily due to the increased focus on marketing and customer service during
1998.
Cost of Revenues. Total cost of revenues of the Company for 1998 was $41.8
million, an increase of $10.2 million, or 32.3% compared to 1997. The increase
was attributable to the acquisition of the Marine Equipment Division and the ITS
Subsidiaries. Cost of revenues from the respective dates of acquisition included
in the Company's financial statements for the Marine Equipment Division and the
ITS Subsidiaries were $11.6 million and $0.9 million, respectively.
Cost of revenues for new crane manufacturing for 1998 was $12.3 million, a
decrease of $4.1 million, or 25.0% compared to 1997. This reduction is primarily
the result of the relocation of the American Aero Crane manufacturing facility
to Theodore, Alabama from Houston, Texas, and efforts by the Company to reduce
workforce at both the American Aero Cranes and Titan business units. Cost of
revenues for services for 1998 was $17.0 million, an increase of $1.4 million,
or 9.0% compared to 1997. The increase primarily resulted from the corresponding
increase in revenue and related direct costs resulting from the increased
activity. As a percentage of revenue, total cost of revenue was 80.5% for 1998,
compared to 89.3% for 1997.
Gross Profit. Gross profit of the Company for 1998 was $11.0 million, an
increase of $7.3 million, or 197.3% compared to 1997. The resulting increase
was attributable to the acquisitions of the Marine Equipment Division and the
ITS Subsidiaries. Gross profit from the respective dates of acquisition included
in the Company's financial statements for the Marine Equipment Division and the
ITS Subsidiaries was $3.4 million and $0.6 million, respectively.
14
<PAGE>
Gross profit for new crane manufacturing for 1998 was $0.4 million, an
increase in gross profit of $2.1 million, or 123.5% compared to 1997. The
increase was attributable to efficiencies achieved by the Company in operating
the Crane Division as compared to its prior owner, as well as the elimination of
certain overhead costs previously associated with the Crane Division during the
period it was a division of a large public company. Gross profit from crane
services for 1998 was $6.6 million, an increase of $1.1 million, or 20.0%
compared to 1997. The resulting increase was attributable to the continued focus
of the Company on increasing service revenues, which have historically been
directly related to gross profit of the division.
Comparison of Results of Operations for the Years Ended December 31, 1997 and
1996
Revenues. The Company's manufacturing revenues for 1997 were $14.7
million, an increase of $7.3 million, or 98.7% compared to 1996. The increase
in manufacturing revenue over the period was a result of the increased platform
construction worldwide, which was driven by favorable demand for oil and gas.
The Company's crane service revenues for 1997 were $20.8 million, an increase of
$4.5 million, or 27.6% compared to 1996. The increase resulted primarily from
the general upturn in the oil and gas industry and new activity in the Gulf of
Mexico directed to deepwater oil and gas production projects. Additionally, the
infrastructure presently used in offshore production is aging, thereby
increasing service revenues.
Cost of Revenue. Cost of revenue for new crane manufacturing for 1997 was
$16.4 million, an increase of $7.4 million, or 82.2% compared to 1996. Cost of
revenue for services for 1997 was $15.3 million, an increase of $3.2 million, or
26.5% compared to 1996. The increase primarily resulted from the corresponding
increase in revenue and related direct costs resulting from the increased
activity. As a percentage of revenue, total cost of revenue was 89.3% for 1997,
compared to 88.6% for 1996.
Gross Profit. Gross loss for new crane manufacturing for 1997 was $1.7
million, a decrease in the gross loss of $0.1 million, or 5.5% compared to 1996.
The resulting loss was attributable to the inability of the American Aero Cranes
division to reduce its overhead costs as a division of Weatherford Enterra U.S.,
Limited Partnership. Gross profit from crane services for 1997 was $5.5
million, an increase of $1.2 million, or 27.9% compared to 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1998 were $7.7 million, an increase of $5.6 million,
or 264.7% compared to 1997. As a percentage of revenue, selling, general and
administrative expenses were 14.5% in 1998 compared to 5.9% in 1997. The
resulting increase was due to the acquisition of the Marine Equipment Division
and the ITS Subsidiaries. Additionally, the Company incurred additional overhead
expenses in order to manage accounting, finance, benefits, and other functions
of the operating divisions. Also, the Company became a U.K. publicly-traded
entity during 1998 and incurred certain legal and accounting costs as a result.
Selling, general and administrative expenses in 1997 were $2.1 million, an
increase of $0.03 million, or 1.4% compared to 1996. As a percentage of revenue,
selling, general and administrative expenses were 5.9% in 1997 compared to 8.8%
in 1996. The increase was a result of the acquisition of the American Aero
Cranes business unit effective September 18, 1997 and the hiring of additional
personnel to perform functions previously performed by personnel of Weatherford
Enterra U.S., Limited Partnership.
Depreciation and amortization in 1998 was $0.8 million, an increase of $0.5
million, or 166.7% compared to 1997. The increase was attributable to the
acquisition of the Marine Equipment Division and the ITS Subsidiaries. The
Company moved its crane manufacturing facility to Mobile, Alabama from Theodore,
Texas and incurred capital expenditures to improve and maintain various
facilities.
15
<PAGE>
Additionally, the Company incurred a significant increase in amortization
expense as a result of the above referenced acquisitions during the year.
Depreciation and amortization in 1997 was $0.3 million, a decrease of $0.03
million, or 11.1% compared to 1996.
Income Taxes
Prior to its acquisition by the Company, Aero was a limited liability
company, and was treated as a partnership for federal income tax reporting
purposes. As such, the taxable income or loss of Aero was included in the
individual income tax returns of the members. Accordingly, no accounts for
deferred income taxes or provisions for current or deferred income taxes prior
to the acquisition, have been included in the accompanying financial statements
of Aero, except for states which do not recognize limited liability companies as
partnerships and tax those entities as corporations.
The Company is a corporation and, as such, commencing on November 18, 1998,
the Company began providing for income taxes based on Statements of Financial
Accounting Standards ("SFAS") No. 109, "Accounting For Income Taxes." SFAS No.
109 requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. In accordance with SFAS No. 109, the Company
recognized deferred tax expense for those deferred tax liabilities and assets
with future tax consequences upon the change in taxable status.
Liquidity and Capital Resources
During 1998, net cash used in operating activities by the Company was $1.3
million. Cash used in operating activities in 1998 consisted of the net negative
change in accrued liabilities of $4.0 million, net negative change in
inventories of $1.2 million, and the net positive change in accounts receivable
of $2.8 million. Net cash used in investing activities was $2.2 million.
Principal uses of cash consisted of $5.5 million of capital expenditures,
including the relocation of a crane manufacturing facility from Houston, Texas
to Theodore, Alabama. This was offset by $3.1 million in cash acquired from the
acquisition of the ITS Subsidiaries. Net cash provided by financing activities
was $5.0 million due to issuance of long-term debt. At December 31, 1998, the
Company had working capital of $16.5 million and long-term debt of $44.2
million.
During 1997, net cash used in operating activities by the Company was $1.0
million. Net cash used in operating activities in 1997 consisted of the net
increase in inventories of $2.4 million, and the net decrease in accounts
receivable of $5.2 million. Net cash used in investing activities was $8.5
million. Principal uses of cash consisted of $0.7 million of capital
expenditures and $8.8 million for the acquisition of Aero. Net cash provided by
financing activities was $9.8 million due to issuance of long-term debt. At
December 31, 1997, the Company had working capital of $10.0 million and long-
term debt of $8.9 million.
On June 30, 1998, the Company entered into a $40 million loan facility (the
"Loan Facility") with a bank group. The Loan Facility is secured by all the
assets of the Company, excepting certain assets owned by the ITS Subsidiaries,
and consists of a revolving credit facility, capital expenditures loan facility
and fixed asset facility. The following describes each of these facilities.
Revolving Credit Facility. The revolving credit facility allows for the
borrowing of funds up to $40.0 million less the sum of (a) the borrowing base,
as defined, (b) amounts due under the capital
16
<PAGE>
expenditure loan facility, and (c) amounts due under the fixed asset facility.
The principal balance and accrued interest become due on the termination date of
the facility, June 20, 2001.
Capital Expenditure Loan Facility. The capital expenditure loan facility
allows for the borrowing of funds up to 90% of the sum of (a) the appraised
liquidation value of eligible equipment and (b) the appraised value of eligible
real estate. The principal advanced shall be reduced monthly based on a seven-
year amortization beginning July 1, 1998.
Fixed Asset Loan Facility. The fixed asset loan facility allows for the
advances of funds up to 80% of the related total actual cost of property, plant
and equipment, as defined. The principal is reduced monthly based on a seven-
year amortization beginning July 1, 1998.
Interest on the Loan Facility accrues at a rate per annum selected by the
borrower from either the prime rate plus an applicable margin or LIBOR plus an
applicable margin. The applicable margin is determined based on the Company's
earnings before interest, taxes, amortization or accretion, and depreciation.
The Loan Facility contains certain restrictive covenants, including
financial covenants. The most restrictive financial covenants include, among
others, minimum interest coverage, as defined; minimum capital, as defined;
consecutive quarterly earnings criteria, as defined; limitations on capital
expenditures, and limitations on the ability of the Company to incur additional
liens, debt, or distributions to members. At December 31, 1998, the weighted
average interest rate on borrowings under the Loan Facility was 6.64% and
approximately $3.4 million was committed to letters of credit. The outstanding
balance at December 31, 1998 and December 31, 1997 was $18.1 million, $4.2
million, respectively.
In connection with the acquisition of Aero and ITS Subsidiaries, the Company
issued the following debt securities.
Senior Notes. The Company issued an aggregate of $1.0 million of promissory
notes ("Senior Notes") in partial consideration for the acquisition of Aero.
The Senior Notes are unsecured and accrue interest at 10%, which is payable
quarterly in arrears. Principal and all accrued and unpaid interest are payable
on November 17, 2000, provided that the holders have the right to accelerate the
due date in the event the Company receives in excess of $5,000,000 in (a) net
proceeds from a sale of securities or (b) proceeds from new or increased credit
facilities.
Series B Junior Subordinated Notes. The Company issued an aggregate of $4.0
million of Series B Junior Subordinated Notes ("Junior Notes") in partial
consideration for the acquisition of Aero. The Junior Notes bear interest at 7%
per year and mature in December 2003. The Junior Notes are unsecured and are
subordinate to the Loan Facility, the Series A Subordinated Debentures and the
Senior Notes. Prepayment is at the option of the Company at any time at par
plus accrued interest to the prepayment date. The Junior Notes are convertible
into Common Stock at any time before maturity at the rate of $0.75 per share.
Series A Subordinated Debentures. The Company issued $5.5 million of its
Series A Subordinated Debentures in partial consideration for the acquisition of
Aero and sold $9.5 million of Series A Subordinated Debentures for cash to
partially fund the acquisition of Aero. The Series A Subordinated Debentures
pay interest at 12% per year and mature in December 2003. The debentures are
unsecured and are subordinate to the Loan Facility and the Senior Notes.
Prepayment is at the option of the Company at any time at par plus accrued and
unpaid interest to the prepayment date. The Debentures were issued with
6,250,000 detachable Series A Increasing Warrants to purchase Common Stock at
$0.63
17
<PAGE>
per share. The number of Series A Increasing Warrants outstanding is subject to
increase in certain circumstances. See Item 11, "Common Stock Subject to
Warrants and Conversion Rights."
In July of 1998, the Company financed the acquisition of a new crane
manufacturing facility in Mobile, Alabama and related equipment and improvements
through an issuance by the Industrial Development Board of Mobile County,
Alabama of $2 million of industrial development bonds. The interest on the bonds
adjusts monthly and the bonds are payable in full on July 1, 2013. The interest
rate on the bonds at December 31, 1998 was 3.5%. The bonds are secured by a
letter of credit issued under the Loan Facility.
Year 2000 Issues
The Company has assessed issues regarding its computer accounting and other
systems' compliance capabilities to process transactions beginning with "Year
2000." The Company has retained a computer consultant to (a) identify
significant systems and assess potential "Year 2000" issues relating to those
systems; (b) renovate, repair, and replace noncompliant systems, software, and
hardware; and (c) test and validate all systems, software, and hardware.
Additionally, the Company has contacted critical software vendors to assess
potential "Year 2000" issues. Those vendors have assured the Company that their
software is "Year 2000" compliant. With respect to proprietary components of
vendor's software, the Company is relying on the vendor's representations. The
Company believes all computer accounting systems of the Company and its
operating divisions are "Year 2000" compliant, excepting the Engineered Systems
Division and the Titan business unit.
The conversion of the Engineered Systems Division computer accounting
software package to a later generation software package that is "Year 2000"
compliant is estimated to cost approximately $75,000, inclusive of software and
hardware procurement, installation, customization of certain purchase and sales
modules, and user training. It is believed this project will be completed and
operational during the quarter ending September 30, 1999. The conversion of the
Titan business unit computer accounting software package to a later generation
software version that is "Year 2000" compliant is estimated to cost
approximately $25,000, inclusive of software and hardware procurement,
installation, customization, and user training. It is believed this project
will be completed and operational during the quarter-ended September 30, 1999.
The Company's assessment of the potential implication of broad based non-
compliance with "Year 2000" by its customers and suppliers has not been
completed at this date. A significant number of the Company's customers are
large international and U.S. domestic oil and gas and dredging companies who
typically maintain their systems on the leading edge of technology. From contact
with a limited number of customers, the Company believes that "Year 2000" non-
compliance should not be a major concern. Isolated problems could occur for
smaller customers as a result of delays in processing the Company's billings for
services and products, the payment for which could conceivably be delayed and
cause isolated cash flow problems.
18
<PAGE>
The Company has contingency plans in the event of unforeseen difficulties to
minimize any disruptions, including continuing to monitor potential implications
from broad-based non-compliance by customers and vendors.
There can be no assurance that all necessary modifications will be identified
and corrected or that unforeseen difficulties or costs will not arise. The
Company believes that the failure of third parties to address their "Year 2000"
problems in a timely manner present the greatest likelihood of the Company not
being "Year 2000" compliant. Such failure could materially adversely impact the
Company's operations, the estimated cost of the "Year 2000" plan and the target
dates for completion. The effect of non-compliance by third parties is not
determinable at this time. The Company could be subject to litigation for
computer systems failure, including equipment shutdown or failure to properly
date business records or process transactions. The amount of potential
liability, and lost revenue cannot be reasonably estimated at this time.
Recent Accounting Standards
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which is effective for fiscal
years beginning After June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than January 1, 2000.
ITEM 3. PROPERTIES
The Company incorporates herein by reference the information set forth in
Item 1 under "Crane Division--Facilities"; "Marine Equipment Division--
Facilities"; "Engineered Systems Division--Facilities"; "Drilling Services
Division--Facilities". All of the owned real estate utilized by the Crane and
the Marine Equipment Divisions is mortgaged as security for the Loan Facility.
For a description of the Loan Facility see Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Our lease payments for the Theodore, Alabama manufacturing facility
of the Crane Division fund the principal and interest payments on a $2,000,000
industrial revenue bond issue. The bonds mature on July 1, 2013, and we have
the option to purchase the property for a nominal price upon payment in full of
the bonds. The Katy, Texas facility utilized by the Engineered Systems Division
is encumbered by a Deed of Trust to a bank.
19
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock, $0.01 value of the Company ("Common Stock") as of
March 31, 1999, as to (i) all persons known by the Company to be the beneficial
owner of more than 5% of the Common Stock, (ii) each director of the Company,
(iii) each executive officer of the Company whose 1998 compensation by the
Company is disclosed in Item 6, and (iv) all directors and executive officers of
the Company as a group. The address of all the named persons is the business
address of the Company's principal executive offices, 300 St. Francis Street,
Mobile, Alabama 36602, unless otherwise noted, and each named person has sole
voting and investment powers with respect to such person's Common Stock, unless
otherwise noted.
Stockholders Number of Shares Percentage
------------ ---------------- ----------
IPC Industries, Inc. (1) 18,612,316 29.39
McGowin I. Patrick, Jr. (2) 19,185,833 29.71
Clifton C. Inge, Jr. (3) 19,185,833 29.71
Thomas W. Pritchard(4) 8,447,083 13.08
Byron A. Adams, Jr.(4) 8,447,083 13.08
Sidro S.A.(5) 3,287,789 5.09
Westpool Investment Trust plc(6) 7,242,573 11.21
Robert A. Rayne(7) 7,484,976 11.59
Bernard J. Duroc-Danner(8) 3,119,705 4.83
Simon Edward Callum Miller -- --
All directors and executive officers as a
group (9 persons) 39,282,597 60.82
---------- ------
TOTALS 51,017,469 78.99
___________________
(1) Shares shown reflect warrants to purchase 1,718,750 shares and
convertibility rights to acquire 2,586,666 shares of Common Stock. IPC
Industries, Inc. shares voting and investment powers with Messrs. Patrick
and Inge with respect to all the shares shown. Messrs. Patrick and Inge
each own 50% of the common stock of IPC Industries, Inc.
(2) Shares shown include 18,612,916 shares beneficially owned by IPC
Industries, Inc., of which Mr. Patrick is a 50% owner, and 572,917 shares
beneficially owned by IPC Investments, Inc., of which Mr. Patrick is a 50%
owner. Mr. Patrick shares with IPC Industries, Inc. and IPC Investments,
Inc. investment and voting powers with respect to the shares held by those
companies, respectively, and also shares such voting and investment power
with Clifton C. Inge, Jr., who is also a 50% owner of each company.
(3) Shares shown include 18,612,916 shares beneficially owned by IPC
Industries, Inc., of which Mr. Inge is a 50% owner, and 572,917 shares
beneficially owned by IPC Investments, Inc., of which Mr. Inge is a 50%
owner. Mr. Inge shares with IPC Industries, Inc. and IPC Investments, Inc.
investment and voting powers with respect to the shares held by those
companies, respectively, and also shares such voting and investment powers
with McGowin I. Patrick, Jr., who is also a 50% owner of each company.
(4) Shares shown reflect convertibility rights to acquire 1,293,333 shares.
(5) The address of Sidro S.A. is 38 Rue de Naples, 1050 Brussels, Belgium.
(6) The address of Westpool Investment Trust is Carlton House, 33 Robert Adam
Street, London WIM 5AH. Shares shown reflect warrants to purchase 2,291,666
shares. Westpool Investment Trust plc shares voting and investment powers
with respect to the shares shown with Robert A. Rayne.
20
<PAGE>
(7) Shares shown include 7,242,573 shares beneficially owned by Westpool
Investment Trust plc, of which Mr. Rayne is a director and a controlling
person.
(8) Shares shown reflect warrants to purchase 1,250,000 shares.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert A. Rayne 50 Director and Chairman of the Board of Directors
Clifton C. Inge, Jr. 35 Director and Chief Executive Officer and Director
McGowin I. Patrick, Jr. 35 Director, President and Chief Operating Officer
Byron A. Adams, Jr. 39 Director and Executive Vice President--Business Development
W. Steven McKenzie 45 Executive Vice President--Operations
William L. Wann, Jr. 30 Vice President--Finance and Compliance and Secretary
Jefferson D. Larry 32 Vice President--Accounting and Administration
Bernard J. Duroc-Danner 45 Director
Simon Edward Callum Miller 46 Director
</TABLE>
Byron A. Adams, Jr. became a director of the Company on August 20,
1998 and Executive Vice-President--Development on October 1, 1998. Previously,
Mr. Adams had been Executive Vice President of Aero International, L.L.C. since
June, 1998, and between February, 1998 and June, 1998 Mr. Adams had been
President of Aero International, L.L.C., and between September, 1997 and
February, 1998, Mr. Adams had been President of American Aero Cranes, L.L.C., a
subsidiary of Aero. From 1981 to 1997, Mr. Adams was manager of sales and
marketing for Oil & Gas Rental Service, Inc., Morgan City, Louisiana, which is
engaged in the rental of offshore supply vessels, drill pipe, blowout preventers
and other offshore oilfield materials.
Bernard J. Duroc-Danner became a director of the Company on August 20,
1998. Mr. Duroc-Danner is President and Chief Executive Officer of Weatherford
International, Inc., a publicly-held oilfield service and equipment company.
Previously, Mr. Duroc-Danner served as President and Chief Executive Officer of
EVI, Inc., a predecessor of Weatherford International, Inc. which Mr. Duroc-
Danner founded in 1987. Mr. Duroc-Danner is also a director of Parker Drilling
Company, a publicly-held contract oil and gas drilling company, and Cal Dive
International, Inc., a publicly-held subsea services company.
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Clifton C. Inge, Jr. has been a director of the Company since August
20, 1998 and Chief Executive Officer since October 1, 1998. Mr. Inge is an
owner and the Chief Executive Officer of IPC Industries, Inc., Mobile, Alabama,
a holding company with investments in industrial concerns, and had been an owner
and the Chief Executive Officer of Aero International, L.L.C. On November 17,
1998, Aero International, L.L.C. was acquired by the Company. See Item 7.
Jefferson D. Larry has been Vice-President--Accounting and
Administration of the Company since October 1998. Previously, Mr. Larry had
served since 1996 as corporate controller for IPC Industries, Inc., Mobile,
Alabama, since 1996, and from 1989 until 1996 he was accounting manager for
Masland Carpets, Inc., Saraland, Alabama.
W. Steven McKenzie has been Executive Vice President--Operations of
the Company since October 1, 1998. Previously, Mr. McKenzie had been Executive
Vice President--Operations for IPC Industries, Inc. since September, 1997. From
February, 1996 until September, 1997, Mr. McKenzie was director of human
resources for IPC Industries, Inc. and between 1994 and 1996 Mr. McKenzie was a
general contractor and the owner of a machine shop in Saraland, Alabama. Before
1994, Mr. McKenzie, a mechanical engineer, had 20 years experience in
manufacturing management.
Simon Edward Callum Miller has been a director of the Company since
February 1, 1999. A resident of Scotland, Mr. Miller is Executive Chairman of
Dunedin Capital Partners Ltd. and Dunedin Capital Holdings Ltd., Edinburgh,
Scotland, investment managers. Dunedin Capital Partners Ltd. is the investment
manager of Dunedin Enterprise Investment Trust PLC, Edinburgh, Scotland, a
publicly-held investment company organized under the laws of Scotland. From
1987 to 1991, Mr. Miller was Chief Executive Officer and from 1991-1994
Executive Chairman of Ferrum Holdings PLC, Staffordshire, England, a publicly-
held engineering company. Mr. Miller is also Executive Director of Simon Miller
Limited, Kinross-Shire, Scotland, a business services firm, and serves as a Non-
Executive Director of Emess PLC, London, England, a publicly-held English
company engaged in the lighting manufacturing business.
McGowin I. Patrick, Jr. has been a Director of the Company since
August 20, 1998, and President and Chief Operating Officer since October, 1998.
Mr. Patrick is an owner and President and Chief Operating Officer of IPC
Industries, Inc., Mobile, Alabama, a holding company with interests in
industrial concerns, and had been an owner and the President and Chief Operating
Officer of Aero International, L.L.C. On November 17, 1998, Aero was acquired
by the Company. See Item 7.
Robert A. Rayne has been a director of the Company since August 20,
1998, and Chairman of the Board of Directors since November 16, 1998. Mr.
Rayne, a resident of London, England, has been Joint Managing Director of London
Merchant Securities PLC, a publicly-held investment company, since June 1, 1998.
Previously, since October, 1983, Mr. Rayne had served as Investment Director of
London Merchant Securities PLC. Mr. Rayne also serves as a director of First
Leisure Corporation plc, a publicly-held English company engaged in the
entertainment business, Golden Rose Communications plc, a publicly-held English
company engaged in the radio broadcasting business, and Weatherford
International, Inc., a publicly-held oilfield service and equipment company.
William L. Wann, Jr. has been Secretary of the Company since December
21, 1998, and Vice President--Finance and Compliance since March 15, 1999.
Previously, Mr. Wann had served as a corporate finance analyst with IPC
Industries, Inc. since April, 1998. From 1995 to 1998, Mr. Wann, a certified
public accountant, was a mergers and acquisitions manager for Smith Dukes &
Buckalaw, LLP,
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a public accounting firm in Mobile, Alabama, and from 1993 to 1995 he was a
senior tax consultant with the public accounting firm of Ernst & Young, LLP,
Birmingham, Alabama.
ITEM 6. EXECUTIVE COMPENSATION
Executive Compensation and Employment Agreements
The Company was organized on August 20, 1998 and did not have any
assets or operations until November 17, 1998. The total compensation awarded
to, earned by or paid to Clifton C. Inge, Jr., the Chief Executive Officer of
the Company, in 1998 was $24,322. None of the executive officers of the Company
were awarded or earned or were paid compensation in excess of $100,000 during
1998.
The Company has entered into employment agreements with Messrs. Inge,
McGowin I. Patrick, Jr., Byron A. Adams, Jr. and W. Steven McKenzie effective
November 11, 1998. The annualized base salary of each of the executive officers
under the employment agreements is $200,000. Effective February 1, 1999, the
named executive officers agreed to salary reductions to lower the Company's
compensation costs. The 1999 base salary of Messrs. Patrick, Inge and Adams will
be $140,000, and the 1999 base salary of Mr. McKenzie will be $185,000. Each
employment agreement is for a one year term that is automatically renewed
annually for an additional one year term, unless terminated as provided in the
agreement. The Company may terminate each employment agreement for "cause" or
"disability" as defined in the agreements, without payment of compensation. In
the event of termination by the Company for a reason other than death,
disability or cause, however, the Company is required to give one year's prior
notice or pay one year's annual salary to the discharged executive officer in a
lump sum. The executive officer may terminate the employment agreement at any
time, provided that if the executive officer terminates the agreement for
"cause", as defined in the agreement, the executive officer is entitled to
continue to receive his salary through the end of the current term of
employment. The employment agreements also provide for the award of bonuses upon
the Company meeting certain performance criteria.
Director Compensation
Excepting Mr. Simon Edward Callum Miller, none of the directors of the
Company receives any compensation for services as directors. The Company has
agreed to pay Mr. Miller $20,000 per year as compensation for serving as a
director of the Company. All of the directors are reimbursed by the Company for
all ordinary and necessary expenses incurred in attending any meeting of the
Board of Directors or any committee thereof or otherwise incurred in their
capacity as directors.
Compensation Committee Interlocks and Insider Participation
The Board of Directors of the Company did not have a Compensation
Committee in 1998. McGowin I. Patrick, Jr., President and Chief Operating
Officer and a director of the Company, participated in deliberations with the
Board of Directors concerning executive officer compensation.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 31, 1998, Titan Industries, Inc. sold substantially all
of its assets and liabilities to Aero International, L.L.C. for (a) the payment
of certain indebtedness of Titan Industries, Inc. totaling $1,822,015 and (b)
Aero's promissory note in the principal amount of $675,978 (the "Titan Note").
All of the outstanding common stock of Titan Industries, Inc. is owned by IP
Capital Corporation (48.5%), Thomas W. Pritchard (24.25%), Byron A. Adams, Jr.
(24.25%) and W. Steven McKenzie (3%). The amount of interest on the Titan Note
accrued during the period from May 31, 1998 to December 31, 1998 was
approximately $33,799. The monthly interest that will accrue on the Titan Note
is $5,658. The Titan Note is subordinate to all other indebtedness of Aero and
is due and payable on demand. Titan Industries, Inc. (formerly Titan
Acquisitions, Inc.) had acquired the assets of Titan Industries, Inc. on
November 5,
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1997 for $2,250,000. Management of the Company believes that the price paid for
the Titan business unit by Aero represents the fair market value of the business
unit, if sold in an arms' length transaction.
Effective May 31, 1998, IPC Industries, Inc. sold the assets and
liabilities of its Mobile Pulley business unit to Aero in consideration for (a)
the issuance and delivery by Aero to IPC of $9 million par amount of preferred
member interests in Aero, bearing dividends at the rate of 5% per annum, (b) the
payment of $2 million cash and (c) the assumption of debt in the approximate
amount of $5,700,000. McGowin I. Patrick, Jr. and Clifton C. Inge, Jr. each own
50% of the outstanding common stock of IPC. Management believes that the price
paid for the Mobile Pulley business unit represents the fair market value of the
business unit, if sold in an arms' length transaction.
Effective May 31, 1998, Mobile Pulley Marine Services, Inc. sold
substantially all of its assets to Aero International, L.L.C. in consideration
for (a) the issuance and delivery by Aero to Mobile Pulley Marine Services, Inc.
of $3 million par amount of preferred member interests in Aero, bearing
dividends at the rate of 5% per annum, (b) the payment of $1 million cash and
(c) the assumption of liabilities in the approximate amount of $2,250,000.
Messrs. Patrick and Inge each own 50% of the outstanding common stock of IPC
Investments, Inc. (formerly Mobile Pulley Marine Services, Inc.). Management
believes that the price paid for the Mobile Marine business unit represents the
fair market value of the business unit, if sold in an arms' length transaction.
In 1998, the Company paid approximately $102,000 to Mobile Bayair,
L.L.C., in payment for rental of an airplane owned by Mobile Bayair, L.L.C. IP
Capital Corporation owns two-thirds of the outstanding limited liability company
member interest in Mobile Bayair, L.L.C. Messrs. Patrick and Inge each own 50%
of the outstanding common stock of IP Capital Corporation. The Company expects
that it will continue to rent the plane owned by Mobile Bayair, L.L.C. as
required for the business of the Company. Management believes that the airplane
rentals charged to the Company by Mobile Bayair, L.L.C. are consistent with
market prices.
On June 1, 1998, the Company purchased two dry docks from IP Capital
Corporation for $900,000 cash. Management believes that the price paid by the
Company for the dry docks represents the fair market value of the dry docks, if
sold in an arms' length transaction. The dry docks were acquired by IP Capital
Corporation in June 1997 for $250,000 each.
Aero International, L.L.C. paid approximately $224,501 to IPC
Industries, Inc. during 1998, and Titan Industries, Inc. paid approximately
$15,905 to IPC during 1998, in reimbursement of certain overhead allocations
charged to Aero and to Titan Industries, Inc. by IPC for the period from January
1, 1998 through May 31, 1998, relating to the operations of Aero and Titan
Industries, Inc. while they were under the common control. Management believes
these charges were fairly allocated to Aero and to Titan Industries, Inc. and
that they represent the fair market value of the services rendered, if
contracted on an arms' length basis.
The Company has an outstanding receivable from American Mulcher Parts,
L.L.C. in the amount of approximately $353,853 for sales made to American
Mulcher Parts, L.L.C. during 1998 by Mobile Pulley Marine Services, Inc.,
substantially all the assets and liabilities of which were acquired by the
Company effective May 31, 1998. American Mulcher Parts, L.L.C. is a wholly-
owned subsidiary of IPC Investments, Inc. (formerly Mobile Pulley Marine
Services, Inc.).
Aero and Titan Industries, Inc. paid $255,727 and $80,096,
respectively, to IPC Industries, Inc. during 1998 for the provision of medical
insurance coverage for the employees of Aero and Titan Industries, Inc. from
January 1, 1998 to May 31, 1998, during which time Aero and Titan Industries,
Inc. were under common control.
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The Company has liabilities in the approximate amounts of $209,274 and
$69,758 payable to IPC Industries, Inc. and to IPC Investments, Inc. (formerly
Mobile Pulley Marine Services, Inc.), respectively. These payables constitute
the preferred member dividends payable to IPC and IPC Investments, Inc. during
the period from May 31, 1998 to November 17, 1998 under the $9 million and $3
million of preferred member interests issued by Aero to IPC and to Mobile Pulley
Marine Services, Inc., respectively, for (a) the transfer by IPC to Aero of the
Mobile Pulley business unit effective May 31, 1998, and (b) the transfer by
Mobile Pulley Marine Services, Inc. to Aero of the Mobile Marine business unit
effective May 31, 1998.
IPC Industries, Inc. is indebted to the Company in the amount of
approximately $113,000 for expenses paid by Aero International, L.L.C. on behalf
of IPC during the transition period after the May 31, 1998 acquisition by Aero
of the Titan, Mobile Pulley and Mobile Marine business units that had been under
common control.
In 1997 and 1998, Aero paid investment advisory fees totaling $175,000
to IP Capital Corporation for services rendered in connection with Aero's
acquisition of the American Aero Cranes business unit and the Titan business
unit. In the opinion of management the fees paid by Aero fairly represent the
value of the services rendered.
In connection with the acquisition of Aero by the Company, the Company
issued its promissory notes in the aggregate principal amount of $1 million to
the following persons:
Holder Amount
------ -------
IPC Industries, Inc. $485,000
Byron A. Adams, Jr. 242,500
Thomas W. Pritchard 242,500
W. Steven McKenzie 30,000
For the period from November 17, 1998 until December 31, 1998, the aggregate
interest accrued on the Senior Notes was $12,222. The monthly interest that
will accrue on the Notes during 1999 is $8,333. The Senior Notes mature on
November 17, 2002. For additional information concerning the Senior Notes, see
Item 2, "Management's' Discussion and Analysis of Financial Condition and
Results of Operations of Offshore Tool & Energy Corporation--Liquidity and
Capital Resources," and Item 10.
Also in connection with the acquisition of Aero by the Company, the
Company issued its Series B Junior Subordinated Notes in the aggregate principal
amount of $4 million to the persons named below. The table below also sets
forth the interest accrued on the Junior Notes from November 17, 1998 to
December 31, 1998, and the interest that will accrue on the Junior Notes during
1999. Interest on the Junior Notes is payable semiannually on June 1 and
December 1 of every year, commencing June 1, 1999. The Junior Notes mature on
December 1, 2003.
Holder Amount Interest 1998 Interest 1999
------ ------- ------------- -------------
IPC Industries, Inc. $1,940,000 $16,220 $135,800
Byron A. Adams, Jr. 970,000 8,110 67,900
Thomas W. Pritchard 970,000 8,110 67,900
W. Steven McKenzie 120,000 1,003 8,400
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For additional information concerning the Junior Notes, see Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Offshore Tool & Energy Corporation--Liquidity and Capital
Resources," and Item 10.
On November 17, 1998, the Company issued $14 million of its Series A
Subordinated Debentures to the persons named below. The table below also sets
forth the interest accrued on the Debentures held by the named persons from
November 17, 1998 to December 31, 1998, and the interest that will accrue on the
Debentures held by the named persons during 1998. Interest on the Debentures is
payable semiannually on June 1 and December 1 of even year, commencing on June
1, 1999. The Debentures mature on December 1, 2003.
Holder Amount Interest 1998 Interest 1999
------ ---------- ------------- -------------
Westpool Investment Trust plc $5,500,000 $78,833 $660,000
IPC Industries, Inc. 4,125,000 59,125 495,000
Bernard J. Duroc-Danner 3,000,000 43,000 360,000
IPC Investments, Inc. 1,375,000 19,708 120,000
Westpool Investment Trust plc is an affiliate of Mr. Robert A. Rayne. For
additional information concerning the Debentures, see Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Offshore Tool & Energy Corporation--Liquidity and Capital Resources," and Item
10.
ITEM 8. LEGAL PROCEEDINGS
Harold A. Landry v. Aero International, L.L.C. , et al., Civil Action No.
99-10587, 22d Judicial District Court for the Parish of St. Tammany, State of
Louisiana, was instituted on February 11, 1999. Mr. Landry asserts that Aero
breached a consulting contract with him and seeks compensation under the
contract, damages and attorney's fees. In the alternative, Mr. Landry alleges
that the consulting agreement compensation was part of the purchase price or
otherwise was a basis for the sale by Landry of all the outstanding shares of
Titan Industries, Inc. Under the alternative plea, Mr. Landry seeks recission
of the sale, damages and attorney's fees. Aero has filed a dilatory exception
to the action which has not yet been set for hearing by the court.
Aero International, L.L.C. v. Timothy O'Neill and Alan Schaeffer, Cause No.
98-54573 in the District Court of Harris County, Texas, 215th Judicial District,
was instituted November 11, 1998. Aero alleges that two former employees of the
Crane Division engaged in certain wrongful conduct, including misappropriation
of trade secrets, breach of non-competition agreements and tortious
interference, and seeks damages, attorney's fees and injunctive relief. The
former employees have filed an answer denying Aero's allegations and asserting
that the employment agreements they entered into with Aero's predecessor,
Weatherford Enterra, U.S., Limited Partnership, are void. The parties to the
action are currently conducting discovery.
The Company is involved in various routine legal proceedings primarily
involving claims for personal injury which the Company believes are incidental
to the conduct of its business. While the outcome of these legal proceedings
cannot be predicted with certainty, management believes that the outcome of the
proceedings, if adversely determined, would not have a material adverse effect
on the Company's business or financial condition.
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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER INFORMATION.
Market Information
There is no United States market for the Company's Common Stock. The
Common Stock is admitted to trading on the Alternative Investment Market
("AIM"), London, England, an interdealer quotation market maintained by the
London Stock Exchange. As of March 31, 1999, 50,000,000 shares of Common Stock
were outstanding. A total of 14,583,333 additional shares of Common Stock are
subject to the issuance upon the exercise of outstanding warrants and
convertibility rights. Of the 50,000,000 shares of Common Stock outstanding,
approximately 31,521,483 shares are subject to the restrictions of Rule 144
under the Securities Act of 1933, as amended ("Securities Act"). At April 29,
1999, there were 2,267 record holders of the Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock. The Company is
prohibited from declaring or paying dividends on its Common Stock under the
terms of the Credit Facility described in Item 2, under "Discussion and Analysis
of Financial Condition and Results of Operations of Offshore Tool & Energy
Corporation--Liquidity and Capital Resources." Dividends on the Common Stock
are also substantially restricted by the Company's Series A Subordinated
Debenture Indenture (the "Indenture") under which $15,000,000 of the Company's
Series A Subordinated Debentures are outstanding. The Indenture provides that
such dividends may not exceed an amount which is determined by the application
of a complex formula based on 50% of the Company's consolidated net income,
subject to certain credits and deductions. In addition, dividends are
restricted by the Company's Note Agreement under which the Company's Series B
Junior Subordinated Notes are outstanding. The Note Agreement provides that
such dividends may not exceed 50% of the consolidated after tax income of the
Company. See Item 2, "Management's' Discussion and Analysis of Financial
Condition and Results of Operations of Offshore Tool & Energy Corporation--
Liquidity and Capital Resources."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following information is provided as to all securities sold by the
Company within the last three years which were not registered under the
Securities Act.
Common Stock
Effective November 17, 1998, the Company (a) sold 20,500,000 shares of
Common Stock to International Tool & Supply plc, a publicly-traded English
corporation, in exchange for the assets of ITS pursuant to a Plan of Liquidation
of ITS under to which such shares were distributed to the public stockholders of
ITS (the "ITS Stockholders"), and (b) sold 29,500,000 shares of Common Stock to
the IPC Industries, Inc. and Messrs. Byron A. Adams, Jr., Thomas W. Pritchard
and W. Steven McKenzie, the owners of the common membership interests of Aero
International, L.L.C. (the "Aero Holders"), in partial consideration for the
exchange for all the outstanding common member interests of Aero. The sale and
exchange with the ITS Stockholders were made without registration in reliance
upon Regulation S, except that the sale and exchange of an aggregate of
2,021,483 shares of Common Stock with three shareholders of ITS who were U.S.
persons were made without registration in reliance upon Rule 506 of Regulation D
and Section 4(2) of the Securities Act. The U.S. persons were Mr. Bernard J.
Duroc-Danner, a director of the Company, Mr. Howard Wolf, former Non-Executive
Chairman of ITS, and Mr. Richard W. Webb, a resident of Houston, Texas. The
sale and exchange with the Aero Holders were
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made without registration in reliance upon Rule 506 of Regulation D and Section
4(2) of the Securities Act.
Series A Subordinated Debentures and Series A Increasing Warrants
Effective November 17, 1998, the Company sold $9,500,000 principal amount
of its Series A Subordinated Debentures to Westpool Investment Trust plc,
Bernard J. Duroc-Danner and to certain officers of Jefferies and Company, Inc.,
and sold $5,500,000 principal amount of the Debentures to IPC Industries, Inc.
and Mobile Pulley Marine Services, Inc. in exchange for all of the outstanding
preferred membership interests of Aero. Issued pro rata with the Debentures
were 6,250,000 detachable Series A Increasing Warrants to purchase Common Stock
at the price of $0.63 per share. The sale of the Debentures and the Series A
Increasing Warrants were made without registration in reliance upon Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
Series B Junior Subordinated Notes
Effective November 17, 1998, the Company sold $4,000,000 principal amount
of its Series B Junior Subordinated Notes ("Notes") to the Aero Holders in
partial consideration for the exchange by the Aero Holders of all the
outstanding common membership interests of Aero. The Notes are convertible into
shares of Common Stock at the ratio of $0.75 per share. The sale and exchange
of the Notes was made without registration in reliance upon Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
Senior Notes
Effective November 17, 1998, the Company sold $1,000,000 principal amount
of its promissory notes to the Aero Holders in partial consideration for the
exchange of all the outstanding common member interests of Aero. The sale and
exchange of the Senior Notes was made without registration in reliance upon Rule
506 of Regulation D and Section 4(2) of the Securities Act.
Series B Warrants
Effective November 17, 1998, the Company sold and issued to Jefferies and
Company, Inc. 3,000,000 Series B Warrants to purchase Common Stock at the price
of $1.26 per share. The Series B Warrants were paid to Jefferies and Company,
Inc. as compensation for services rendered in connection with the Company's
acquisition of Aero and the ITS Subsidiaries. The sale of the Series B Warrants
was made without registration in reliance upon Rule 506 of Regulation D and
Section 4(2) of the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
General
The Company's Certificate of Incorporation authorizes the issuance of
105,000,000 shares of capital stock, consisting of 100,000,000 shares of Common
Stock, $0.01 par value, and 5,000,000 shares of Preferred Stock, $1.00 par
value. At March 31, 1999, 50,000,000 shares of Common Stock were issued and
outstanding, and no shares of the Company's preferred stock were outstanding.
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Common Stock
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The Board of Directors are elected annually and serve one-year
terms. Any director, or the entire Board of Directors, may be removed at any
time at a meeting of the stockholders called for such purpose by a majority of
the Common Stock present in person or represented at such meeting.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock are entitled to participate pro rata in such dividends
as may be declared in the discretion of the Board of Directors out of the funds
legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company on liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. Holders of Common Stock do not have
preemptive rights to purchase shares of stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock are
fully paid and non-assessable.
Common Stock Subject to Warrants and Conversion Rights
The Company has a total of 14,583,333 authorized but unissued shares of
Common Stock subject to issuance upon the exercise of outstanding warrants and
conversion rights.
The Company has outstanding 6,250,000 Series A Increasing Warrants. Each
Series A Warrant entitles the holder to purchase one share of Common Stock at
$0.63 per share until November 18, 2005. The warrant price and the number of
shares of Common Stock issuable upon exercise of the Series A Warrants are
subject to adjustment in certain circumstances, including the event of a stock
dividend, a stock split, special distributions, reorganization, a merger of the
Company or the sale of any Common Stock for less than 90% of its then current
market value. The number of outstanding Series A Warrants in the hands of the
holders thereof are subject to automatic increases as follows: (a) if all of
the Company's outstanding Series A Subordinated Debentures are not fully paid by
May 17, 2000, the total number of Series A Warrants outstanding on that date
will be increased to an amount equal to the product of such outstanding Warrants
multiplied by 1.15; (b) if all the outstanding Debentures are not paid in full
by November 17, 2001, the Series A Warrants then outstanding will be increased
to an amount equal to the product of such outstanding Warrants multiplied by
1.173413; and (c) if all the outstanding Debentures are not paid in full by
November 17, 2002, the Series A Warrants then outstanding will be increased to
an amount equal to the product of such outstanding debentures multiplied by
1.148481.
The Company has outstanding 3,000,000 Series B Warrants. Each Series B
Warrant entitles the holder to purchase one share of Common Stock at the
exercise price of $1.26 per share, until November 18, 2003. The exercise price
and the number of shares of Common Stock issuable upon exercise of the Series B
Warrants are subject to adjustment in certain circumstances, including the event
of a stock dividend, a stock split, a special distribution, a reorganization, a
merger of the Company or the sale of any Common Stock for less than 90% of its
then current market value.
Holders of the Company's Series B Junior Subordinated Notes are entitled to
convert, at any time prior to the maturity of the Notes, the indebtedness
represented by the Notes into shares of Common Stock at the conversion price of
$0.75 per share. At March 31, 1999, there were $4,000,000 aggregate principal
amount of Notes outstanding, convertible into 5,333,333 shares of Common Stock.
The Notes mature on December 1, 2003.
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Registration Rights
In connection with the acquisition for the Company of Aero and the ITS
Subsidiaries, the Company issued an aggregate of 29,500 shares of Common Stock
to IPC Industries, Inc., Byron A. Adams, Jr., Thomas W. Pritchard and W. Steven
McKenzie ("Aero Holders"), and issued to Jefferies and Company, Inc. its Class B
Warrants to purchase 3,000 shares of Common Stock. The shares of Common Stock
held by the Aero Holders, the Class B Warrants and the shares of Common Stock
underlying the Class B Warrants are "restricted" securities within the meaning
of Rule 144 of the Securities and Exchange Commission. Consequently, such
securities may not be resold unless they are registered under the Securities
Act, or are sold pursuant to an applicable exemption from registration, such as
Rule 144. The Company has granted to the Aero Holders and to Jefferies and
Company, Inc. certain registration rights with respect to the Common Stock held
by the Aero Holders and the Common Stock underlying the Class B Warrants,
including the right, subject to certain conditions and limitations, to demand
registration of the Common Stock and to include the Common Stock in certain
registrations proposed by the Company.
Certain Charter and Bylaw Provisions
Certain provisions of the Company's Certificate of Incorporation and Bylaws
are intended to enhance the likelihood of continuity and stability in the Board
of Directors of the Company and in its policies, but might have the effect of
delaying or preventing a change in control of the Company and may make more
difficult the removal of incumbent management even if such transactions could be
beneficial to the interests of stockholders. Set forth below is a summary
description of such provisions:
Number of Directors; Filling Vacancies. The Certificate of Incorporation
provides that the number of directors may be fixed from time to time in the
Bylaws. Currently, the Bylaws provide that the number of directors shall be
six. Any vacancy on the Board of Directors, whether through an increase in the
number of authorized directors in the Bylaws (which may be approved by the Board
of Directors) or the death, resignation or removal of a director, may be filled
only by the majority vote of the remaining directors (even if the number of
remaining directors is less than the number required for a quorum), and any
director so appointed shall serve until the next stockholders' meeting held for
the election of directors and his or her successor is duly elected and
qualified. Directors may be removed only by the stockholders at a special
meeting called for such purpose by the affirmative vote of 50% of the voting
stock of the Company present or represented at the meeting. The stockholders
may elect at such meeting the successor or successors to any directors so
removed.
Advance Notice of Intention to Nominate a Director. The Bylaws permit a
stockholder to nominate a person for election as a member only if (a) the
nominating stockholder has been the beneficial owner of at least 1% of the
Company's outstanding voting stock for at least one year and (b) written notice
of such stockholder's intent to make a nomination has been given to the
Secretary of the Company not less than 60 days nor more than 270 days prior to
the anniversary of the annual meeting held for the immediately preceding year
(subject to certain adjustments if the annual meeting date is changed by more
than 30 days from the date of the prior annual meeting). This provision also
requires that the stockholder's notice set forth, among other things, a
description of all arrangements or understandings between the nominee and the
stockholder pursuant to which the nomination is to be made or the nominee is to
be elected and such other information regarding the nominee as would be required
to be included in a proxy statement filed pursuant to the proxy rules
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), had the nominee been nominated by the Board of Directors of the Company,
and be accompanied by the written consent of the nominee to serve as a director
and the nominee's affidavit certifying that the nominee meets the qualifications
to be a director. Any nomination that fails to comply with these requirements
will be disqualified.
30
<PAGE>
Stockholders' Right to Call Special Meeting. The Bylaws provide that
special meetings of the stockholders may only be called by the stockholders upon
the written request of at least 35% of the voting stock of the Company.
Adoption and Amendment of Bylaws. The Certificate of Incorporation
provides that the Bylaws may be amended or repealed by either a majority vote of
the Board of Directors or the holders of at least 80% of the voting stock of the
Company present or represented at a meeting of the stockholders. Any provisions
amended or repealed by the stockholders may be re-amended or re-adopted by the
Board of Directors.
Amendment of Certain Provisions of the Charter. Under Delaware law, unless
a corporation's certificate of incorporation specifies otherwise, a
corporation's certificate of incorporation may be amended by the affirmative
vote of the holders of a majority of the voting power of each class of stock
entitled to vote thereon. The Company's Certificate of Incorporation requires
the affirmative vote of not less than 80% of the voting stock of the Company
present or represented at a meeting of the stockholders to amend, alter or
repeal certain provisions of the Company's Charter with respect to (i) the
classification, filling of vacancies and removal of the Board of Directors, (ii)
amendments to the Bylaws, (iii) certain provisions relating to limitation of
liability of directors and indemnification of directors and (iv) any amendments
to the provisions relating to this requirement in the Certificate of
Incorporation.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and Bylaws provide that, to the fullest
extent permitted by the General Corporation Law of the State of Delaware, the
directors and officers of the Company shall be indemnified and shall be advanced
expenses in connection with actual or threatened proceedings and claims against
the directors arising out of their status as such. The Company has entered into
indemnification agreements with each of its directors that provide for
indemnification and expense advancement to the directors to the fullest extent
permitted under the General Corporation Law of the State of Delaware. The
Company has also purchased and maintains insurance to indemnify directors and
officers of the Company against expense and liability for covered claims made
against such persons in their capacity as directors or officers.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Regulation S-X follow:
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Offshore Tool & Energy Corporation:
We have audited the accompanying consolidated balance sheets of OFFSHORE TOOL &
ENERGY CORPORATION (a Delaware corporation, formerly Aero International, L.L.C.)
and subsidiaries as of December 31, 1997 and 1998 and the related consolidated
statements of operations, changes in equity, and cash flows for the period from
September 19, 1997 to December 31, 1997 and for the year ended December 31, 1998
and the consolidated statements of operations, changes in equity, and cash flows
for the year ended December 31, 1996 and for the period from January 1, 1997 to
September 18, 1997 of AMERICAN AERO CRANES (the Predecessor, formerly a division
of Weatherford Enterra US, Limited Partnership). These financial statements are
the responsibility of the Company's and the Predecessor's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of ITS Holdings, Ltd.,
whose statements reflect total assets and total revenues of 9% and 1%,
respectively, of the consolidated totals as of and for the year ended December
31, 1998. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for those entities, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
Our audits also include examining, on a test basis, evidence supporting the
translation of ITS Holdings, Ltd. financial statements from the Companies Act
1985 to generally accepted accounting principles. We believe that our audits
and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Offshore Tool & Energy Corporation and subsidiaries as
of December 31, 1997 and 1998 and the results of their operations and their cash
flows for the period from September 19, 1997 to December 31, 1997 and the year
ended December 31, 1998 and the Predecessor's results of its operations and its
cash flows for the year ended December 31, 1996 and for the period from January
1, 1997 to September 19, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN
Atlanta, Georgia
March 19, 1999
F-1
<PAGE>
ITS HOLDINGS LIMITED
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF ITS HOLDINGS LIMITED IN RESPECT OF
THE PERIOD FROM 18 NOVEMBER 1998 TO 31 DECEMBER 1998
We have audited the financial statements on pages four to eight which have been
prepared under the historical cost convention (as modified by the revaluation of
certain fixed assets) and the accounting policies set out on page six.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page two the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair value of the state
of the groups' affairs as at 31 December 1998 and of its profit for the period
then ended and have been properly prepared in accordance with the Companies Act
1985.
Acumen Accountants and Advisors Limited
Registered Auditors
Bon Accord House
Riverside Drive
ABERDEEN
AB11 7SI. Date: 15 April 1999
F-2
<PAGE>
OFFSHORE TOOL & ENERGY CORPORATION
(FORMERLY AERO INTERNATIONAL, L.L.C.)
AMERICAN AERO CRANES
(FORMERLY A DIVISION OF WEATHERFORD ENTERRA US, LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 345,000 $ 1,830,000
Accounts receivable, net of allowance for doubtful accounts of
$418,000 and $859,000 at December 31, 1997 and 1998,
respectively 11,670,000 16,241,000
Inventories 4,692,000 11,359,000
Note receivable 0 1,500,000
Other current assets 426,000 1,478,000
----------- -----------
Total current assets 17,133,000 32,408,000
PROPERTY, PLANT, AND EQUIPMENT, net 691,000 25,030,000
GOODWILL, net of accumulated amortization 0 13,997,000
OTHER ASSETS 101,000 993,000
----------- -----------
Total assets $17,925,000 $72,428,000
=========== ===========
</TABLE>
F-3
<PAGE>
LIABILITIES AND SHAREHOLDERS'/MEMBERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,914,000 $ 4,676,000
Accrued liabilities 3,609,000 10,057,000
Deferred revenue 944,000 279,000
Current maturities of long-term debt 679,000 862,000
----------- -----------
Total current liabilities 7,146,000 15,874,000
EXCESS OF NET ASSETS ACQUIRED OVER PURCHASE PRICE, net (note 3) 128,000 0
LONG-TERM DEBT, net of current maturities 8,881,000 43,941,000
----------- -----------
Total liabilities 16,155,000 59,815,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (notes 4, 10, and 12)
SHAREHOLDERS'/MEMBERS' EQUITY (Notes 2 and 9):
Preferred stock, $1 par value, 5,000,000 shares authorized,
none issued 0 0
Common stock, $.01 par value, 100,000,000 shares authorized,
50,000,000 shares issued and outstanding at December 31, 1998 0 500,000
Additional paid-in capital 0 11,922,000
Warrants 0 461,000
Members' equity 1,000,000 0
Retained earnings (deficit) 770,000 (228,000)
Accumulated other comprehensive loss 0 (42,000)
----------- -----------
Total shareholders'/members' equity 1,770,000 12,613,000
----------- -----------
Total liabilities and shareholders'/members' equity $17,925,000 $72,428,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
OFFSHORE TOOL & ENERGY CORPORATION
(FORMERLY AERO INTERNATIONAL, L.L.C.)
AMERICAN AERO CRANES
(FORMERLY A DIVISION OF WEATHERFORD ENTERRA US, LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------ ----------------------------------
FOR THE FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE
YEAR ENDED JANUARY 1, 1997 SEPTEMBER 19, 1997 YEAR ENDED
DECEMBER 31, TO SEPTEMBER 18, TO DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- ------------------- ------------------- -----------
<S> <C> <C> <C> <C>
NET SALES:
Manufacturing $ 7,389,000 $ 9,809,000 $ 4,841,000 $ 28,642,000
Service and other 16,307,000 14,586,000 6,179,000 24,250,000
------------ ------------ ----------- ------------
Total net sales 23,696,000 24,395,000 11,020,000 52,892,000
------------ ------------ ----------- ------------
COST OF SALES:
Manufacturing (8,953,000) (11,415,000) (4,949,000) (24,531,000)
Service and other (12,041,000) (10,884,000) (4,390,000) (17,314,000)
------------ ------------ ----------- ------------
Total cost of sales (20,994,000) (22,299,000) (9,339,000) (41,845,000)
------------ ------------ ----------- ------------
GROSS PROFIT 2,702,000 2,096,000 1,681,000 11,047,000
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (2,077,000) (1,282,000) (823,000) (7,677,000)
------------ ------------ ----------- ------------
INCOME FROM OPERATIONS 625,000 814,000 858,000 3,370,000
OTHER INCOME, net 0 0 0 38,000
INTEREST EXPENSE (1,000) (3,000) (209,000) (1,944,000)
------------ ------------ ----------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 624,000 811,000 649,000 1,464,000
PROVISION FOR INCOME TAXES (Note 3) (218,000) (284,000) (29,000) (167,000)
------------ ------------ ----------- ------------
NET INCOME $ 406,000 $ 527,000 $ 620,000 $ 1,297,000
============ ============ =========== ============
INCOME BEFORE PROVISION FOR INCOME TAXES $ 649,000 $ 1,464,000
PRO FORMA PROVISION FOR INCOME TAX (275,000) (680,000)
----------- ------------
PRO FORMA NET INCOME $ 374,000 $ 784,000
=========== ============
PRO FORMA BASIC AND DILUTED EARNINGS PER SHARE $ 0.02
============
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING 32,063,000
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
OFFSHORE TOOL & ENERGY CORPORATION
(FORMERLY AERO INTERNATIONAL, L.L.C.)
AMERICAN AERO CRANES
(FORMERLY A DIVISION OF WEATHERFORD ENTERRA US, LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
CLASS B PREFERRED
COMMON STOCK MEMBERSHIP UNITS ADDITIONAL
DIVISIONAL --------------------- ------------------------ PAID-IN
EQUITY SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ---------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
BALANCE, DECEMBER 31, 1996 $10,165,000 0 $ 0 0 $ 0 0
Advances from Weatherford, net 3,201,000 0 0 0 0 0
Net income 527,000 0 0 0 0 0
----------- ---------- -------- -------- ------------ -----------
BALANCE, SEPTEMBER 18, 1997 $13,893,000 0 $ 0 0 $ 0 0
=========== ========== ======== ======== ============ ===========
- -------------------------------------------------------------------------------------------------------------------------
COMPANY:
CONTRIBUTION OF MEMBERS AT FORMATION $ 0 0 $ 0 0 $ 0 $ 0
Acquisition of common controlled
company (Note 2) 0 0 0 0 0 0
Net income 0 0 0 0 0 0
----------- ---------- -------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1997 0 0 0 0 0 0
Aero Reorganization (Note 2) 0 0 0 960,000 12,000,000 0
Tax withdrawals of former Aero 0
members 0 0 0 0 0 0
ITS Acquisition and Reorganization
(Note 2) 0 50,000,000 500,000 (960,000) (12,000,000) 16,922,000
Distributions to former shareholders
of Aero (Note 2) 0 0 0 0 0 (5,000,000)
Net income 0 0 0 0 0 0
Other comprehensive loss--foreign
currency translation adjustment, net
of income taxes of $27,000 0 0 0 0 0 0
----------- ---------- -------- -------- ------------ -----------
BALANCE, DECEMBER 31, 1998 $ 0 50,000,000 $500,000 0 $ 0 $11,922,000
=========== ========== ======== ======== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
MEMBERS' (DEFICIT) COMPREHENSIVE
WARRANTS EQUITY EARNINGS LOSS TOTAL
----------- ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
BALANCE, DECEMBER 31, 1996 $ 0 0 $ 0 0 $10,165,000
Advances from Weatherford, net 0 0 0 0 3,201,000
Net income 0 0 0 0 527,000
----------- ---------- -------- -------- -----------
BALANCE, SEPTEMBER 18, 1997 $ 0 0 $ 0 0 $13,893,000
=========== ========== ======== ======== ===========
- -----------------------------------------------------------------------------------------------------------
COMPANY:
CONTRIBUTION OF MEMBERS AT FORMATION $ 0 $1,000,000 $ 0 0 $ 1,000,000
Acquisition of common controlled
company (Note 2) 0 0 150,000 0 150,000
Net income 0 0 620,000 0 620,000
----------- ---------- -------- -------- ------------
BALANCE, DECEMBER 31, 1997 0 1,000,000 770,000 0 1,770,000
Aero Reorganization (Note 2) 0 0 (850,000) 0 11,150,000
Tax withdrawals of former Aero
members 0 0 (1,445,000) 0 (1,445,000)
ITS Acquisition and Reorganization
(Note 2) 461,000 (1,000,000) 0 0 4,883,000
Distributions to former shareholders
of Aero (Note 2) 0 0 0 0 (5,000,000)
Net income 0 0 1,297,000 0 1,297,000
Other comprehensive loss--foreign
currency translation adjustment, net
of income taxes of $27,000 0 0 0 (42,000) (42,000)
----------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31, 1998 $ 461,000 $ 0 $(228,000) $ (42,000) $12,613,000
=========== ========== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
OFFSHORE TOOL & ENERGY CORPORATION
(FORMERLY KNOWN AS AERO INTERNATIONAL, L.L.C.)
AMERICAN AERO CRANES
(FORMERLY A DIVISION OF WEATHERFORD ENTERRA US, LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------- --------------------------------
FOR THE FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE
YEAR ENDED JANUARY 1, 1997 SEPTEMBER 19, 1997 YEAR ENDED
DECEMBER 31, TO SEPTEMBER 18, TO DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 406,000 $ 527,000 $ 620,000 $ 1,297,000
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation, amortization, and accretion 339,000 293,000 10,000 848,000
Deferred tax (benefit) provision 0 0 (29,000) 29,000
Gain on sale of property, plant, and equipment (69,000) (55,000) 0 (36,000)
Net change in accounts receivable (2,275,000) (4,976,000) (205,000) 2,760,000
Net change in inventories (2,224,000) 50,000 2,309,000 (1,192,000)
Net change in other current assets (39,000) 39,000 (197,000) (347,000)
Net change in accounts payable 355,000 409,000 (549,000) (655,000)
Net change in accrued liabilities 409,000 376,000 382,000 (4,014,000)
----------- ----------- ----------- ------------
Net cash (used in) provided by
operating activities (3,098,000) (3,337,000) 2,341,000 (1,310,000)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired 0 0 427,000 3,140,000
Acquisition of Predecessor, net of cash acquired 0 0 (8,801,000) 0
Purchases of property, plant, and equipment (2,206,000) (425,000) (231,000) (5,491,000)
Proceeds from sale of property, plant,
and equipment 196,000 558,000 0 142,000
Decrease in other assets 0 0 0 36,000
----------- ----------- ----------- ------------
Net cash (used in) provided by investing
activities (2,010,000) 133,000 (8,605,000) (2,173,000)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution of members at formation 0 0 1,000,000 0
Issuance of long-term debt 0 0 14,904,000 30,734,000
Payments on long-term debt 0 0 (9,232,000) (17,509,000)
Payment of preferred membership interest 0 0 0 (6,500,000)
Tax withdrawals of former Aero members 0 0 0 (1,445,000)
Debt issuance costs 0 0 (63,000) (305,000)
Advances from Weatherford, net 5,110,000 3,201,000 0 0
----------- ----------- ----------- ------------
Net cash provided by financing activities 5,110,000 3,201,000 6,609,000 4,975,000
----------- ----------- ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 0 0 0 (7,000)
----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,000 (3,000) 345,000 1,485,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,000 4,000 0 345,000
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,000 $ 1,000 $ 345,000 $ 1,830,000
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
OFFSHORE TOOL & ENERGY CORPORATION
(FORMERLY AERO INTERNATIONAL, L.L.C.)
AMERICAN AERO CRANES
(FORMERLY A DIVISION OF WEATHERFORD ENTERRA US, LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Offshore Tool & Energy Corporation (the "Company"), headquartered in Mobile,
Alabama, provides a range of equipment and services for oil and gas, marine,
and industrial applications worldwide. The Company, through its wholly owned
subsidiaries, specializes in the construction and repair of offshore cranes;
the manufacture of equipment and component parts of the offshore oil and gas,
dredging, marine, and mining industries; the manufacture of engineered
systems for enhanced oil recovery projects; and the marketing and servicing
of a range of oil and gas production and environmental products. The Company
operates four manufacturing and four service facilities positioned along the
United States gulf coast from Houston, Texas, to Mobile, Alabama. In
addition, the Company operates service and repair centers located in Nigeria,
Malaysia, and Scotland.
The Company was formed on August 20, 1998 expressly for the purpose of
acquiring all the common and preferred membership interests of Aero
International, LLC ("Aero") and substantially all the assets of International
Tool & Supply, plc ("ITS"). Prior to August 20, 1998, the Company had no
operations. On November 17, 1998, the operations of Aero and ITS were
acquired by the Company in an exchange for common shares (Note 2).
2. ACQUISITIONS AND REORGANIZATION
ACQUISITION OF AERO OPERATIONS
On September 18, 1997, American Aero Cranes LLC ("American"), a wholly owned
subsidiary of Aero, purchased substantially all of the operating assets and
assumed certain liabilities of American Aero Cranes (the "Predecessor"), a
division of Weatherford Enterra US, Limited Partnership ("Weatherford").
Aero and American were formed in Louisiana as limited liability companies
expressly for the purpose of completing the acquisition.
The purchase price was comprised of cash consideration of approximately
$8,801,000 and a promissory note issued to Weatherford in the amount of
approximately $1,613,000. Additionally, Aero incurred acquisition costs of
approximately $384,000 and accrued costs of approximately $929,000 relating
to the relocation of the acquired manufacturing facility from Houston, Texas,
to Mobile, Alabama, the consolidation of the Singapore and Malaysia
facilities, and other acquisition-related expenses. The cash consideration
was
F-8
<PAGE>
funded through the issuance of debt and available cash from the initial
equity contribution of Aero.
The acquisition was accounted for as a purchase in accordance with Accounting
Principles Board ("APB") Opinion No. 16, "Business Combinations."
Accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on their respective estimated fair values at the
date of acquisition. The result of the allocation was an excess of net
assets acquired over purchase price and, as such, the recorded value of
noncurrent assets was reduced to zero.
AERO REORGANIZATION
Effective May 31, 1998, Aero, through American, acquired the assets and
liabilities of Titan Industries, Inc. ("Titan"). The acquisition of Titan
was accounted for similar to a pooling of interests under APB Opinion No. 16
as Aero and Titan are under common shareholder control. As such, the
financial statements of Aero have been restated to include Titan's operations
since the date both companies came under common control (November 6, 1997),
and Titan's assets and liabilities were transferred to Aero at historical
cost. The purchase price was comprised of a promissory note of approximately
$676,000 payable to the former shareholders of Titan and was accounted for as
a dividend.
Also effective May 31, 1998, IPC Industries ("IPC") and Mobile Pulley Marine
Services Inc. contributed certain assets and liabilities of its operating
subsidiaries, Mobile Pulley & Machine Works ("MPMW") and Mobile Pulley Marine
Services ("MPMS"), respectively, in exchange for $3,000,000 cash and 960,000
Class B preferred membership units (the "Class B Units") with an aggregate
face value of $12,000,000. These acquisitions were accounted for as
purchases in accordance with APB Opinion No. 16 and accordingly, the purchase
price has been allocated to the assets acquired and liabilities assumed based
on their respective estimated fair values at the date of acquisition. The
excess of the purchase price over the fair value of net assets acquired,
allocated to goodwill, was $7,006,000 and is being amortized on a straight-
line basis over 40 years. The results of operations of MPMW and MPMS are
included in the Company's financial statements as of the date of acquisition.
Following the above acquisitions (the "Aero Reorganization"), American was
renamed Aero International, LLC, and Aero was renamed Aero Holdings, LLC.
Subsequently, Aero International, LLC was merged with and into Aero Holdings
LLC and the name Aero Holdings, LLC was changed to Aero International, LLC.
Also in connection with the Aero Reorganization, the Company refinanced its
debt pursuant to a new loan agreement.
ITS ACQUISITION AND REORGANIZATION
On November 17, 1998, the operations of ITS and Aero were acquired by the
Company (the "ITS Acquisition and Reorganization"). In exchange for the
assets and related liabilities of the primary operating subsidiaries of ITS,
the Company issued 20,500,000 common shares. In exchange for the common and
preferred membership interests of Aero, the Company issued 29,500,000 of
common shares, $1,000,000 aggregate principal unsecured 10% notes (the
"Senior Notes"), and $4,000,000 of Series B Junior Subordinated Notes (the
"Junior Notes"), $5,500,000 of Series A Subordinated Debentures (the
"Debentures"), and $6,500,000 in cash. As Aero was deemed the acquiror under
the
F-9
<PAGE>
provisions of APB No. 16, the Senior Notes and Junior Notes were treated
as distributions to the Aero common members.
In connection with the ITS Acquisition and Reorganization, the Company issued
3,000,000 Series B warrants ("Series B Warrants") to certain third-party
advisors for services rendered related to the Acquisition. In accordance
with APB Opinion No. 14, "Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants," the Company has recorded the Series B Warrants
at the fair value of the services rendered as transactions costs, and has
included the warrants as a component of shareholders' equity. Also, in
connection with the ITS Acquisition and Reorganization, the Company issued
$9,500,000 of Debentures for cash to two former shareholders of ITS and
unrelated third parties.
The ITS Acquisition and Reorganization was accounted for as a purchase in
accordance with APB Opinion No. 16. Aero was deemed the acquiror and, as
such, the purchase price has been allocated to ITS' assets acquired and
liabilities assumed based on their respective estimated fair values at the
date of acquisition. The value of the stock issued to ITS' shareholders was
approximately $16,422,000, and the Company incurred transaction costs of
approximately $2,650,000. The excess of the purchase price over the fair
value of net assets acquired, allocated to goodwill, was $7,116,000 and is
being amortized on a straight-line basis over 40 years. The results of
operations of ITS are included in the Company's financial statements as of
the date of acquisition. Concurrent with the acquisition, ITS underwent a
voluntary solvent liquidation and the Company listed its common stock on the
Alternative Investment Market ("AIM") of the London Stock Exchange (Note 9).
Unaudited condensed pro forma results of operations, which give effect to the
Aero Reorganization (excluding the Titan acquisition, as the Aero financial
statements have been restated to include Titan's operations from the date
both companies came under common shareholder control) and the ITS Acquisition
and Reorganization (operations of ITS have been included since April 1, 1998
in the pro forma information below) as if both transactions had occurred on
January 1, 1998, are presented below. The unaudited pro forma amounts
reflect acquisition-related purchase accounting adjustments, including
adjustments to depreciation and amortization expense and interest expense on
acquisition debt and certain other adjustments, together with related income
tax effects. The unaudited pro forma financial information does not purport
to be indicative of either the results of operations that would have occurred
had the acquisitions taken place at the beginning of the period presented or
of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA
1998
-----------
(Unaudited)
<S> <C>
Net sales $73,661
Loss from continuing operations before income taxes (1,844)
Net loss (1,844)
Net loss per basic and diluted share of common stock $ (0.04)
</TABLE>
F-10
<PAGE>
3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts and
results of its subsidiaries. All material intercompany transactions and
accounts have been eliminated in consolidation. The carrying amounts of
assets and liabilities in the accompanying financial statements reflect the
effects of the purchase accounting adjustments made in connection with the
Aero Reorganization and ITS Acquisition and Reorganization.
The statements of operations of the Company contain the results of operations
of Titan since the period both companies came under common control. The
statements of operation of the Company also include the results of operations
of MPMW, MPMS, and ITS as of the date of their respective acquisition.
PREDECESSOR BASIS OF PRESENTATION
The Predecessor operated as a division of Weatherford and includes the marine
crane manufacturing and service businesses of Weatherford. Certain
liabilities and expenses, including debt and interest expense, were
maintained and accounted for by Weatherford and were not allocated to the
Predecessor. Additionally, interest expense and interest income on debt or
assets carried at Weatherford not directly charged or credited to the
Predecessor have not been included in the accompanying financial statements.
Certain corporate, general, and administrative expenses of Weatherford have
been allocated to the Predecessor on a basis which, in the opinion of the
Predecessor's management, is reasonable. However, such expenses are not
necessarily indicative of, nor is it practical for the Predecessor's
management to estimate, the level of expenses which might have been incurred
had the Predecessor operated as a single, independent company (Note 12).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash and cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable potentially subject the Company to concentrations of
credit risk. The Company performs ongoing credit evaluations of their
customers' financial condition and have established an allowance for doubtful
accounts based on the expected collectibility of
F-11
<PAGE>
all accounts receivable. The Company believes their allowance for doubtful
accounts is adequate to cover any potential losses on their credit risk
exposure.
At December 31, 1997 and 1998, accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Trade accounts receivable $12,088,000 $16,040,000
Affiliate 0 134,000
Other 0 926,000
----------- -----------
12,088,000 17,100,000
Less allowance for doubtful accounts 418,000 859,000
----------- -----------
Accounts receivable $11,670,000 $16,241,000
----------- -----------
</TABLE>
INVENTORIES
In accordance with APB Opinion No. 16, profits and losses related to
inventories purchased by the Company attributable to the production and
service efforts of the Predecessor have been included in the value of such
inventories. As such, the initial period after acquisition resulted in a
lower amount of profit than normally would have been expected. Cost of sales
for the year ended December 31, 1997 includes purchased profits of
approximately $207,000.
Inventories are valued at the lower of cost or market, cost being determined
on the first-in, first-out method. At December 31, 1997 and 1998,
inventories of the Company consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Raw materials $4,465,000 $ 5,544,000
Work in process 1,217,000 4,857,000
Finished goods 0 1,717,000
---------- -----------
5,682,000 12,118,000
Less reserve for inventory obsolescence (990,000) (759,000)
---------- -----------
Total $4,692,000 $11,359,000
========== ===========
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Additions, improvements, and renewals significantly adding to the asset value
or extending the life of the asset are capitalized. Ordinary maintenance and
repairs not extending the physical or economic lives of the plant and
equipment are charged to expense as incurred. The Company and the
Predecessor use the straight-line method to depreciate property and
equipment. Estimated useful lives are as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- -----------
<S> <C> <C>
Buildings 20-30 years 39 YEARS
Furniture and fixtures 5 years 5 YEARS
Computer equipment 5 years 5 YEARS
Machinery and equipment 7-20 years 5-20 YEARS
</TABLE>
EXCESS OF NET ASSETS ACQUIRED OVER PURCHASE PRICE
The excess of net assets acquired over purchase price resulted from the
acquisition of the Predecessor. Accretion for the period from September 19,
1997 to December 31, 1997 was $7,000. During 1998, the Company incurred a
previously unrecorded liability related to the preacquisition period and
applied the ultimate payment of such liability against the excess of net
assets acquired over purchase price in accordance with APB No. 16.
PRODUCT AND SERVICE WARRANTIES
Products manufactured by the Company and the Predecessor are warranted for a
period of one year commencing at the time of acceptance. The estimated cost
of such warranties is accrued at the time of sale and is reflected as a
component of cost of sales in the accompanying statements of operations.
Warranty costs were approximately $175,000 for the year ended December 31,
1996, approximately $245,000 and $105,000 for the periods from January 1,
1997 to September 18, 1997 and September 19, 1997 to December 31, 1997,
respectively, and approximately $25,000 for the year ended December 31, 1998.
NOTE RECEIVABLE
A note receivable aggregating $1,500,000 at December 31, 1998 was acquired by
the Company in connection with the ITS Acquisition. The note bears interest
at 8% and matures in November 1999.
REVENUE RECOGNITION
The Company and the Predecessor use the completed contract method of revenue
recognition for its short-term contracts. Manufacturing revenues are
recognized when the goods are accepted by the customer as ready for delivery.
Service revenues are recognized when the services are complete. Progress
billings collected before completion of the contract are defined and
reflected as deferred revenue in the accompanying consolidated balance
sheets.
Revenues on long-term contracts are recognized using the percentage-of-
completion method. Under this method, revenue is recognized based on the
percentage that the cost of the work completed bears to the estimated total
cost of the contract. Estimated total costs are reviewed monthly and revised
as necessary, with profit recognition adjusted accordingly. In the period in
which estimates indicate that a contract will result in a loss, the entire
amount of the estimated loss is recognized. The amount of revenue recognized
under the percentage-of-completion method is included in trade accounts
receivable at December 31, 1998.
F-13
<PAGE>
INCOME TAXES
The Predecessor's tax accounts are included in the consolidated income tax
returns filed by Weatherford. The Predecessor and Weatherford entered into
an agreement which allocates certain income tax liabilities, benefits, and
credits to the Predecessor. Under the arrangement, the Predecessor is liable
to Weatherford for its recorded income tax expense computed by applying an
agreed-upon rate, which management feels approximates the statutory rate, to
the Predecessor's pretax income.
Aero, prior to the ITS Acquisition and Reorganization by the Company, was a
limited liability company and, therefore, was treated as a partnership for
federal income tax reporting purposes. As such, the taxable income or loss
of Aero is included in the individual tax returns of its members.
Accordingly, no accounts for deferred income taxes or provisions for current
or deferred income taxes, prior to the ITS Acquisition and Reorganization,
have been included in the accompanying financial statements of Aero, except
for states which do not recognize limited liability companies as partnerships
and tax these entities as C corporations. As Titan is a C corporation, the
taxes associated with Titan have been included since the companies came under
common control.
Effective November 17, 1998, the Company terminated its limited liability
company status and became a taxable entity. Concurrent with this election,
the Company began providing for income taxes based on Statements of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. In accordance with SFAS No. 109, the
Company recognized deferred tax expense for those deferred tax liabilities
and asset with expected future tax consequences (Note 11) upon the change in
taxable status. Pro forma provision for income taxes included on the
consolidated statements of operations have been computed as if the Company
was a taxable entity for the period from September 19, 1997 to December 31,
1997 and for the year ended December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximate fair
value due to the immediate or short-term maturity of these financial
instruments. In the opinion of management, total long-term debt recorded in
the accompanying balance sheets approximates fair value based on the
borrowing rates currently available to the Company for loans with similar
terms and average maturities.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates in effect at the
balance sheet date and revenues and expenses are translated at average
monthly exchange rates. The resulting adjustments are recorded as a separate
component of accumulated comprehensive income, net of related income taxes in
shareholders' equity.
F-14
<PAGE>
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires companies to report all changes in equity during a period,
except those resulting from investment by owners and distribution to owners,
in a financial statement for the period in which they are recognized. Other
comprehensive loss includes only foreign currency translation adjustments.
The calculation of comprehensive income is as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------- ----------------------------------
FOR THE FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE
YEAR ENDED JANUARY 1,1997 SEPTEMBER 19, 1997 YEAR ENDED
DECEMBER 31, TO SEPTEMBER 18, TO DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------------- ------------------- ------------
<S> <C> <C> <C> <C>
Net income $ 406,000 $ 527,000 $ 620,000 $ 1,297,000
Other comprehensive loss 0 0 0 (42,000)
--------- --------- --------- -----------
Comprehensive income $ 406,000 $ 527,000 $ 620,000 $ 1,255,000
========= ========= ========= ===========
</TABLE>
PRO FORMA EARNINGS PER SHARE
Pro forma basic earnings per share is calculated by dividing pro forma net
income available to common shareholders by the pro forma weighted average
number of common shares outstanding for the year presented. Pro forma
weighted average shares outstanding was computed assuming the shares issued
to the former Aero members' in the ITS Acquisition and Reorganization were
outstanding since January 1, 1998 and the shares issued to the ITS
shareholders' were outstanding since November 17, 1998, the date of the ITS
Acquisition by Aero. Pro forma diluted earnings per share reflects the
potential dilution that could occur if securities and other contracts to
issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
entity. At December 31, 1998, there were 3,000,000 Series B Warrants and
6,250,000 Series A increasing warrants (the "Series A Increasing Warrants")
issued and outstanding at antidilutive prices. Furthermore, there were
approximately 5,333,000 potential dilutive shares associated with the
conversion of the Junior Notes which were deemed antidilutive for earnings
per share purposes.
RECLASSIFICATIONS
Certain amounts in the financial statements and notes have been reclassified
to conform with the current year presentation.
F-15
<PAGE>
4. PROPERTY, PLANT, AND EQUIPMENT
At December 31, 1997 and 1998, property, plant, and equipment of the Company
consisted of the following:
COMPANY
-----------------------------
1997 1998
--------- -----------
Land $ 92,000 $ 1,342,000
Buildings 214,000 9,255,000
Furniture and fixtures 35,000 261,000
Machinery and equipment 175,000 14,386,000
Construction in progress 190,000 556,000
--------- -----------
706,000 25,800,000
Less accumulated depreciation 15,000 770,000
--------- -----------
$ 691,000 $25,030,000
========= ===========
Depreciation expense (included in cost of sales and selling, general, and
administrative expenses) was approximately $339,000 for the year ended
December 31, 1996, $293,000 for the period from January 1, 1997 to September
18, 1997, $15,000 for the period from September 19, 1997 to December 31,
1997, and $674,000 for the year ended December 31, 1998.
The Company leases equipment and certain facilities under noncancelable
operating lease agreements which expire in various years through October
2003. Rental expenses under these leases amounted to approximately $340,000
for the year ended December 31, 1998.
Future minimum rental commitments under all noncancelable operating lease
agreements, excluding lease agreements that expire within one year, are as
follows as of December 31, 1998:
1999 $ 666,000
2000 366,000
2001 166,000
2002 63,000
2003 24,000
----------
$1,285,000
==========
5. GOODWILL
The Aero Reorganization and the ITS Acquisition and Reorganization resulted
in goodwill of approximately $14,122,000. Goodwill is being amortized on a
straight-line basis over 40 years. Amortization of goodwill (included in
selling, general, and administrative expense) was approximately $126,000 for
the year ended December 31, 1998. The Company periodically evaluates the
realizability of goodwill based on expectations of nondiscounted
F-16
<PAGE>
cash flows and operating income for each subsidiary having a material
goodwill balance. In the opinion of management, no impairment of goodwill
exists at December 31, 1998.
6. ACCRUED LIABILITIES
Accrued liabilities of the Company at December 31, 1997 and 1998 consisted
of the following:
COMPANY
-----------------------------
1997 1998
----------- -----------
Accrued insurance $ 0 $ 1,333,000
Accrued interest 89,000 803,000
Accrued salaries and wages 110,000 1,115,000
Accrued commissions 397,000 841,000
Accrued acquisition cost 0 1,673,000
Accrued member tax distribution 0 1,000,000
Accrued warranty costs 251,000 345,000
Accrued moving costs 960,000 0
Other 1,802,000 2,947,000
----------- -----------
$ 3,609,000 $10,057,000
=========== ===========
7. LONG-TERM DEBT
On June 30, 1998, the Company entered into a $40,000,000 loan facility (the
"New Facility") with a bank. The New Facility is secured by certain assets
of the Company and consists of a revolving credit facility, a capital
expenditures loan facility, and a fixed-asset facility. The following
describes each of these credit facilities:
REVOLVING CREDIT FACILITY
The revolving credit facility allows for the borrowing of funds up to
$40,000,000 less the sum of (a) the borrowing base, as defined, (b)
amounts due under the capital expenditures loan facility, and (c)
amounts due under the fixed asset facility. The principal balance and
accrued interest become due on the termination date of the facility,
June 20, 2001.
CAPITAL EXPENDITURES LOAN FACILITY
The capital expenditures loan facility allows for the borrowing of
funds up to 90% of the sum of (i) the appraised liquidation value of
eligible equipment and (ii) the appraised value of eligible real
estate. The principal is advances shall be reduced monthly based on a
seven-year amortization beginning July 1, 1998.
F-17
<PAGE>
FIXED-ASSET LOAN FACILITY
The fixed-asset loan facility allows for the advances of funds up to
80% of the related total actual cost of property, plant, and equipment,
as defined. The principal is reduced monthly based on a seven-year
amortization beginning July 1, 1998.
Interest on each of these facilities accrues at a rate per annum selected by
the borrower from either the prime rate plus an applicable margin or LIBOR
plus an applicable margin. The applicable margin is determined based on the
Company's earnings before interest, taxes, amortization or accretion, and
depreciation.
The New Facility contains certain restrictive covenants, including financial
covenants. The most restrictive financial covenants include, among other
things, minimum interest coverage, as defined; minimum capital, as defined;
consecutive quarterly earnings criteria, as defined; limitations on capital
expenditures; and limitations on the ability of the Company to incur
additional liens, debt, or distributions to members.
At December 31, 1998, the weighted average interest rate on borrowings under
the New Facility was 6.64% and approximately $3,390,000 was committed under
letters of credit. At December 31, 1998, the Company had available
borrowings under the New Facility of approximately $19,150,000.
Furthermore, in connection with the Aero Reorganization, the Company entered
into a $676,000 promissory note with the former shareholders of Titan
Industries, Inc. (the "Titan Note"). The Titan Note bears interest at 10%
per year, is payable on demand, and is subordinated to the New Facility.
Additionally, in connection with the ITS Acquisition and Reorganization, the
Company entered into the following debt agreements:
SENIOR NOTES
The $1,000,000 Senior Notes are unsecured and are transferable. The
Senior Notes accrue interest at 10%, which is payable quarterly in
arrears. Principal and all accrued and unpaid interest are payable on
November 17, 2000. The holders have the right, upon notice, to
accelerate the due date. The holders are afforded no voting or dividend
rights. Holders are entitled, in the event of a winding-up, to receive
payment in preference to holders of common stock, the Debentures, and
the Junior Notes.
SERIES A SUBORDINATED DEBENTURES
The $15,000,000 Debentures pay interest semiannually at 12% per year
and mature in December 2003. The Debentures are unsecured and are
subordinate to the New Facility and the Senior Notes. Repayment is at
the option of the Company at any time at par plus accrued and unpaid
interest to the repayment date. The Debentures were issued with
detachable 6,250,000 Series A Increasing Warrants (Note 9).
F-18
<PAGE>
The Debentures issued included detachable warrants which have been
included as a component of shareholders' equity based on their fair
market value of $231,000 and treated as a warrant discount of the
associated debt. The discount is being amortized on the straight-line
method, which does not materially differ from the effective interest
rate method, over the life of the debt.
SERIES B JUNIOR SUBORDINATED NOTES
The $4,000,000 Junior Notes bear interest payable semiannually at 7%
per year and mature in December 2003. The Junior Notes are unsecured
and are subordinate to the Debentures. Repayment is at the option of
the Company at any time at par plus accrued interest and unpaid
interest to the repayment date, subject to a right of the holder to
take repayment in common stock at $0.75 per share.
In connection with the purchase of the Predecessor, American entered into
an $11,700,000 loan agreement (the "Agreement") with a bank. The Agreement
was secured by all the assets of Aero and consisted of a revolving credit
facility, term loan facility, capital expenditures loan facility, and
bridge loan facility. The balances outstanding on the Agreement were paid
off in connection with the issuance of the New Facility.
In connection with the purchase of Titan, American assumed the outstanding
balance of a $2,355,000 loan agreement with a bank. The agreement was
secured by all the assets of Titan and consisted of a revolving credit
facility and a term loan facility. The balances outstanding on the
agreement were paid off in connection with the issuance of the New
Facility.
Additionally, in connection with the purchase of the Predecessor, American
entered into a $1,613,000 promissory note (the "Weatherford Note") with
Weatherford. The Weatherford Note is subordinate to all other indebtedness
of the Company. The principal and interest are payable in three annual
installments beginning September 18, 2003 and accrue interest at an annual
rate of 6.23%.
At December 31, 1997 and 1998, the Company's long-term debt consisted of
the following:
1997 1998
---------- -----------
Revolving credit facility $4,150,000 $18,123,000
Term loan facility, interest payable at the
prime rate plus applicable margin 975,000 0
Bridge loan, interest payable at the prime
rate plus applicable margin 700,000 0
Revolving credit facility of Titan, interest
payable at LIBOR plus 2.25% 986,000 0
F-19
<PAGE>
1997 1998
---------- -----------
Term loan facility of Titan, interest payable
at LIBOR plus 2.25% $1,136,000 $ 0
Series B Junior Subordinated Notes 0 4,000,000
Series A Subordinate Debentures, net of
Series A Increasing Warrants' discount of $227,000 0 14,773,000
Senior Notes 0 1,000,000
Titan Note 0 676,000
Promissory note, payable in monthly installments
of principal and interest of $12,234, interest
payable at 10.75% 0 489,000
Promissory note, payable in monthly installments
of principal and interest of $15,967, interest
payable at bank's prime rate (8.5% at December 31, 1998) 0 1,875,000
Industrial Development Revenue Bonds, payable in full
on July 1, 2013, plus interest payable monthly at an
adjustable rate (3.5% at December 31, 1998),
collateralized by certain property and equipment 0 2,000,000
Weatherford note 1,613,000 1,613,000
Other 0 254,000
9,560,000 44,803,000
---------- -----------
Less current maturities 679,000 862,000
---------- -----------
$8,881,000 $43,941,000
========== ===========
The principal maturities of long-term debt are as follows:
1999 $ 862,000
2000 1,203,000
2001 18,300,000
2002 296,000
2003 19,618,000
Thereafter 4,751,000
-----------
$45,030,000
===========
F-20
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Arising in the ordinary course of its activities, the Company is defending
or has been threatened with various claims and litigation. In the opinion of
management, these proceedings will not have a significant adverse effect on
the Company's financial condition, operations, or liquidity. The Company has
been indemnified by Weatherford for certain contingencies occurring during
the period when the Predecessor was owned by Weatherford.
The Company has entered into employment agreements with certain executive
officers of the Company. These agreements, which are substantially similar,
provide for compensation to the officers in the form of annual base salaries
and bonuses based on earnings. The employment agreements also provide for
severance benefits upon the occurrence of certain events, including a change
in control, as defined.
Approximately 24% of the Company's total labor force is covered by
collective bargaining agreements. There are no collective bargaining
agreements expiring within one year.
9. EQUITY
On November 18, 1998, in connection with the ITS Acquisition and
Reorganization, the Company listed shares of its common stock on the AIM
(the "Offering"). There were no proceeds from the listing as the shares were
issued and listed in connection with the ITS Acquisition and Reorganization.
Prior to the Offering, there was no public market for the Company's common
stock.
MEMBERS' EQUITY
Aero operated as a limited liability company with four members until the ITS
Acquisition and Reorganization (Note 2) on November 17, 1998. Prior to this,
the ownership rights and obligations were determined under an operating
agreement. Among other items, the operating agreement defined the amount of
initial capital contributions, allocation of income, and distributions to
its members. The members surrendered their membership interest for the
Senior Notes, common stock of the Company, and the Junior Notes.
CLASS B UNITS
The Class B Units were issued under the Aero operating agreement in exchange
for the assets and liabilities of MPMW and MPMS, and have a stated value of
$12.50 per unit. The holders have preferences concerning dividends and upon
the liquidation, dissolution, or winding up of the Company. The holders of
the Class B Units have no voting rights, and are eligible for conversion
into common units beginning July 1, 2000. All of the Class B Units were
redeemed by the holders in connection with the ITS Acquisition and
Reorganization (Note 2).
PREFERRED STOCK
The Company's board of directors has the authority to issue up to 5,000,000
shares of preferred stock as well as to fix dividends, voting and conversion
rights, redemption
F-21
<PAGE>
provisions, liquidation preference, and other rights and restrictions. As of
December 31, 1998, there was no preferred stock issued and outstanding.
STOCK OPTION PLAN
The Company instituted the Offshore Tool & Energy Corporation Stock
Incentive Plan (the "Stock Incentive Plan") during fiscal 1998 which allows
the issuance of grants or awards of incentive stock options, appreciation
rights, restricted common stock, performance awards, and dividend equivalent
rights to officers, directors who are also employees, key management
employees, and persons affiliated with the Company. The Company can issue up
to 5,000,000 shares of the Company's common stock. As of December 31, 1998,
there were no options granted or issued.
WARRANTS
In connection with the ITS Acquisition and Reorganization, the Company
issued detachable 6,250,000 Series A Increasing Warrants exercisable at
$0.63 in connection with the Debentures. If the Debentures are not repaid 18
months after the reorganization date, the original warrants remaining
outstanding on such date will be increased by the factor 1.15 and
distributed on a pro rata basis. If the Debentures are not repaid 36 months
after issuance, the warrants outstanding on such date will be increased by
the factor 1.174 and distributed on a pro rata basis to the holders of the
debentures. If the Debentures are not repaid 48 months after issuance, the
warrants outstanding on such date will be increased by a the factor 1.148
and distributed on a pro rate basis. If none of the Debentures are repaid in
48 months, a total of approximately 9,687,000 Series A Warrants will be
issued. All warrants expire seven years after issuance.
Furthermore, the Company issued 3,000,000 Series B Warrants in connection
with the AIM listing to certain third-party advisors in lieu of payment for
services. The Series B Warrants have an exercise price of $1.26 and expire
after 5 years of issuance. The Series B Warrants afford the holders no
voting or dividend rights and have no rights upon dissolution or winding up
of the Company. In accordance with APB No. 14 , the Company has included the
warrants as a component of shareholders' equity at the fair value of the
services rendered.
10. EMPLOYEE BENEFIT PLAN
In connection with the Aero Reorganization, the Company established the Aero
International, L.L.C. 401(k) Plan (the "Plan"). The Plan covers
substantially all nonunion employees. Eligible employees may contribute
certain amounts of their annual compensation, as defined by the Plan. The
Company has the option to match eligible contributions up to a certain
percentage, as defined by the Plan and within the limitations established in
the Internal Revenue Code. During 1998, the Company made matching
contributions of $187,000.
In connection with the Aero Reorganization, the Company began making
contributions for a certain number of the Company's employees covered by
union-sponsored, collectively bargained, multiemployer pension and health
and welfare benefit plans. The Company contributed and charged to expense
approximately $67,000 during 1998 for these plans.
F-22
<PAGE>
These contributions are determined in accordance with the provisions of
negotiated labor contracts and are generally based on the number of man-
hours worked.
11. INCOME TAXES
The following summarizes the components of income tax provision for the
period from September 18, 1997 to December 31, 1997 and for the year ended
December 31, 1998:
1997 1998
--------- ---------
Current:
Federal $ (49,000) $ (90,000)
State (9,000) (48,000)
Foreign 0 0
--------- ---------
Total current (58,000) (138,000)
--------- ---------
Deferred:
Federal 24,000 (25,000)
State 5,000 (4,000)
Foreign 0 0
--------- ---------
Total income tax provision $ (29,000) $(167,000)
========= =========
The provision for the period from September 18, 1997 to December 31, 1997
and for the year ended to December 31, 1998 for income taxes differs from
the amounts computed by applying federal statutory rates due to the
following:
1997 1998
--------- ----------
Provision computed at the federal
statutory rate $ (25,000) $ (498,000)
State income taxes, net of federal
income tax benefit (3,000) (68,000)
Income from Aero 0 876,000
Change in valuation allowance 0 (495,000)
Amortization of nondeductible goodwill 0 (14,000)
Earnings in jurisdictions taxed at rates
different from the statutory U.S. federal rate 0 4,000
Other, net (1,000) 28,000
--------- ----------
Total income tax provision $ (29,000) $ (167,000)
========= ==========
F-23
<PAGE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1997 and December 31, 1998 is as
follows:
1997 1998
--------- ------------
Deferred tax assets:
Reserve for inventory obsolescence $ 162,000 $ 296,000
Warranty reserve 14,000 134,000
Depreciation 7,000 0
Reserve for doubtful accounts 11,000 335,000
Accrued medical benefits 0 506,000
Tax carryforwards 0 12,987,000
Other 17,000 811,000
--------- -----------
Total gross deferred tax assets 211,000 15,069,000
--------- -----------
Deferred tax liabilities:
Prepaids currently deductible 0 (170,000)
Depreciation and amortization 0 (19,000)
Other (3,000) 0
--------- -----------
Total gross deferred tax assets (3,000) (189,000)
--------- -----------
Valuation allowance 0 (14,880,000)
--------- -----------
Net deferred tax assets $ 208,000 $ 0
========= ===========
The Company has certain tax carryforwards available to offset future income
taxes, subject to certain restrictions and limitations, consisting of net
operating losses that expire from 2002 to 2018, foreign tax credits that
expire from 2000 to 2001, percentage of depletion credits, and alternative
minimum tax credits that have no expiration dates.
The Company maintained a valuation reserve related to its carryforwards due
to the uncertainty of the timing of future regular taxable income to utilize
such carryforwards and deferred tax assets.
12. RELATED-PARTY TRANSACTIONS
PREDECESSOR TRANSACTIONS
Weatherford provided services to and incurred costs for the benefit of the
Predecessor. Certain services that include, but are not limited to, property
and casualty insurance coverage under the Weatherford insurance program;
administrative services; management information services; employee benefits
administration; environmental consultation and administration; central
purchasing; legal, tax, accounting and reporting services; and treasury
management have been allocated to the Predecessor.
The allocations of the costs and expenses for the services described above
were based on methods that the Predecessor's management believes are
reasonable. The actual costs incurred by the Company in the future to
replace the services provided and the costs paid by Weatherford may differ
from allocated amounts due to differences in scale, organizational
structure, management structure, and other factors.
F-24
<PAGE>
Net sales by the Predecessor to related parties and allocated costs from
related parties to the Predecessor are as follows:
JANUARY 1, 1997
DECEMBER 31, TO SEPTEMBER 18,
1996 1997
------------ ----------------
Net sales to related parties $ 889,000 $ 304,000
--------- ---------
Allocated costs from Weatherford:
Cost of sales $ 651,000 $ 39,000
--------- ---------
Selling, general, and
administrative expenses $ 516,000 $ 370,000
========= =========
Net sales to related parties are comprised primarily of crane sales and
crane rental revenues by the Predecessor. Crane sales and rental rates are
at a level the Predecessor's management deems to be market rates.
For all years presented, the Predecessor has participated in Weatherford's
cash management program, under which the Predecessor's cash needs were
funded by Weatherford and the Predecessor's excess cash was transferred to
Weatherford. Such funding and transfers are included in advances from
Weatherford, net, in divisional equity in the accompanying statements of
divisional equity.
COMPANY TRANSACTIONS
Prior to May 31, 1998, IPC, a former equity holder of Aero, provided certain
management services for the benefit of the Company. For these services, IPC
charged a management fee based on 1.5% of sales. For the period from
September 19, 1997 to December 31, 1997 and for the year ended December 31,
1998, IPC charged the Company approximately $141,000 and $240,000,
respectively. Also, IPC provided other services including, but not limited
to, insurance, medical coverage, and benefits administration for which IPC
is reimbursed. During the period from September 19, 1997 to December 31,
1997 and for the year ended December 31, 1998, the Company incurred
approximately $486,000 and $336,000, respectively, in expenses relating to
these services and at December 31, 1997 had approximately $279,000, payable
to IPC.
Furthermore, the Company has accrued membership interest payable to IPC and
IPC Investment, Inc. related to the Class B Units issued at the Aero
Reorganization and subsequently exchanged for common stock of the Company at
the ITS Acquisition and Reorganization of approximately $279,000 at December
31, 1998. The Company also entered into a bill of sale with IP Capital for
certain property. The Company paid approximately $900,000 for this property
during the year.
The Company has a receivable from IPC for approximately $113,000 at
December 31, 1998 related to certain fees paid by the Company on behalf of
IPC at the Aero Reorganization.
MPMS provided certain services related to the construction and service of
Aero's products. During the period from September 19, 1997 to December 31,
1997, Aero incurred
1998
F-25
<PAGE>
approximately $151,000 in expenses relating to these services. From January
1, 1998 to May 31, 1998 (date of MPMS acquisition), Aero incurred
approximately $96,000 in expenses related to these services.
IP Capital Corporation, a company owned by the shareholders of IPC, charged
the Company an investment advisory fee of $175,000. The fee was paid for
services rendered in connection with the negotiations of the sale of the
Predecessor to the Company and the Titan acquisition. The fees were included
in the transaction costs associated with the purchases of the Predecessor
and Titan and in the opinion of management fairly represent the value of
services provided.
The Company has a payable to the former members of Aero of $1,000,000 at
December 31, 1998 for the members' portion of the income withdrawal from
Aero from January 1, 1998 to November 17, 1998.
The Company had sales during the period from June 1, 1998 to December 1,
1998 of approximately $354,000 to American Mulcher Parts, LLC, an entity
controlled by two shareholders of the Company. At December 31, 1998, the
Company had a receivable of $354,000 related to these sales.
Weatherford provided certain services for the Company, including the use of
office space and a manufacturing facility located in Houston, Texas. The
Company reimbursed Weatherford for these services. The Company incurred
approximately $602,000 in expenses relating to these services and at
December 31, 1997 had approximately $174,000 payable to Weatherford. The
Company also provided services to Weatherford. During the period from
September 19, 1997 to December 31, 1997, the Company had sales of
approximately $221,000 and at December 31, 1997 had receivables of
approximately $281,000 due from Weatherford. Included in the receivables is
approximately $60,000 relating to expenses reimbursable from Weatherford.
13. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, one customer accounted for 11% of net
sales of the Predecessor, and for the period from September 19, 1997 to
December 31, 1997, one customer accounted for 11% of net sales of the
Company. For the period from January 1, 1997 to September 18, 1997 and for
the year ended December 31, 1998, there were no customers which accounted
for more than 10% of total revenues.
14. SEGMENT REPORTING
During fiscal 1998, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting selected information
about operating segments in interim financial reports issued to
stockholders.
Prior to May 31, 1998, the Company had only one reportable segment: the
Crane Division. Subsequent to the Aero Reorganization and ITS Acquisition
and Reorganization, the
F-26
<PAGE>
Company had four reportable segments: the Crane Division, the Marine Equipment
Division, the Engineered Systems Division, and the Drilling Services Division.
The Crane Division engineers, manufacturers, rebuilds, and provides replacement
parts for cranes for marine applications. The Marine Equipment Division
manufacturers component and replacement parts used in the offshore oil and gas,
dredging, marine, and mining industries. The Engineered Systems Division
manufacturers and markets enhanced oil recovery equipment, oil and gas
production equipment, oil field and industrial water treatment equipment, and
provides custom fabrication services. The Drilling Service Division provides
products which assist in the prevention of pollution and environmental damage.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Total revenues represent sales to
unaffiliated customers. All intercompany transactions have been eliminated. The
Company evaluates a segment's performance based on earnings before income
taxes, depreciation, and amortization ("EBITDA"). EBITDA is considered a key
financial measurement in the industries that the Company operates.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained.
<TABLE>
<CAPTION>
Marine Engineered Drilling
Crane Equipment Systems Services
Division Division Division Division Corporate Total
----------- ----------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998:
Net sales to customers $36,368,000 $14,997,000 $ 937,000 $590,000 $ 0 $52,892,000
EBITDA 3,499,000 2,357,000 (113,000) 98,000 (1,623,000) 4,218,000
Interest expense 882,000 787,000 23,000 4,000 248,000 1,944,000
Depreciation and
amortization expense 240,000 408,000 57,000 69,000 74,000 848,000
Other income (expense) 26,000 (26,000) 38,000 0 0 38,000
Income (expense) before
provision for income
taxes 2,403,000 1,136,000 (155,000) 25,000 (1,945,000) 1,464,000
Capital expenditures, net
of disposal 4,591,000 897,000 (22,000) 19,000 6,000 5,491,000
</TABLE>
F-27
<PAGE>
Geographic financial information for the period from September 19, 1997
to December 31, 1997 and for the year ended December 31, 1998 are as
follows:
FOR THE
FOR THE PERIOD FROM YEAR ENDED
SEPTEMBER 19, 1997 DECEMBER 31,
TO DECEMBER 31, 1997 1998
-------------------- ------------
Revenues:
United States $ 9,886,000 $ 46,630,000
United Kingdom 0 310,000
Asia 733,000 2,766,000
Africa 401,000 2,554,000
Other 0 632,000
------------ ------------
$ 11,020,000 $ 52,892,000
============ ============
Long-lived assets:
United States $ 792,000 $ 35,944,000
United Kingdom 0 3,375,000
Asia 0 210,000
Africa 0 491,000
------------ ------------
$ 792,000 $ 40,020,000
============ ============
Revenues are attributed to the respective countries based on the
location of the services provided and the location of customers for
manufactured goods.
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------- ------------------------------------
FOR THE FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE
YEAR ENDED JANUARY 1, 1997 SEPTEMBER 19, 1997 YEAR ENDED
DECEMBER 31 TO SEPTEMBER 18, TO DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
---------------- -------------------- ------------------- -------------
<S> <C> <C> <C> <C>
Income taxes paid $ 218,000 $ 0 $ 0 $ 298,000
Interest paid 1,000 3,000 109,000 1,230,000
Common stock issued in
connection with
businesses acquired 0 0 0 50,000,000
Liabilities assumed in
connection with
business acquired 0 0 3,798,000 22,387,000
Debentures issued in
exchange for Class B Units 0 0 0 5,500,000
Distribution paid through
issuance of Senior and
Junior Notes 0 0 0 5,000,000
</TABLE>
F-28
<PAGE>
16. SUBSEQUENT EVENT
On March 9, 1999, the Company issued 2,750,000 stock options to certain
employees and third-party investors under the Stock Incentive Plan. The
options were issued at fair market value at date of grant and fully vest
three years from date of grant. The options expire six years from the
date of grant.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Offshore Tool & Energy Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in OFFSHORE TOOL & ENERGY
CORPORATION'S 1998 annual report to stockholders and this Form 10, and have
issued our report thereon dated March 19, 1999. Our audit was made for the
purpose of forming an opinion on those financial statements taken as a whole.
The schedule listed in Item 13 of this Form 10 is the responsibility of the
Company's management, is presented for purposes of complying with the Securities
and Exchange Commission's rules, and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN
Atlanta, Georgia
March 19, 1999
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITS plc:
We have audited the accompanying combined balance sheets of ITS Investments,
Inc. (a Texas corporation), and ITS Holdings Limited (an England corporation)
and their respective subsidiaries (collectively, the ITS Subgroup) as of March
31, 1997 and 1998 and the related combined statements of income, shareholder's
equity and cash flows for the three years in the period ended March 31, 1998.
These financial statements are the responsibility of the ITS Subgroup's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the ITS
Subgroup as of March 31, 1997 and 1998 and the results of its operations and its
cash flows for each of the three years in the period ended March 31, 1998 in
conformity with generally accepted accounting principles.
Houston, Texas
May 29, 1998
F-31
<PAGE>
THE ITS SUBGROUP
COMBINED BALANCE SHEETS
MARCH 31, 1997 AND 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 5,432,000 $ 3,662,000
Short-term investments 650,000 650,000
Accounts receivable, net of allowance for doubtful accounts of $409,000 and $365,000 at
March 31, 1997 and 1998, respectively 12,107,000 7,018,000
Inventory 4,049,000 2,534,000
Prepaid expenses and other 1,024,000 538,000
----------- -----------
Total current assets 23,262,000 14,402,000
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and buildings 332,000 1,968,000
Equipment 4,461,000 6,144,000
Less accumulated depreciation and amortization (1,323,000) (1,634,000)
----------- -----------
3,470,000 6,478,000
NOTE RECEIVABLE 1,500,000 1,500,000
OTHER ASSETS, net 10,677,000 7,052,000
----------- -----------
Total assets $38,909,000 $29,432,000
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,129,000 $ 1,055,000
Accounts payable 5,544,000 2,176,000
Accrued expenses 7,112,000 3,313,000
Debenture due affiliate 2,500,000 2,200,000
Short-term borrowings 407,000 502,000
Total current liabilities 17,692,000 9,246,000
LONG-TERM DEBT, less current maturities 588,000 2,466,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock 4,048,000 5,298,000
Additional paid-in capital 17,002,000 17,002,000
Accumulated deficit (379,000) (4,579,000)
Cumulative translation adjustment (42,000) (1,000)
Total shareholder's equity 20,629,000 17,720,000
----------- -----------
Total liabilities and shareholder's equity $38,909,000 $29,432,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-32
<PAGE>
THE ITS SUBGROUP
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES $12,820,000 $20,766,000 $28,957,000
OPERATING EXPENSES:
Cost of sales 9,181,000 15,305,000 21,369,000
General and administrative 3,363,000 4,901,000 5,620,000
Management fees, affiliate 166,000 181,000 174,000
Depreciation and amortization 543,000 855,000 1,214,000
----------- ----------- -----------
Total operating expenses 13,253,000 21,242,000 28,377,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (433,000) (476,000) 580,000
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and other income 832,000 272,000 250,000
Interest and other expense (16,000) (118,000) (422,000)
Interest paid to affiliates (545,000) (276,000) (193,000)
Gain from sale of assets 93,000 0 0
Earnings from investments in affiliated companies 0 0 86,000
----------- ----------- -----------
364,000 (122,000) (279,000)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND DISCONTINUED OPERATIONS (69,000) (598,000) 301,000
INCOME TAX EXPENSE 0 0 0
----------- ----------- -----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (69,000) (598,000) 301,000
DISCONTINUED OPERATIONS:
Loss from operations of discontinued environmental
services operations (92,000) (656,000) (676,000)
Loss from operations of discontinued oil field supply
operations (net of foreign income tax expense of $99,000
for the year ended March 31, 1998) (1,661,000) (408,000) (171,000)
Loss from disposition of assets of discontinued
environmental services operations 0 0 (44,000)
Loss from disposition of assets of discontinued oil field
supply operations 0 0 (3,610,000)
Income from discontinued operations of oil field services
operations 1,428,000 0 0
----------- ----------- -----------
NET LOSS $ (394,000) $(1,662,000) $(4,200,000)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE>
THE ITS SUBGROUP
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
PAID-IN TRANSLATION ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
---------- ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 6,971,000 $ 2,047,000 $14,503,000 $ 0 $(22,548,000) $(5,998,000)
Issuance of shares 24,000,000 24,000,000 0 0 0 24,000,000
Net loss 0 0 0 0 (394,000) (394,000)
---------- ------------ ----------- ----------- ------------ -------------
BALANCE, MARCH 31, 1996 30,971,000 26,047,000 14,503,000 0 (22,942,000) 17,608,000
Redemption of shares (24,225,000) (24,225,000) 0 0 24,225,000 0
Issuance of shares 2,235,000 2,226,000 2,499,000 0 0 4,725,000
Currency exchange difference 0 0 0 (42,000) 0 (42,000)
Net loss 0 0 0 0 (1,662,000) (1,662,000)
---------- ------------ ----------- ----------- ------------ -------------
BALANCE, MARCH 31, 1997 8,981,000 4,048,000 17,002,000 (42,000) (379,000) 20,629,000
Issuance of shares 1,250,000 1,250,000 0 0 0 1,250,000
Currency exchange difference 0 0 0 41,000 0 41,000
Net loss 0 0 0 0 (4,200,000) (4,200,000)
---------- ------------ ----------- ----------- ------------ -------------
BALANCE, MARCH 31, 1998 10,231,000 $ 5,298,000 $17,002,000 $ (1,000) $ (4,579,000) $17,720,000
========== ============ =========== =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
THE ITS SUBGROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (394,000) $ (1,662,000) $(4,200,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 543,000 855,000 1,214,000
Gain on sale of assets, net (93,000) 0 0
Foreign currency translation 0 (42,000) 41,000
Loss on disposition of supply division 0 0 3,610,000
Loss on disposition of environmental division 0 0 44,000
Changes in operating accounts:
Accounts receivable, net (5,569,000) (2,470,000) 3,932,000
Inventory (425,000) (1,622,000) (1,090,000)
Prepaid expenses and other 18,000 (831,000) 353,000
Other assets, net 355,000 511,000 31,000
Accounts payable 813,000 (594,000) (3,323,000)
Accrued expenses (2,110,000) 1,842,000 (2,768,000)
------------ ------------ -----------
Net cash used in operating activities (6,862,000) (4,013,000) (2,156,000)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 0 1,011,000 0
Proceeds from sale of property, plant and equipment 454,000 0 129,000
Purchase of property, plant and equipment (1,029,000) (2,074,000) (4,850,000)
Purchase of intangible assets 0 0 (518,000)
Acquisition of company, net of cash acquired (1,247,000) (286,000) 0
Deferred consideration on prior-year acquisition (8,525,000) 0 0
Prior-year acquisition price adjustment (100,000) 0 0
Net cash received from sale of supply division 0 0 2,436,000
------------ ------------ -----------
Net cash received from sale of environmental division 0 0 1,340,000
------------ ------------ -----------
Net cash used in investing activities (10,447,000) (1,349,000) (1,463,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (13,060,000) (1,194,000) (2,619,000)
Borrowings of long-term debt 0 947,000 4,736,000
Proceeds from revolving loan 2,050,000 1,518,000 0
Payments on revolving loan (4,000,000) 0 (1,518,000)
Issuance of additional shares of common stock 24,000,000 4,725,000 1,250,000
Redemption of share capital 0 (24,225,000) 0
Conversion of reserves 0 24,225,000 0
------------ ------------ -----------
Net cash provided by financing activities 8,990,000 5,996,000 1,849,000
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (8,319,000) 634,000 (1,770,000)
CASH AND TEMPORARY CASH INVESTMENTS, beginning of year 13,117,000 4,798,000 5,432,000
------------ ------------ -----------
CASH AND TEMPORARY CASH INVESTMENTS, end of year $ 4,798,000 $ 5,432,000 $ 3,662,000
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
THE ITS SUBGROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1996, 1997, AND 1998
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of ITS Investments,
Inc. ("Investments"), and ITS Holdings Limited, both wholly owned
subsidiaries of International Tool & Supply Company plc ("ITS plc"), and
their wholly owned subsidiaries (collectively referred to as the "ITS
Subgroup"). All material intercompany balances and transactions have been
eliminated in combination.
BUSINESS
The ITS Subgroup provides services and supplies primarily to international
oil and gas companies. The ITS Subgroup was structured into four separate
divisions: the supply division provides procurement and logistical services
to the energy industry; the engineering division offers engineering, design
and fabrication services to the oil and gas industry and provides
manufacturing, installation and servicing of industrial water treatment
systems; the environmental division supplies products, equipment and services
designed for the containment and cleanup of oil spills; and the drilling
services division leases and sells oil field drilling equipment as well as
provides environmental management systems and services. The environmental
division was sold in September 1997 and the supply division was sold in
January 1998. The results for these divisions which were sold are reflected
in discontinued operations for the years ended March 31, 1996, 1997, and
1998.
REVENUE RECOGNITION
The ITS Subgroup's revenues are derived from the engineering division and
drilling services division. Revenues from engineering contracts are
recognized when the services are performed and billable under the terms of
the applicable contract. The balances billed but not paid by customers
pursuant to retainage provisions in installation contracts will be due upon
completion of the contracts and acceptance by the customer. Based on the ITS
Subgroup's experience with similar contracts in recent years, the retention
balance at each balance sheet date will be collected within the subsequent
fiscal year.
Revenues from drilling services consisted of rental income and sales
revenues. Rental income is recognized based on rental contracts, and sales
revenues are recorded at the time of shipment of products.
F-36
<PAGE>
COST OF SERVICES
Cost of services represents direct labor and associated costs, materials,
supervisory personnel and equipment and depreciation.
WARRANTY COSTS
For certain contracts, the ITS Subgroup warrants project life up to a year
after installation. A reserve for warranty costs is recorded based upon the
historical level of warranty claims and management's estimate of future
costs.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect (a) the reported amounts of assets and liabilities, (b)
disclosure of contingent assets and liabilities known to exist as of the date
the financial statements are published and (c) the reported amounts of
revenues and expenses recognized during the periods presented. The ITS
Subgroup reviews all significant estimates affecting their combined financial
statements on a recurring basis and records the effect of any necessary
adjustments prior to their publication. Adjustments made with respect to the
use of estimates often relate to improved information not previously
available. Uncertainties with respect to such estimates and assumptions are
inherent in the preparation of financial statements.
CASH AND TEMPORARY CASH INVESTMENTS
The ITS Subgroup considers all highly liquid debt instruments purchased with
a maturity of three months or less to be temporary cash investments.
SHORT-TERM INVESTMENTS
The ITS Subgroup's short-term investments of $650,000 at March 31, 1997 and
1998 represent certificates of deposit which are used as collateral for
letters of credit issued to the ITS Subgroup's workers' compensation
insurance providers and are stated at cost, which approximates market.
INVENTORY VALUATION
Investments values its inventory using the moving average method while ITS
Holdings Limited and their subsidiaries value their inventory using the
first-in, first-out method. Both are reported at the lower of cost or
market.
WORK IN PROCESS
Revenues and costs applicable to steam generator production are recognized as
the units are produced. Work in process is included as a component of
accounts receivable. The ITS Subgroup had $478,000 and $1,066,000 work in
process in accounts receivable at March 31, 1997 and 1998, respectively.
F-37
<PAGE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the ITS Subgroup to
concentrations of credit risk consist principally of temporary cash
investments, short-term investments and trade receivables. The ITS Subgroup
restricts investment of temporary cash investments and short-term investments
to financial institutions with high credit ratings.
The ITS Subgroup's revenues are derived principally from uncollateralized
sales to customers in the oil and gas industry. This industry concentration
has the potential to impact the ITS Subgroup's exposure to credit risk,
either positively or negatively, because the customers may be similarly
affected by changes in economic or other conditions. Management of the ITS
Subgroup believes that consolidated accounts receivable are well diversified,
thereby reducing potential credit risk to the ITS Subgroup and that
allowances for doubtful accounts are adequate.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Depreciation of assets is
computed primarily using the straight-line method with three- to 30-year
lives for leasehold improvements, buildings and improvements, and machinery
and equipment. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income for the period. The cost of
maintenance and repairs is charged to income as incurred; significant
renewals and betterments are capitalized.
NOTE RECEIVABLE
The ITS Subgroup acquired its note receivable through the disposal of certain
operating assets as discussed in Note 2. The note bears interest at 8
percent and matures in November 1999.
OTHER ASSETS
As of March 31, 1998, other assets consist primarily of goodwill, investments
in joint ventures in China and Russia and other intangible assets. Goodwill
represents the excess of the aggregate price paid by the ITS Subgroup in
acquisitions of businesses accounted for as purchases over the fair market
value of the net tangible assets acquired. Goodwill is amortized using the
straight-line method over a period of 15 years. The ITS Subgroup presents
other assets net of accumulated amortization and accounts for the investment
in the joint ventures using the cost method of accounting for the Russian
joint venture and the equity method of accounting for the Chinese joint
venture. Amortization expense related to other assets other than goodwill is
computed using the straight-line method over estimated lives of five to 10
years.
The ITS Subgroup owns a 34 percent interest in a joint venture based in China
under the name Shanghai ITS Oil Producing & Steam Generator Engineering
Company, Ltd. The ITS Subgroup's investment in the joint venture is
accounted for using the equity method. The investment balance was at
$338,000 and $418,000 as of March 31, 1997 and 1998, respectively. Income
from this investment totaled $86,000 for the year ended March 31,
F-38
<PAGE>
1998, and none for the years ended March 31, 1997 and 1996. Sales to this
Chinese joint venture totaled $1.1 million, $4.4 million and $7.9 million for
the years ended March 31, 1996, 1997, and 1998, respectively.
The ITS Subgroup owns a 50 percent interest in a joint venture based in
Russia under the name A/O Steampal ITS. The ITS Subgroup's investment in the
joint venture is accounted for using the cost method, and is not material.
SALES TO SIGNIFICANT CUSTOMERS
For the two years ended March 31, 1998, sales to the joint venture represent
a significant portion of the ITS Subgroup's revenues. Additionally, during
the year ended March 31, 1998, sales to two of the ITS Subgroup's largest
customers accounted for approximately 20 percent and 10 percent of the ITS
Subgroup's total operating revenues. No other customers individually
accounted for more than 10 percent of revenues in 1998. During the year
ended March 31, 1997, no other customers individually accounted for more than
10 percent of the revenues. During the year ended March 31, 1996, no
customers individually accounted for more than 10 percent of the revenues in
1996.
INCOME TAXES
The ITS Subgroup follows the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred income taxes are recorded based upon the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the underlying assets or liabilities are recovered or
settled.
FOREIGN CURRENCY TRANSLATION
The ITS Subgroup's UK offices and their foreign local offices in Singapore
and Nigeria maintain their books and records in local currencies. Assets and
liabilities of these operations are translated into U.S. dollars at the
exchange rate in effect at the end of each accounting period, and income
statement accounts are translated at the average exchange rate prevailing
during the period. Gains and losses resulting from such translation are
reported as a separate component of shareholder's equity. Gains and losses
from transactions in foreign currencies are reported in other income and are
not significant.
SHARE REPURCHASE SCHEME
Investments is obligated under a 1992 agreement with shareholders to pay $4
per share consideration in exchange for the surrender of their shares of ITS
Investments, Inc., common stock. As of March 31, 1998, the ITS Subgroup
maintained a cash balance of $82,000 in a separate bank account to fund the
purchase of shares, which have not been surrendered.
F-39
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and
SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments," require the disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. Management believes that the carrying value of the ITS Subgroup's
financial instruments approximates fair value.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," was issued in 1997 and
requires the presentation of comprehensive income in an entity's financial
statements for fiscal years beginning after December 15, 1997. Comprehensive
income represents all changes in equity of an entity during the reporting
period, including net income and charges directly to equity that are excluded
from net income. The components of comprehensive income are presented within
the combined statements of shareholder's equity. The adoption of SFAS No.
130 had no material effect on the ITS Subgroup's reported combined financial
position or combined results of operations.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," was issued in June 1997. SFAS No. 131 provides revised
disclosure guidelines for segments of an enterprise based on a management
approach to defining operating segments and requires compliance for fiscal
years beginning after December 15, 1997. The ITS Subgroup has adopted the
reporting disclosures as required by SFAS No. 131 (see Note 13).
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The effect of initial application of this
SOP should be reported as the cumulative effect of a change in accounting
principle, as described in Accounting Principles Board (APB) Opinion No. 20,
"Accounting Changes." The ITS Subgroup does not believe that the adoption of
SOP 98-5 will have a material impact on the combined financial statements.
2. ACQUISITIONS AND DISPOSALS
Effective December 1, 1994, the ITS Subgroup acquired ITS (US) Holdings Inc.,
formerly known as International Tool & Supply Company, Inc. (ITS (US)
Holdings), a Delaware corporation, through the purchase of all issued and
outstanding shares of ITS (US) Holdings. In consideration for the 1,000
shares of ITS (US) Holdings issued and outstanding, the ITS Subgroup paid
$7,535,000, including $5,750,000 cash and 20,000,000 ITS plc ordinary shares
with a market value of $1,785,000. During the year ended March 31, 1996, the
ITS Subgroup made a $100,000 payment in consideration for cancellation of a
contingent earn-out relating to a Russian supply contract.
The acquisition of ITS (US) Holdings has been accounted for as a purchase,
and the results of operations for ITS from December 1, 1994, and thereafter
have been included in the ITS
F-40
<PAGE>
Subgroup's combined statements of income. Goodwill of $7,460,000 representing
the excess of the purchase price over the carrying value of the net assets
was generated through the ITS (US) Holdings acquisition.
Effective June 12, 1996, the ITS Subgroup acquired the operations of both
H-O-H Systems, Inc., and H-O-H Services, Inc. (collectively, H-O-H), for a
purchase price of $250,000 and assumed debt of approximately $812,000. This
transaction was accomplished through the acquisition of certain assets and
assumption of certain liabilities of these entities. H-O-H Systems, Inc.,
provides design and fabrication of industrial water treatment equipment, as
well as the fabrication of steam generation equipment. H-O-H Services, Inc.,
installs and services industrial water treatment equipment sold by H-O-H
Systems, Inc., as well as other equipment manufacturers.
The acquisition of H-O-H has been accounted for as a purchase, and the
results of these operations from June 13, 1996, and thereafter have been
included in the ITS Subgroup's combined statements of income. Goodwill of
$2,002,000 through March 31, 1997, representing the excess of the purchase
price over the carrying value of the net assets was generated through the
H-O-H acquisition. In connection with the H-O-H acquisition discussed above,
liabilities were assumed as follows:
Fair value of assets acquired, net of cash acquired $ 1,631,000
Goodwill 2,002,000
Cash paid, net of cash acquired (286,000)
Liabilities assumed (3,347,000)
The pro forma statement of income data below gives effect to the H-O-H
acquisition as if the acquisition occurred on April 1, 1995.
YEAR ENDED MARCH 31
-----------------------------
1996 1997
-------- --------
Revenues $21,096,000 $21,742,000
Income (loss) from continuing operations 247,000 (2,061,000)
Net loss (147,000) (3,125,000)
On September 25, 1997, the ITS Subgroup sold substantially all of the
operating assets of the ITS Environmental Services, Inc., division for
$1,340,000 in cash, net of transaction costs. This transaction involved the
disposal of the ITS Subgroup's environmental services segment. Accordingly,
the operating results of the environmental services segment have been
classified as discontinued operations for the years ended March 31, 1998,
1997, and 1996, presented in the combined financial statements of the ITS
Subgroup.
On January 2, 1998, the ITS Subgroup sold substantially all of the operating
assets of the ITS Supply & Logistics, Inc., division, which included
operating units in Scotland, Venezuela and Peru, for $2,500,000 in cash, net
of transaction costs. This transaction involved the disposal of the ITS
Subgroup's oil field supply segment and was acquired by former officers of
the ITS Subgroup and ITS plc (see Note 7). Accordingly, the operating
results of the oil field supply segment have been classified as discontinued
operations for
F-41
<PAGE>
the years ended March 31, 1998, 1997, and 1996, presented in the combined
financial statements of the ITS Subgroup. As discussed above, ITS Subgroup
acquired ITS (US) Holdings on December 1, 1994, under the purchase method of
accounting, resulting in goodwill recognition of $7,460,000. At the time of
acquisition, ITS (US) Holdings had three divisions: supply and logistics,
engineered systems and drilling services. Periodically, the ITS Subgroup
evaluates the reliability of goodwill under SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The ITS Subgroup reduced goodwill by $3,560,000 in connection with the sale
of the supply and logistics division. This loss is included in the loss from
disposition of assets of discontinued oil field supply operations. While
substantially all of the operating assets of the supply division were sold,
there were $964,000 in assets and $222,000 in liabilities remaining at March
31, 1998.
The ITS Subgroup incurred a prepayment penalty related to the early
extinguishments of its working capital line of credit. The penalty amounted
to $50,000 and was recognized in the discontinued operations of the oil field
supply operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL MARCH 31
LIVES --------------------
IN YEARS 1997 1998
---------- -------- --------
Machinery and equipment 5-10 $ 4,456 $ 6,144
Buildings and improvements 30 337 1,968
------- -------
Total 4,793 8,112
Less accumulated depreciation (1,323) (1,634)
------- -------
Property and equipment, net $ 3,470 $ 6,478
======= =======
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other assets consist of the following (in thousands):
MARCH 31
---------------------
1997 1998
------ ------
Goodwill, net $ 9,978 $5,599
Investments in affiliated companies 338 418
Intangible assets 0 513
Other, net 361 522
------- ------
$10,677 $7,052
======= ======
F-42
<PAGE>
Goodwill presented on the above table is net of accumulated amortization of
$1,152,000, $1,909,000, and $1,706,000 as of March 31, 1996, 1997, and 1998,
respectively. Amortization expense related to other assets for the years
ended March 31, 1996, 1997, and 1998, was $661,000, $779,000, and $498,000,
respectively.
Accrued expenses consist of the following (in thousands):
1997 1998
------ ------
Commissions accrual $ 558 $ 785
Warranty accrual 258 234
Accrued compensation and benefits 262 249
Workers' compensation claims reserve 801 684
Accrued parts and supplies 3,713 0
Other accrued expenses 1,520 1,361
------ ------
Total $7,112 $3,313
====== ======
5. DEBT AND SUBORDINATED DEBT
As of March 31, 1997 and 1998, debt, including capital leases, consisted of
the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revolving working capital line of credit, interest 12.50%, collateralized by
receivables $ 1,518,000 $ 0
Bank note, interest at prime, maturing in May 1998, collateralized by
inventory and receivables 500,000 775,000
Bank note, interest at prime plus 2%, maturing in March 2003, collateralized
by equipment and receivables 636,000 555,000
Bank note, interest at 8.5%, maturing in September 2020, collateralized by
land, buildings and building improvements 0 1,900,000
Capitalized financing lease payable in monthly installments of principal and
interest, maturing from September 1998 through January 2001, interest rates
ranging from 7.43% through 16.81%, collateralized by equipment 63,000 291,000
----------- -----------
2,717,000 3,521,000
Less current maturities (2,129,000) (1,055,000)
----------- -----------
Long-term debt, less current maturities $ 588,000 $ 2,466,000
=========== ===========
</TABLE>
F-43
<PAGE>
As of March 31, 1997 and 1998, current notes payable consisted of the
following:
1997 1998
------ ------
Bank note, interest at prime plus 3%, maturing in
August 1998 and 1997, collateralized by equipment $407,000 $502,000
In January 1991, Investments entered into a seven-year subordinated debenture
agreement with ITS plc. The principal amount of the debenture was
$7,000,000, maturing in December 1998. As of March 31, 1998, $2,200,000 was
outstanding under this debenture. Interest accrues at 10 percent annually,
which is payable quarterly. The debenture is classified as a current
liability for all periods due to the control by ITS plc.
The aggregate annual maturities of long-term debt and capital lease
obligations, including the subordinated debenture, during the five years
following March 31, 1998, and thereafter are as follows:
1999 $3,167,000
2000 237,000
2001 178,000
2002 163,000
2003 175,000
Thereafter 1,713,000
Under the terms of the credit agreements, Investments must provide certain
financial information and adhere to certain financial and negative covenants.
Investments must provide certain lenders, within 90 days of its fiscal year-
end balance sheets, income statements and supporting schedules, audited by a
certified public accountant acceptable to the lenders with a written opinion
of such accountant. The 90-day financial statement requirement was not
satisfied by the ITS Subgroup. A waiver was obtained for this 90-day
financial statement requirement stating that this requirement is deemed to be
satisfied immediately upon delivery to the lenders of the audited financial
statements of the ITS Subgroup. Investments further agrees that it will not
allow its ratio of current assets to current liabilities to be less than 1:1.
As of March 31, 1998, Investments had pledged $405,000 of inventory as
security under various credit facilities.
In addition, included within short term borrowings is $502,000
((Pounds)300,000) relating to the J.J. Woodhouse debenture which bears
interest at 3% over base rate and is secured by the assets of ITS Drilling
Services Limited.
The debenture was initially taken out in August 1996 for a twelve month
period. The debenture was renewed in August 1997 and again on August 6,
1998. The loan is repayable on August 6, 1999, or earlier under penalty of
one month's interest.
F-44
<PAGE>
6. LEASES
Property and equipment accounts include the following amounts for leases that
have been capitalized:
MARCH 31
-----------------------
1997 1998
------ ------
Equipment $ 60,000 $50,000
Less accumulated depreciation (40,000) (3,000)
-------- -------
Net property and equipment $ 20,000 $47,000
======== =======
The net present value of future minimum lease payments is reflected as a
component of long-term debt. The following table sets forth future minimum
lease payment obligations under capital leases as of March 31, 1998:
Fiscal year:
1999 $ 74,000
2000 22,000
2001 3,000
--------
Minimum lease payments 99,000
Less amounts representing interest (5,000)
--------
Net present value of future minimum lease payments 94,000
Less current maturities (70,000)
--------
Long-term obligations at March 31, 1998 $ 24,000
========
At March 31, 1998, the ITS Subgroup was obligated under a noncancelable
operating lease for office space which expires on June 30, 1999.
Additionally, the ITS Subgroup was obligated under various long-term
noncancelable operating leases covering certain equipment. These agreements
generally range from two to five years. Included in the combined statements
of income for the years ended March 31, 1996, 1997, and 1998 are operating
lease rental expenses of $311,000, $406,000 and $391,000, respectively.
F-45
<PAGE>
Future minimum lease payments required as of March 31, 1998, under operating
leases are presented in the following table:
<TABLE>
<CAPTION>
FACILITY EQUIPMENT TOTAL
RENTALS RENTALS RENTALS
-------- --------- -------
<S> <C> <C> <C>
Fiscal year:
1999 $219,000 $26,000 $245,000
2000 55,000 15,000 70,000
2001 0 7,000 7,000
2002 0 0 0
2003 0 0 0
-------- ------- --------
Total minimum payments required $274,000 $48,000 $322,000
======== ======= ========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The ITS Subgroup is exposed to a number of asserted and unasserted potential
claims in the normal course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
ITS Subgroup's combined financial position or results of operations.
As previously announced, on January 2, 1998, the ITS Subgroup's wholly owned
subsidiary, International Tool & Supply Inc., sold the supply division and
certain related assets, to a company formed by Kendal Gladys and Charles
Hipp, who at that stage were directors of ITS Subgroup and ITS plc (ITS).
Mr. Gladys was also a director of International Tool & Supply Company, Inc.
ITS subsequently discovered that immediately thereafter Messrs. Gladys and
Hipp sold their interests on to a third party at a price which the Directors
believe represented a substantial profit. As a result, on February 3, 1998,
ITS commenced a legal action against Messrs. Gladys and Hipp in Harris County
Court, Texas. The action alleges that Gladys and Hipp defrauded ITS and the
ITS Shareholders and breached fiduciary duties owed to the Company by failing
to disclose their arrangement to immediately resell the supply division.
On January 2, 1998, the supply division was sold to Gladys and Hipp for $2.5
million. The business was resold on the same day to La Salle Cattle Co. for
approximately $5 million, who in turn resold the business on the same day to
Boots and Coots for approximately $6 million.
ITS has claimed it is entitled to recover the full profit achieved from the
sale. On April 22, 1998, Messrs. Gladys and Hipp filed a counterclaim
against ITS and a third party petition against the Directors (except Mr.
O'Brien), Hugh Mumford (a former Director) and Bernard Duroc-Danner (who the
counterclaimants allege acted as a shadow director of ITS) for inter alia,
fraud and breach of contract. The Directors believe that the counterclaim
lacks any merit and was filed solely in an attempt to divert attention from
the actions of Messrs. Gladys and Hipp. ITS and the Directors intend to
vigorously defend the claim.
F-46
<PAGE>
On September 1, 1998, ITS assigned to ITS Investments Inc. all of ITS' rights
and duties in prosecuting and defending the litigation. As of the same date,
ITS Investments Inc. has indemnified the directors of ITS and Mr. Mumford in
relation to the expenses which they have incurred and will incur in relation
to the proceedings.
The assets to be transferred by ITS pursuant to the Scheme include the issued
shares in ITS Investments Inc. ITS Investments Inc. has agreed to indemnify
ITS, and the Company has agreed to indemnify ITS and the Liquidators, in
respect of any liabilities incurred by them in connection with the
litigation.
8. CASH FLOWS
The combined statements of cash flows segregate transactions between
operating activities, discontinued operations, investing activities and
financing activities and identify the ITS Subgroup's sources and uses of
cash. Temporary cash investments were approximately $3,311,000, $800,000,
and $130,000 at March 31, 1996, 1997, and 1998, respectively.
Supplemental disclosure of cash flow information for the years ended March
31, 1996, 1997, and 1998, is as follows:
1996 1997 1998
------ ------ ------
Cash paid during the period for interest $748,000 $454,000 $466,000
The ITS Subgroup did not make any cash payments for income taxes during 1996,
1997, or 1998.
Supplemental schedule of noncash investing and financing activities is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Purchase of H-O-H, net of cash acquired:
Receivables $ 0 $ (820,000) $ 0
Inventory 0 (285,000) 0
Property, plant and equipment 0 (490,000) 0
Other assets 0 (36,000) 0
Goodwill 0 (2,002,000) 0
Liabilities 0 3,347,000 0
----------- ----------- -----------
Cash paid $ 0 $ (286,000) $ 0
=========== =========== ===========
Purchase of ABASCO, net of cash acquired:
Inventory $ (905,000) $ 0 $ 0
Property, plant and equipment (213,000) 0 0
Other assets (129,000) 0 0
----------- ----------- -----------
Cash paid $(1,247,000) $ 0 $ 0
=========== =========== ===========
</TABLE>
F-47
<PAGE>
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Sale of supply division:
Fixed assets $ 0 $ 0 $ 586,000
Receivables 0 0 1,157,000
Inventory 0 0 1,670,000
Prepaids and other current assets 0 0 133,000
Goodwill 0 0 3,560,000
Liabilities assumed by purchaser 0 0 (1,060,000)
Loss on sale of supply division 0 0 (3,610,000)
----------- ----------- -----------
Cash received $ 0 $ 0 $ 2,436,000
=========== =========== ===========
Sale of environmental division:
Fixed assets $ 0 $ 0 $ 320,000
Inventory 0 0 935,000
Other assets 0 0 129,000
Loss on sale of environmental division 0 0 (44,000)
----------- ----------- -----------
Cash received $ 0 $ 0 $ 1,340,000
=========== =========== ===========
</TABLE>
9. INCOME TAXES:
Total income tax expense differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The reasons
for these differences for the tax years ended March 31, 1996, 1997, and 1998,
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Income (loss) from continuing operations before taxes $(69,000) $(598,000) $301,000
-------- --------- --------
Income tax expense (benefit) at statutory rate $(15,000) $(207,000) $ 52,000
Nondeductible expenses 25,000 21,000 20,000
Change in valuation allowance pertaining to continuing operations and other
State taxes (benefit), net of federal income tax benefit 16,000 (15,000) 11,000
Foreign taxes 47,000 9,000 18,000
Expiration of general business credit 791,000 176,000 53,000
Expiration of capital loss carryforwards 0 0 80,000
-------- --------- --------
Income tax expense from continuing operations 0 0 0
Discontinued operations:
Discontinued operations, income tax expense 0 0 99,000
-------- --------- --------
Net income tax expense $ 0 $ 0 $ 99,000
-------- --------- --------
</TABLE>
F-48
<PAGE>
The tax effect of significant temporary differences representing income tax
assets and liabilities for the years ended March 31, 1997 and 1998 are as
follows:
1997 1998
----------- -----------
Intangible assets $ 2,833,000 $ 1,331,000
Property, plant and equipment 230,000 386,000
----------- -----------
Total gross deferred income tax liabilities 3,063,000 1,717,000
----------- -----------
Bad debt reserve 151,000 123,000
Workers' compensation claims reserve 296,000 253,000
Reserve for discontinued operations 29,000 87,000
Inventory write-downs 102,000 20,000
Vacation accrual 32,000 4,000
Accrued health claims 14,000 8,000
Warranty reserve 95,000 87,000
----------- -----------
Total deferred tax assets, current 719,000 582,000
----------- -----------
Federal net operating loss carryforwards 5,955,000 6,188,000
State net operating loss carryforwards 25,000 43,000
Foreign net operating loss carryforwards 1,406,000 1,528,000
Percentage depletion carryforwards 808,000 808,000
Capital loss carryforwards 87,000 0
General business credit carryforwards 224,000 170,000
Alternative minimum tax credit carryforwards 338,000 338,000
----------- -----------
Total deferred tax assets, long-term 8,843,000 9,075,000
----------- -----------
Total gross deferred income tax assets 9,562,000 9,657,000
Less valuation allowance (6,499,000) (7,940,000)
----------- -----------
Net deferred income tax assets 3,063,000 1,717,000
----------- -----------
Net deferred income tax liability $ 0 $ 0
=========== ===========
The ITS Subgroup has tax carryforwards scheduled to expire as follows:
EXPIRATION
AMOUNT DATE
-------- ---------
Net operating losses $18,200,992 2003-2013
Percentage depletion 2,183,364 None
General business credits 170,323 1999-2001
Alternative minimum tax credits 338,390 None
Foreign net operating losses 5,322,958 None
Foreign net operating losses 553,494 1999-2002
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax asset will not be realized. Valuation
allowances have been provided as a result of uncertainties surrounding the
ability to utilize carryforwards prior to their expiration dates.
F-49
<PAGE>
10. RELATED-PARTY TRANSACTIONS
As discussed in Note 6, the ITS Subgroup leases office space from a company
which is owned by Kase Lawal, a shareholder and director of ITS plc. Rent
expense was $293,000, $240,000, and $217,000 for the years ended March 31,
1996, 1997, and 1998, respectively. The ITS Subgroup also had sales to other
affiliates totaling $439,000, $380,000, and $702,000 for the years ended
March 31, 1996, 1997, and 1998, respectively. Pricing between the ITS
Subgroup and affiliates is on a negotiated basis per sale. Included in the
accounts receivable balance was an intercompany receivable of $76,000 due
from ITS plc at March 31, 1998. Included in the accounts payable balance was
an intercompany receivable of $246,000 due from ITS plc.
A shareholder and director of ITS plc is a partner in a law firm which
provides services to the ITS Subgroup. Amounts paid to this law firm totaled
$111,000, $79,000, and $132,000 for the years ended March 31, 1996, 1997, and
1998, respectively. In addition, a retainer fee of $24,000 was paid during
1997 to a company owned by a shareholder and director of ITS plc for services
provided by the affiliated company's in-house legal counsel.
11. ALLOCATION OF GENERAL AND ADMINISTRATIVE EXPENSES
Historically, ITS Holdings Limited and Investments have been charged a
portion of the ITS plc administrative expense based on an estimate of the
chief executive's payroll costs in respect of time spent on the operating
divisions. As the ITS Holdings Limited finance director has also carried out
a group consolidation function, a charge has been made to ITS plc in respect
of this work based on an estimate of payroll costs. These charges have been
reflected as management fees on the income statements.
During the years ended March 31, 1996, 1997, and 1998, ITS plc charged as
management fees $166,000, $181,000, and $174,000, respectively, which have
been excluded from general and administrative expenses and presented on a
separate line in these financial statements.
Included in losses from discontinued operations is a portion of Investments'
general and administrative expenses that are allocated to the supply division
and environmental division based on certain estimates including historic
expense as a percentage of Investments' total general and administrative
expenses, as calculated using the following methods:
a. Percentage of total square footage for office rental expense.
b. Insurance policy rates on revenues and property values for insurance
expenses.
c. Volume of activities for accounting department expenses.
d. Amount of telephone usage for telephone expenses.
e. Percentage of employees for personnel department expenses.
F-50
<PAGE>
Based on historic trends, the use of these methods resulted in the supply
division being responsible for an average of 58% and the environmental
division being responsible for an average of 14% of Investments' total
general and administrative expenses. This percentage was applied
consistently for the periods presented.
12. COMMON STOCK
Common stock issued and outstanding as of March 31, 1998, is combined between
Investments and ITS Holdings Limited and consists of the following:
INVESTMENTS
Common stock, par value $.10 per share; 25,000,000 shares authorized;
5,481,000 shares issued and outstanding.
ITS HOLDINGS LIMITED
Common stock, par value $1 per share; 25,500,000 shares authorized; 4,750,000
shares issued and outstanding.
13. BUSINESS SEGMENTS
The ITS Subgroup has two geographic operating divisions, one operating in the
United Kingdom (the UK Region) and the other in the United States (the U.S.
Region). The UK Region, headquartered in Aberdeen, Scotland, provides
environmental management systems and services in the drilling services
industry. The customer base for the UK Region is primarily major oil
companies. The main operating companies and support centers for all rentals,
sales and services of the division are located in Scotland, Nigeria, and
Singapore. The U.S. Region, headquartered in Houston, Texas, manufactures
and sells enhanced oil recovery equipment, oil and gas production equipment
and water treatment equipment and provides custom fabrication services in the
engineered systems industry. The U.S. Region also leases and sells oil field
drilling equipment in the drilling services industry. The primary customers
of the U.S. Region have been the national oil companies in China, Brazil,
Russia, Canada, and Venezuela.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
--------------------------------------------
UK REGION U.S. REGION COMBINED
--------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues $1,833 $10,987 $12,820
Interest revenues 26 806 832
Interest expense 16 545 561
Depreciation and amortization 344 199 543
Current assets 1,439 16,172 17,611
Total assets 4,273 26,315 30,588
</TABLE>
F-51
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
--------------------------------------------
UK REGION U.S. REGION COMBINED
--------- ----------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Operating revenues $3,211 $17,555 $20,766
Interest revenues 48 224 272
Interest expense 46 348 394
Depreciation and amortization 395 460 855
Current assets 3,439 19,823 23,262
Total assets 7,119 31,790 38,909
YEAR ENDED MARCH 31, 1998
---------------------------------------------
UK REGION U.S. REGION COMBINED
--------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues $4,420 $24,537 $28,957
Interest revenues 20 230 250
Interest expense 112 503 615
Depreciation and amortization 673 541 1,214
Current assets 2,965 11,437 14,402
Total assets 8,534 20,898 29,432
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED)
ITS plc intends to enter into a definitive agreement which will result in the
acquisition of the ITS Subgroup by Offshore Tool & Energy Corporation (OTEC)
subject to inter alia, the approval of the shareholders of ITS plc and the
admission of the entire ordinary share capital of OTEC to the Alternative
Investment Market of the London Stock Exchange.
OTEC will acquire, in addition to the ITS Subgroup, certain other assets and
liabilities of ITS plc including the action by ITS plc against two former
directors, their counterclaim against ITS plc (see Note 7) and certain
contingent liabilities of ITS plc relating to indemnifications given to
Schlumberger BV in connection with tax assessments of certain former
subsidiaries, principally in Angola, Egypt, Gabon, Malaysia, Singapore, and
Norway.
F-52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO IPC INDUSTRIES, INC. AND
MOBILE PULLEY MARINE SERVICES, INC.:
We have audited the accompanying combined balance sheets of MOBILE PULLEY &
MACHINE WORKS (a division of IPC Industries, Inc.) AND MOBILE PULLEY MARINE
SERVICES (a division of Mobile Pulley Marine Services, Inc., formerly MP Field
Services, Inc.) as of December 31, 1996 and 1997 and the related combined
statements of earnings, divisional equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobile Pulley & Machine Works
and Mobile Pulley Marine Services as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Atlanta, Georgia
October 1, 1998
F-53
<PAGE>
MOBILE PULLEY & MACHINE WORKS
(A DIVISION OF IPC INDUSTRIES, INC.)
AND MOBILE PULLEY MARINE SERVICES
(A DIVISION OF MOBILE PULLEY MARINE SERVICES, INC.,
FORMERLY MP FIELD SERVICES, INC.)
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 169,504 $ 181,032 $ 155,871
Accounts receivable, net 4,828,704 4,550,898 5,505,858
Inventories 2,936,934 4,268,104 4,724,603
Other current assets 108,154 375,993 307,733
----------- ----------- -----------
Total current assets 8,043,296 9,376,027 10,694,065
PROPERTY, PLANT, AND EQUIPMENT, NET 3,803,881 5,176,816 5,483,240
----------- ----------- -----------
Total assets $11,847,177 $14,552,843 $16,177,305
=========== =========== ===========
LIABILITIES AND COMBINED DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,113,628 $ 1,161,241 $ 1,809,064
Accrued liabilities 1,065,616 1,798,047 2,033,256
----------- ----------- -----------
Total current liabilities 2,179,244 2,959,288 3,842,320
LONG-TERM DEBT 5,254,745 6,423,784 7,311,692
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, 6, and 8)
COMBINED DIVISIONAL EQUITY 4,413,188 5,169,771 5,023,293
----------- ----------- -----------
Total liabilities and combined divisional equity $11,847,177 $14,552,843 $16,177,305
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-54
<PAGE>
MOBILE PULLEY & MACHINE WORKS
(A DIVISION OF IPC INDUSTRIES, INC.)
AND MOBILE PULLEY MARINE SERVICES
(A DIVISION OF MOBILE PULLEY MARINE SERVICES, INC.,
FORMERLY MP FIELD SERVICES, INC.)
COMBINED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED ---------------------
------------------------ MARCH 31, MARCH 31,
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $21,097,402 $21,523,257 $4,525,956 $6,036,544
COST OF SALES 17,520,679 18,117,801 3,650,706 5,044,195
----------- ----------- ---------- ----------
GROSS PROFIT 3,576,723 3,405,456 875,250 992,349
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 2,186,846 2,053,601 473,065 611,393
----------- ----------- ---------- ----------
NET EARNINGS FROM OPERATIONS 1,389,877 1,351,855 402,185 380,956
INTEREST EXPENSE 472,895 411,197 102,730 169,205
OTHER INCOME, NET 97,491 44,925 8,405 8,050
LOSS ON DISPOSAL OF EQUIPMENT 22,602 0 0 0
----------- ----------- ---------- ----------
NET EARNINGS $ 991,871 $ 985,583 $ 307,860 $ 219,801
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-55
<PAGE>
MOBILE PULLEY & MACHINE WORKS
(A DIVISION OF IPC INDUSTRIES, INC.)
AND MOBILE PULLEY MARINE SERVICES
(A DIVISION OF MOBILE PULLEY MARINE SERVICES, INC.,
FORMERLY MP FIELD SERVICES, INC.)
COMBINED STATEMENTS OF DIVISIONAL EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMBINED
DIVISIONAL
EQUITY
------------
<S> <C>
BALANCE, DECEMBER 31, 1995 $3,421,317
Net earnings 991,871
----------
BALANCE, DECEMBER 31, 1996 4,413,188
Net earnings 985,583
Advances to Parents, net (229,000)
----------
BALANCE, DECEMBER 31, 1997 $5,169,771
==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-56
<PAGE>
MOBILE PULLEY & MACHINE WORKS
(A DIVISION OF IPC INDUSTRIES, INC.)
AND MOBILE PULLEY MARINE SERVICES
(A DIVISION OF MOBILE PULLEY MARINE SERVICES, INC.,
FORMERLY MP FIELD SERVICES, INC.)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED ----------------------
------------------- MARCH 31, MARCH 31,
1996 1997 1997 1998
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 991,871 $ 985,583 $ 307,860 $ 219,801
----------- ----------- ----------- ---------
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 339,249 497,188 133,191 149,309
Loss on sale of equipment, net 22,602 0 0 0
Change in operating assets and liabilities:
Accounts and notes receivable (648,412) 277,806 1,894,671 (954,960)
Inventories 260,297 (1,331,170) (1,047,728) (456,499)
Other current assets (33,865) (267,839) (118,396) 68,260
Accounts payable (1,248,251) 47,613 169,445 647,823
Accrued liabilities 672,114 732,431 (223,512) 735,209
----------- ----------- ----------- ---------
Total adjustments (636,266) (43,971) 807,671 (310,858)
----------- ----------- ----------- ---------
Net cash provided by operating activities 355,605 941,612 1,115,531 (91,057)
----------- ----------- ----------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (781,955) (1,665,308) (210,347) (455,733)
Pattern additions (47,275) (220,483) 0 0
Proceeds from disposal of equipment 70,000 15,668 0 0
----------- ----------- ----------- ---------
Net cash used in investing activities (759,230) (1,870,123) (210,347) (455,733)
----------- ----------- ----------- ---------
FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 465,598 1,169,039 (830,619) 887,908
Net advances to parents 0 (229,000) 0 (366,279)
----------- ----------- ----------- ---------
Net cash provided by (used in) financing
activities 465,598 940,039 (830,619) 521,629
----------- ----------- ----------- ---------
NET INCREASE IN CASH 61,973 11,528 74,365 (25,161)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 107,531 169,504 169,504 181,032
----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 169,504 $ 181,032 $ 244,069 $ 155,871
=========== =========== =========== =========
CASH PAID FOR INTEREST $ 522,173 $ 877,927 $ 108,373 $ 173,634
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of this combined statements.
F-57
<PAGE>
MOBILE PULLEY & MACHINE WORKS
(A DIVISION OF IPC INDUSTRIES, INC.)
AND MOBILE PULLEY MARINE SERVICES
(A DIVISION OF MOBILE PULLEY MARINE SERVICES, INC.,
FORMERLY MP FIELD SERVICES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND BUSINESS
Mobile Pulley & Machine Works ("MPMW"), a division of IPC Industries, Inc.
("IPC"), is a manufacturer of dredging equipment sold primarily to domestic
dredging and mining companies, with limited sales to foreign customers. MPMW
also provides repair and rework services and has limited nondredging
equipment sales to original equipment manufacturers, including steel and
pulp and paper equipment.
Mobile Pulley Marine Services ("MPMS"), a division of Mobile Pulley Marine
Services, Inc. (formerly MP Field Services, Inc.), is a manufacturer of
marine and industrial metal fabrications and a provider of customer on-site
repair, maintenance, and dry dock services, primarily to domestic companies
in the dredging industry.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of MPMS and MPMW (collectively the "Company") have
been presented on a combined basis due to common control and ownership of
their respective parents. All material intercompany transactions have been
eliminated.
The accompanying financial statements include the assets, liabilities,
revenues, and direct expenses of the Company. Certain corporate, general,
and administrative expenses of IPC have been allocated to the Company on a
basis which, in the opinion of management, is reasonable. However, such
expenses are not necessarily indicative of, nor is it practical for
management to estimate, the level of expenses which might have been incurred
had the Company been operated as separate, independent companies.
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
F-58
<PAGE>
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable potentially subject the Company to concentrations of
credit risk. The Company performs ongoing credit evaluations of its
customers' financial conditions and has established allowances for doubtful
accounts based on the expected collectibility of all accounts receivable.
The Company believes its allowance for doubtful accounts is adequate to cover
any potential losses on its credit risk exposure. As of December 31, 1996
and 1997, the Company had an allowance for doubtful accounts of $53,860 and
$35,860, respectively.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
on the first-in, first-out method. As of December 31, 1996 and 1997,
inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Raw materials $ 900,954 $1,000,244
Work in process 452,094 949,911
Finished goods 1,583,886 2,317,949
---------- ----------
$2,936,934 $4,268,104
========== ==========
</TABLE>
Included in raw materials are $520,428 and $568,544 of supplies at December
31, 1996 and 1997, respectively.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is stated at cost, less accumulated
depreciation. Additions, improvements, and renewals significantly adding to
the asset value or extending the life of the asset are capitalized. Ordinary
maintenance and repairs not extending the physical or economic lives of the
plant and equipment are charged to expense as incurred. The Company uses
straight-line methods to depreciate property and equipment. Estimated useful
lives are as follows:
F-59
<PAGE>
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 30 years
Patterns 14 years
Office furniture, fixtures, and equipment 5 to 25 years
Data processing equipment 3 to 5 years
REVENUE RECOGNITION
The Company uses the completed contract method of revenue recognition. Under
this method of accounting, no revenue is recognized until the product is
accepted by the customer as being ready for delivery or services are
completed. Progress billings collected before completion of the contract are
defined and reflected as deferred revenues, a component of accrued
liabilities in the accompanying balance sheets.
INCOME TAX STATUS
MPMW and MPMS, as divisions of their respective parents, are not taxable
entities. The respective parents of both divisions have elected S
corporation status for income tax reporting purposes. The taxable income or
loss of S corporations are includable in the individual tax returns of the
stockholders. Accordingly, no accounts for deferred income taxes or
provisions for current or deferred income taxes have been included in the
accompanying combined financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximate fair
value due to the immediate or short-term maturity of these financial
instruments. In the opinion of management, total long-term debt recorded in
the accompanying balance sheets approximates fair value based on the
borrowing rates currently available to the Company for loans with similar
terms and average maturities.
UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the unaudited statements of income and cash
flows for the three months ended March 31, 1997 and 1998 and the unaudited
balance sheet as of March 31, 1998 include all adjustments (which include
only normal recurring adjustments) necessary to present the financial
position and results of operations and cash flows for those periods in
accordance with generally accepted accounting principles.
F-60
<PAGE>
3. PROPERTY, PLANT, AND EQUIPMENT
At December 31, 1996 and 1997, property, plant, and equipment consisted of
the following:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Land $ 57,524 $ 84,145
Buildings and improvements 365,038 371,661
Machinery and equipment 3,184,956 4,202,302
Patterns 889,472 1,109,955
Construction in progress 5,555 595,465
---------- -----------
4,502,545 6,363,528
Less accumulated depreciation and
amortization (698,664) (1,186,712)
---------- -----------
$3,803,881 $ 5,176,816
========== ===========
</TABLE>
MPMW leases certain manufacturing equipment, data processing equipment, and
automobiles under noncancelable operating leases. Rent expense was $178,959
and $268,402 for the years ended December 31, 1996 and 1997, respectively.
As of December 31, 1997, the future minimum payments on these leases were as
follows:
1998 $197,834
1999 189,862
2000 128,310
2001 37,784
--------
$553,790
========
4. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accrued settlement costs $ 255,000 $ 75,000
Accrued medical costs 0 150,000
Deferred revenue 0 294,000
Other 810,616 1,279,047
---------- ----------
$1,065,616 $1,798,047
========== ==========
</TABLE>
5. LONG-TERM DEBT
IPC provides financing to the Company through revolving lines of credit it
has with a bank. These credit facilities are secured by substantially all
the assets of MPMS and MPMW and bear interest at the prime rate (8.5% at
December 31, 1997).
F-61
<PAGE>
6. LEGAL MATTERS
The Company is a defendant in certain legal proceedings arising in the
normal course of business. In the opinion of the Companies' management, the
ultimate outcome of these legal proceedings will not have a material adverse
effect on the financial position of the Company.
7. EMPLOYEE BENEFIT PLAN
IPC sponsors the Mobile Pulley & Machine Works, Inc. Nonbargaining Employee
Savings 401(k) Plan (the "Plan"), which MPMS employees also participate. The
Plan covers substantially all nonunion employees. Eligible employees of the
Company may contribute certain amounts of their annual compensation, as
defined by the Plan. The Company has the option to match eligible
contributions up to a certain percentage, as defined by the Plan and within
the limitations established in the Internal Revenue Code. During 1996 and
1997, the Company made matching contributions of $60,648 and $54,599,
respectively.
8. RELATED-PARTY TRANSACTIONS
IPC provides services to and incurs costs for the benefit of the Company.
Certain services that include, but are not limited to, property and casualty
insurance coverage under IPC's insurance program, administrative services,
management information services, employee benefits administration,
environmental consultation and administration, accounting and reporting
services, and treasury management have been allocated to the Company. IPC
charged the Company $72,363 and $612,806 for the years ended December 31,
1996 and 1997, respectively.
The allocations of the costs and expenses for the services described above
were based on methods that management believes are reasonable. The actual
costs incurred by the Company in the future to replace the services provided
and the costs paid by IPC will differ from allocated amounts due to
differences in scale, organizational structure, management structure, and
other factors.
The Company provides services to Aero International, LLC, a company whose
equity holders include IPC. These services are priced at a level management
believes to be market rates. Total services for the year ended December 31,
1997 were $196,644. Such amounts included in accounts receivable at December
31, 1997 was $56,893.
9. SIGNIFICANT CUSTOMERS
For the years ended December 31, 1996 and 1997, the Company had one customer
who accounted for 10% and 16%, respectively, of sales. The related
receivables from this customer were $663,517 and $1,069,878 at December 31,
1996 and 1997, respectively.
F-62
<PAGE>
10. SUBSEQUENT EVENT
Effective May 31, 1998 the assets and related liabilities of the Company
were purchased by American Aero Cranes, LLC. The transaction will be
accounted for as a purchase and, as such, the purchase price will be
allocated based on the fair market value of the assets acquired.
F-63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Titan Industries, Inc.:
We have audited the accompanying balance sheets of TITAN INDUSTRIES, INC. (a
Louisiana corporation) as of June 30, 1996 and 1997 and the related statements
of operations, changes in stockholders' equity, and cash flows for the years
then ended and for the period from July 1, 1997 to November 5, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Titan Industries, Inc. As
of June 30, 1996 and 1997 and the results of its operations and its cash flows
for the years then ended and for the period from July 1, 1997 to November 5,
1997.
Atlanta, Georgia
October 1, 1998
F-64
<PAGE>
TITAN INDUSTRIES, INC.
BALANCE SHEETS
JUNE 30, 1996 AND 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
---------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 12,175 $ 245,535
Accounts receivable, net (Note 3) 1,891,370 1,169,444
Inventories, net 1,752,267 967,110
Other current assets 313,020 160,859
--------- ---------
Total current assets 3,968,832 2,542,948
PROPERTY, PLANT, AND EQUIPMENT, NET 608,863 607,193
--------- ---------
Total assets $4,577,695 $ 3,150,141
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,106,677 $ 216,803
Accrued liabilities 159,370 259,116
Deferred revenue 638,288 441,039
Notes payable 604,924 0
--------- ---------
Total current liabilities 2,509,259 916,958
COMMITMENTS AND CONTINGENCIES (NOTES 5, 7, 8, AND 9)
STOCKHOLDERS' EQUITY:
Predecessor common stock, no par value; 100,000 shares authorized and 100
shares issued at June 30, 1997; no shares authorized, issued, or outstanding
at December 31, 1997 30,500 30,500
Retained earnings 2,037,936 2,202,683
--------- ---------
Total stockholders' equity 2,068,435 2,233,183
--------- ---------
Total liabilities and stockholders' equity $4,577,695 $ 3,150,141
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-65
<PAGE>
TITAN INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
AND FOR THE PERIOD FROM JULY 1, 1997 TO NOVEMBER 5, 1997
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JULY 1, 1997 TO
JUNE 30 NOVEMBER 5,
--------------------------- -----------------
1996 1997 1997
------------ ---------- ----------------
<S> <C> <C> <C>
NET SALES:
CRANES $ 3,587,881 $ 5,004,603 $ 527,485
SERVICE 1,707,799 1,965,295 923,412
----------- ----------- -----------
5,295,680 6,969,898 1,450,897
----------- ----------- -----------
COST OF SALES:
CRANES (3,816,762) (4,385,906) (447,055)
SERVICE (867,235) (1,095,665) (609,488)
----------- ----------- -----------
(4,683,997) (5,481,571) (1,056,543)
----------- ----------- -----------
Gross profit 611,683 1,488,327 394,354
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (1,160,541) (1,225,964) (303,581)
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (548,858) 262,363 90,773
INTEREST INCOME (EXPENSE) 4,728 40 14
OTHER INCOME, NET 7,932 8,344 6,689
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES (536,198) 270,747 97,476
BENEFIT (PROVISION) FOR INCOME TAXES 206,000 (106,000) (38,000)
----------- ----------- -----------
NET (LOSS) INCOME $ (330,198) $ 164,747 $ 59,476
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE>
TITAN INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
AND FOR THE PERIOD FROM JULY 1, 1997 TO NOVEMBER 5, 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, June 30, 1995 100 30,500 2,368,134 2,398,634
Net loss 0 0 (330,198) (330,198)
---------- --------- ---------- ----------
Balance, June 30, 1996 100 30,500 2,037,936 2,068,436
Net income 0 0 164,747 164,747
---------- --------- ---------- ----------
Balance, June 30, 1997 100 30,500 2,202,683 2,233,183
Net income 0 0 59,476 59,476
---------- --------- ---------- ----------
Balance, November 5, 1997 100 $30,500 $2,262,159 $2,292,659
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE>
TITAN INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
AND FOR THE PERIOD FROM JULY 1, 1997 TO NOVEMBER 5, 1997
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED FROM
JUNE 30 JULY 1, 1997 TO
------------------------ NOVEMBER 5,
1996 1997 1997
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (330,198) $ 164,747 $ 59,476
----------- --------- ---------
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
(Gain) loss from sale of equipment (849) 3,152 8,050
Depreciation and amortization 79,899 74,173 23,122
Deferred income taxes 11,000 (41,000) (7,000)
Net change in receivables (740,430) 721,926 132,796
Net change in inventories (1,040,704) 785,157 (622,893)
Net change in other current assets (82,787) 193,706 9,704
Net change in accounts payable 839,561 (889,874) 256,289
Net change in accrued liabilities and deferred revenue 679,391 (97,503) 186,184
----------- --------- ---------
Total adjustments (254,919) 749,737 (13,748)
----------- --------- ---------
Net cash (used in) provided by operating activities (585,117) 914,484 45,728
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of equipment (23,063) (76,200) (14,593)
Proceeds from sale of equipment 850 0 0
----------- --------- ---------
Net cash provided by (used in) investing activities (22,213) (76,200) (14,593)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 549,553 0 0
Repayment of long-term debt 0 (604,924) 0
----------- --------- ---------
Net cash provided by (used in) financing activities 549,553 (604,924) 0
----------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (57,777) 233,360 31,135
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 69,952 12,175 245,535
----------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,175 $ 245,535 $ 276,670
----------- --------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 14,928 $ 38,861 $ 0
----------- --------- ---------
Net cash paid (refunded) for income taxes $ (131,701) $(217,433) $ 178,000
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE>
TITAN INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
1. ACQUISITION
On November 5, 1997, Titan Acquisition Company ("TAC") purchased all of the
outstanding shares of common stock of Titan Industries, Inc. (the
"Company"). TAC was incorporated in Louisiana and was utilized for the
purpose of acquiring all of the outstanding common stock of the Predecessor.
The purchase price comprised a cash payment of $2,235,000.
2. NATURE OF THE BUSINESS
The Company and manufactures and services marine cranes primarily for the
oil and gas industry. The Company's manufacturing and service center is
located in Covington, Louisiana.
3. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable potentially subject the Company to concentrations of
credit risk in its accounts receivable. The Company performs ongoing credit
evaluations of their customers' financial condition and have established an
allowance for doubtful accounts based upon the expected collectability of
all accounts receivable. The Company believes its allowance for doubtful
accounts is adequate to cover any potential losses on its credit risk
exposure. As of June 30, 1996 and 1997, the Company had an allowance for
doubtful accounts of $21,000.
F-69
<PAGE>
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on the first-in, first-out method. At June 30, 1996 and 1997, inventories
consisted of the following:
1996 1997
---------- ----------
Raw materials $ 811,948 $ 892,767
Work in progress 1,149,039 299,343
---------- ----------
1,960,987 1,192,110
Less reserve for inventory obsolescence 208,720 225,000
---------- ----------
Total $1,752,267 $ 967,110
========== ==========
PROPERTY, PLANT, AND EQUIPMENT
Additions, improvements, and renewals significantly adding to the asset value
or extending the life of the asset are capitalized. Ordinary maintenance and
repairs not extending the physical or economic lives of the plant and
equipment are charged to expense as incurred. The Company uses the straight-
line method to depreciate property and equipment. Estimated useful lives are
as follows:
PREDECESSOR COMPANY
----------- -------
Buildings 40 years 40 years
Machinery and equipment 10 years 10 years
Furniture and fixtures 5 years 5 years
Vehicles 5 years 5 years
PRODUCT AND SERVICE WARRANTIES
Products and services are warranted by the Company for a period of one year
commencing at the time of acceptance. The estimated cost of such warranties
is accrued at the time of sale and is reflected in cost of sales in the
accompanying statements of operations.
REVENUE RECOGNITION
The Company uses the completed contract method of revenue recognition. Crane
revenues are recognized when the cranes are accepted by the customer as being
ready for delivery. Service revenues are recognized when the services are
substantially complete. Progress billings collected before completion of the
contract are defined and reflected as deferred revenue in the accompanying
balance sheets.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires the determination of deferred income taxes
using the liability method, under which deferred tax assets and liabilities
are determined based on the difference between
F-70
<PAGE>
the financial accounting and tax bases of assets and liabilities. Deferred
tax assets or liabilities at the end of each period are determined using the
currently enacted regular tax rate expected to apply to the taxable income in
the periods in which the deferred tax asset or liability is expected to be
settled or realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximate fair
value due to the immediate or short-term maturity of these financial
instruments.
4. PROPERTY, PLANT, AND EQUIPMENT
At June 30, 1996 and 1997, property, plant, and equipment consisted of the
following:
1996 1997
---------- ----------
Land and improvements $ 111,714 $ 96,147
Buildings 406,000 431,928
Machinery and equipment 430,920 480,586
Furniture and fixtures 70,428 70,428
Vehicles 158,665 129,629
---------- ----------
1,177,727 1,208,718
Less accumulated depreciation and
amortization 568,864 601,525
---------- ----------
$ 608,863 $ 607,193
========== ==========
F-71
<PAGE>
5. INCOME TAXES
The (provision) benefit for federal and state income taxes in the
accompanying statements of operations consisted of the following components:
YEAR ENDED PERIOD FROM
JUNE 30 JULY 1, 1997 TO
------------------ NOVEMBER 5,
1996 1997 1997
-------- -------- --------
Current income taxes:
Federal $184,000 $(124,000) $ (38,000)
State 33,000 (23,000) (7,000)
-------- -------- --------
217,000 (147,000) (45,000)
-------- -------- --------
Deferred income taxes:
Federal (10,000) 34,000 6,000
State (1,000) 7,000 1,000
-------- -------- --------
(11,000) 41,000 7,000
-------- -------- --------
Total (provision) benefit $206,000 $(106,000) $ (38,000)
======== ======== ========
The (provision) benefit for income taxes differs from the amounts computed by
applying the federal statutory rates due to the following:
YEAR ENDED PERIOD FROM
JUNE 30 JULY 1, 1997 TO
------------------- NOVEMBER 5,
1996 1997 1997
-------- --------- --------
Tax (provision) benefit at
the federal statutory rate (at 34%)
$182,000 $ (92,000) $(33,000)
State income taxes, net of federal
benefit
27,000 (11,000) (4,000)
Nondeductible expenses (3,000) (3,000) (1,000)
-------- --------- --------
Total benefit (provision) $206,000 $(106,000) $(38,000)
======== ========= ========
F-72
<PAGE>
The effects of temporary differences which create deferred tax assets
(liabilities) at June 30, 1996 and 1997 are as follows:
1996 1997
-------- --------
Deferred tax assets:
Inventory $ 91,000 $141,000
Warranty reserve 18,000 14,000
Allowance for doubtful accounts 8,000 8,000
Depreciation 0 0
Other 31,000 11,000
-------- --------
Total deferred assets 148,000 174,000
-------- --------
Deferred tax liabilities:
Depreciation (36,000) (37,000)
Other (18,000) 0
-------- --------
Total deferred liabilities (54,000) (37,000)
-------- --------
Net deferred tax assets $ 94,000 $137,000
======== ========
6. LEGAL MATTERS
In the ordinary course of its activities, the Company is involved in certain
litigation and claims. In the opinion of management, these proceedings will
not have a significant adverse effect on the Company's financial condition,
operations, or liquidity.
7. SIGNIFICANT CUSTOMERS
During the fiscal year ended June 30, 1996, revenues from the Company's three
largest customers represented 20.2%, 13.2%, and 11.7%, respectively, of total
revenues.
During the fiscal year ended June 30, 1997, revenues from the Company's three
largest customers represented 22.5%, 16.4%, and 10%, respectively, of total
revenues.
During the period from July 1, 1997 to November 5, 1997, revenues from the
Company's two largest customers represented 12.8% and 10.2%, respectively, of
total revenues.
8. SUBSEQUENT EVENTS
Effective May 31, 1998 the assets and related liabilities of the Company were
purchased by American Aero Cranes, LLC. Subsequent to the acquisition,
Titan's debt was refinanced by the acquiror. The transaction will be
accounted for similar to a pooling of interests as the companies are under
common control. As such, the assets acquired will be transferred at
historical cost.
F-73
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. The following financial statements are filed as
part of this registration statement.
Offshore Tool & Energy Corporation:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Operations for the year ended December 31, 1996 and
for the periods from January 1, 1997 to September 18, 1997 and September
19, 1997 to December 31, 1997 and for the year ended December 31, 1998
Consolidated Statements Changes in Equity for the year ended December 31, 1996
and for the periods from January 1, 1997 to September 18, 1997 and
September 19, 1997 to December 31, 1997 and for the year ended
December 31, 1998
Consolidated Statements of Cash Flows for the year ended December 31, 1996 and
for the periods from January 1, 1997 to September 18, 1997 and September
19, 1997 to December 31, 1997 and for the year ended December 31, 1998
Notes to Consolidated Financial Statements
The ITS Subgroup
Report of Independent Public Accountants
Combined Balance Sheets as of March 31, 1997 and 1998
Combined Statements of Income for the years ended March 31, 1996, 1997, and
1998
Combined Statements of Stockholder's Equity for the years ended March 31,
1996, 1997, and 1998
Combined Statements of Cash Flows for the years ended March 31, 1996, 1997,
and 1998
Notes to Combined Financial Statements
Mobile Pulley & Machine Works and Mobile Pulley Marine Services
Report of Independent Public Accountants
Combined Balance Sheets as of December 31, 1997 and 1998 and March 31, 1998
(unaudited)
Combined Statements of Income for the years ended December 31, 1998 and 1997
and for the three months ended March 31, 1997 and 1998 (unaudited)
Combined Statements of Divisional Equity for the years ended March 31, 1996
and 1997
Combined Statements of Cash Flows for the years ended December 31, 1998 and
1997 and for the three months ended March 31, 1997 and 1998 (unaudited)
Notes to Combined Financial Statements
Titan Industries, Inc.
Report of Independent Public Accountants
Balance Sheets as of June 30, 1996 and 1997
Consolidated Statements of Operations for the years ended June 30, 1996 and
1997 and for the period from July 1, 1997 to November 5, 1997
Consolidated Statements Changes in Stockholders' Equity for the years ended
June 30, 1996 and 1997 and for the period from July 1, 1997 to
November 5, 1997
Consolidated Statements of Cash Flows for the years ended June 30, 1996 and
1997 and for the period from July 1, 1997 to November 5, 1997
Notes to Consolidated Financial Statements
(b) Exhibits. The following exhibits are filed as part of this
registration statement.
Exhibit Number Description
- -------------- -----------
3(a)(i) Certificate of Incorporation of Offshore Tool & Energy
Corporation
3(a)(ii) Certificate of Amendment to Certificate of Incorporation
3(b) Second Amended and Restated Bylaws of Offshore Tool &
Energy Corporation
4 Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,
copies of the Series A Subordinated Debenture Indenture
of the Company and the Series B Junior Subordinated Note
Agreement of the Company are not being filed. The
Company agrees to furnish copies of such agreements to
the Commission upon request.
10(a)(i) Agreement and Plan of Share Exchanges dated as of
October 1, 1998 by and among Offshore Tool & Energy
Corporation, International Tool & Supply plc, Aero
International, L.L.C., and certain Aero Holders named
therein
10(a)(ii) First Amendment dated November 6, 1998 to Agreement and
Plan of Share Exchanges
10(b)(i) Loan Agreement dated as of June 30, 1998 by and among
Aero International, L.L.C.. American Aero Cranes,
L.L.C., and National Canada Finance Corp.
10(b)(ii) Acknowledgment dated April 27, 1999 under Loan Agreement
10(c) Asset Purchase Agreement dated September 18, 1997 by and
among Weatherford Enterra U.S., Limited Partnership,
Weatherford U.S., Inc. and American Aero Cranes, L.L.C.
10(d) Asset Purchase Agreement dated June 30, 1998 by and
between Titan Industries, Inc. and American Aero Cranes,
L.L.C.
32
<PAGE>
10(e) Capital Contribution Agreement dated June 30, 1998 by
and among IPC Industries, Inc., American Aero Cranes,
L.L.C. and Aero International, L.L.C.
10(f) Capital Contribution Agreement dated June 30, 1998 by
and among Mobile Pulley Marine Services, Inc., American
Aero Cranes, L.L.C. and Aero International, L.L.C.
10(g) Form of Indemnity Agreement dated November 17, 1998 by
and between Offshore Tool & Energy Corporation and each
of Robert A. Rayne, Bernard J. Duroc-Danner, McGowin I.
Patrick, Jr., Clifton C. Inge, Jr. and Byron A. Adams,
Jr. (filed pursuant to Instruction 2 to Item 601 of
Regulation S-K. All executed agreements are identical
except as to the identity of the counterparty)
10(h) Registration Rights Agreement dated November 17, 1998 by
and among Offshore Tool & Energy Corporation and IPC
Industries, Inc., Byron A. Adams, Jr., W. Steven
McKenzie and Thomas W. Pritchard
10(i) Registration Rights Agreement dated November 17, 1998 by
and between Offshore Tool & Energy Corporation and
Jefferies and Company, Inc.
10(j) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and McGowin
I. Patrick, Jr.
10(k) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and Clifton
C. Inge, Jr.
10(l) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and Byron A.
Adams, Jr.
10(m) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and W. Steven
McKenzie
10(n) Offshore Tool & Energy Corporation Stock Incentive Plan
dated November 17, 1998
10(o) Lease Agreement dated as of July 1, 1998 by and between
Industrial Development Board of Mobile County and Aero
International, L.L.C.
12 Statement re Computation of Ratios
21 List of Subsidiaries
27 Financial Data Schedule
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 30, 1999 By: /s/ McGowin I. Patrick, Jr.
-------------------------------
McGowin I. Patrick, Jr.
President and Chief Operating Officer
34
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description
- -------------- -----------
3(a)(i) Certificate of Incorporation of Offshore Tool & Energy
Corporation
3(a)(ii) Certificate of Amendment to Certificate of Incorporation
3(b) Second Amended and Restated Bylaws of Offshore Tool &
Energy Corporation
4 Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,
copies of the Series A Subordinated Debenture Indenture
of the Company and the Series B Junior Subordinated Note
Agreement of the Company are not being filed. The
Company agrees to furnish copies of such agreements to
the Commission upon request.
10(a)(i) Agreement and Plan of Share Exchanges dated as of
October 1, 1998 by and among Offshore Tool & Energy
Corporation, International Tool & Supply plc, Aero
International, L.L.C., and certain Aero Holders named
therein
10(a)(ii) First Amendment dated November 6, 1998 to Agreement and
Plan of Share Exchanges
10(b)(i) Loan Agreement dated as of June 30, 1998 by and among
Aero International, L.L.C.. American Aero Cranes,
L.L.C., and National Canada Finance Corp.
10(b)(ii) Acknowledgment dated April 27, 1999 under Loan Agreement
10(c) Asset Purchase Agreement dated September 18, 1997 by and
among Weatherford Enterra U.S., Limited Partnership,
Weatherford U.S., Inc. and American Aero Cranes, L.L.C.
10(d) Asset Purchase Agreement dated June 30, 1998 by and
between Titan Industries, Inc. and American Aero Cranes,
L.L.C.
10(e) Capital Contribution Agreement dated June 30, 1998 by
and among IPC Industries, Inc., American Aero Cranes,
L.L.C. and Aero International, L.L.C.
10(f) Capital Contribution Agreement dated June 30, 1998 by
and among Mobile Pulley Marine Services, Inc., American
Aero Cranes, L.L.C. and Aero International, L.L.C.
10(g) Form of Indemnity Agreement dated November 17, 1998 by
and between Offshore Tool & Energy Corporation and each
of Robert A. Rayne, Bernard J. Duroc-Danner, McGowin I.
Patrick, Jr., Clifton C. Inge, Jr. and Byron A. Adams,
Jr. (filed pursuant to Instruction 2 to Item
35
<PAGE>
601 of Regulation S-K. All executed agreements are
identical except as to the identity of the counterparty)
10(h) Registration Rights Agreement dated November 17, 1998 by
and among Offshore Tool & Energy Corporation and IPC
Industries, Inc., Byron A. Adams, Jr., W. Steven
McKenzie and Thomas W. Pritchard
10(i) Registration Rights Agreement dated November 17, 1998 by
and between Offshore Tool & Energy Corporation and
Jefferies and Company, Inc.
10(j) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and McGowin
I. Patrick, Jr.
10(k) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and Clifton
C. Inge, Jr.
10(l) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and Byron A.
Adams, Jr.
10(m) Employment Agreement dated November 17, 1998 by and
between Offshore Tool & Energy Corporation and W. Steven
McKenzie
10(n) Offshore Tool & Energy Corporation Stock Incentive Plan
dated November 17, 1998
10(o) Lease Agreement dated as of July 1, 1998 by and between
Industrial Development Board of Mobile County and Aero
International, L.L.C.
12 Statement re Computation of Ratios
21 List of Subsidiaries
27 Financial Data Schedule
36
<PAGE>
EXHIBIT 3(a)(i)
CERTIFICATE OF INCORPORATION OF OFFSHORE TOOL & ENERGY CORPORATION
ARTICLE 1
NAME OF CORPORATION
The name of the Corporation is Offshore Tool & Energy Corporation.
ARTICLE 2
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801. The name of the Corporation's registered agent at that
address is The Corporation Trust Company.
ARTICLE 3
PURPOSES
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law, as it may be amended from time to time.
ARTICLE 4
CAPITAL STOCK
A. General. The total number of shares which the Corporation shall have
authority to issue is One Hundred and Five Million (105,000,000) shares, of
which One Hundred Million (100,000,000) shares shall be designated as Common
Stock with a par value of $0.01 per share, and Five Million (5,000,000) shares
shall be designated as Preferred Stock with a par value of $1.00 per share.
B. Preferred Stock. The Board of Directors is expressly authorized at any
time, and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, with such voting power, full or limited, or without
voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution of
resolutions providing for the issue thereof adopted by the Board of Directors,
and as are not stated and expressed in this Certificate of Incorporation, or any
amendment thereto, including (but without limiting the generality of the
foregoing) the following: (1) the designation of and number of shares
constituting such series; (2) the dividend rate of such series, the conditions
and dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other class or
classes of capital stock or any series thereof and whether such dividends shall
be cumulative or noncumulative; (3) whether the shares of such series shall be
subject to redemption by the Corporation, and, if made subject to redemption,
the times, prices and other terms and conditions of such redemption; (4) the
terms and amount of any sinking fund provided for the purchase of redemption of
the shares of such series; (5) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes or any
other series of any class or classes of capital stock of the Corporation, and if
provision be made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange; (6)
whether or not the shares of such series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms and conditions of
such voting rights; (7) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and (8) the rights of the holder of the shares of
such series upon the liquidation, dissolution, or winding up of the Corporation.
ARTICLE 5
BOARD OF DIRECTORS
A. Powers. All of the powers of the Corporation are hereby conferred upon
the Board of Directors, insofar as such powers may be lawfully vested by this
Certificate of Incorporation. In furtherance and not in
<PAGE>
limitation of these powers, the Board of Directors shall have the power to make,
adopt, alter, amend and repeal from time to time the Corporation's Bylaws,
subject to the provisions of Article 6.
B. Number of Directors. The number of directors may be fixed from time to
time in the Corporation's Bylaws, provided that the number of directors shall
not be reduced to shorten the term of any director at the time in office.
C. Vacancies. Except as provided in Section (E) of this Article 5, any
vacancy on the Board of Directors (including any vacancy resulting from an
increase in the authorized number of directors or from a failure of the
stockholders to elect the full number of authorized directors) may,
notwithstanding any resulting absence of a quorum of directors, be filled only
by the Board of Directors, acting by a vote of a majority of all the directors,
and any director so appointed shall serve until the next stockholders' meeting
held for the election of directors and until his successor is duly elected and
qualified.
D. Removal. Subject to Section (E) of this Article 5, and notwithstanding
any other provisions of this Certificate of Incorporation or the Corporation's
Bylaws, any director or the entire Board of Directors may be removed at any time
at a stockholders' meeting called for such purpose by the affirmative vote of
holders of not less than 80% of the outstanding capital stock of the Corporation
entitled to vote generally in an election of directors, voting together as a
single class, present or represented at any such meeting. At the same meeting
in which the stockholders remove one or more directors, the stockholders may
elect a successor or successors for the unexpired term of the director or
directors removed. Except as set forth in this Article 5, Section (D),
directors shall not be subject to removal.
E. Directors Elected by Preferred Stockholders. Notwithstanding anything
in this Certificate of Incorporation to the contrary, whenever the holders of
any one or more series of Preferred Stock shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
provisions of this Certificate of Incorporation (as amended from time to time)
fixing the rights and preferences of such Preferred Stock shall govern with
respect to the nomination, election, term, removal, vacancies or other related
matters with respect to such directors.
ARTICLE 6
BYLAWS
The Bylaws of the Corporation and any provision thereof may be made,
adopted, amended or repealed only by (1) the affirmative vote of a majority of
the total number of directors who constitute the Board of Directors, or (2) the
affirmative vote of the holders of not less than 80% of the outstanding capital
stock of the Corporation entitled to vote generally in an election of directors,
voting together as a single class, present or represented at any regular or
special meeting of stockholders.
ARTICLE 7
LIMITATION OF LIABILITY AND INDEMNIFICATION
A. Limitation of Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit.
B. Authorization of Further Actions. The Board of Directors may (a) cause
the Corporation to enter into contracts with directors providing for the
limitation of liability set forth in this Article 7 to the fullest extent
permitted by law, (b) adopt Bylaws or resolutions, or cause the Corporation to
enter into contracts, providing for indemnification of directors and officers of
the Corporation and other persons (including without limitation directors and
officers of the Corporation's direct and indirect subsidiaries) to the fullest
extent permitted by law, and (c) cause the Corporation to exercise the powers
set forth in Section 145(g) of the Delaware General Corporation Law,
2
<PAGE>
notwithstanding that some or all of the members of the Board of Directors acting
with respect to the foregoing may be parties to such contracts or beneficiaries
thereof.
C. Subsidiaries. The Board of Directors may cause the Corporation to
approve for its direct and indirect subsidiaries limitation of liability and
indemnification provisions comparable to the foregoing.
D. Amendment. Any amendment or repeal of this Article 7 shall not
adversely affect any elimination or limitation of liability of a director of the
Corporation under this Article 7 with respect to any action or inaction
occurring prior to the time of such amendment or repeal. No amendment or repeal
of any Bylaw or resolution relating to indemnification shall adversely affect
any person's entitlement to indemnification whose claim thereto results from
conduct occurring prior to the date of such amendment or repeal.
ARTICLE 8
AMENDMENTS
Articles 5, 6, 7 and 8 of this Certificate of Incorporation shall not be
amended in any manner (whether by modification or repeal of an existing Article
or Articles or by addition of a new Article or Articles), except upon
resolutions adopted by the affirmative vote of holders of not less than 80% of
outstanding capital stock of the Corporation entitled to vote generally in an
election of directors, voting together as a single class, present or represented
at any regular or special meeting of stockholders; provided, however, that if
such resolutions shall first be adopted by a majority of the total number of
directors who constitute the Board of Directors then such resolutions shall be
deemed adopted by the stockholders upon the affirmative vote of holders of not
less than a majority of the outstanding capital stock of the Corporation
entitled to vote generally in an election of directors, voting as a single
class.
The name and address of the incorporator of the Corporation is as follows:
Harry M. Zimmerman, Jr.
701 Poydras Street
4500 One Shell Square
New Orleans, Louisiana 70139
The name and address of each person who is to serve as a director of the
Corporation until the first annual meeting of stockholders or until their
successors are elected and qualify are as follows:
The Hon. Robert A. Rayne
Carlton House
33 Robert Adam Street
London W1M 5AH
Bernard Duroc-Danner
5 Post Oak Road
Suite 1760
Houston, Texas 77027
McGowin I. Patrick, Jr.
300 St. Francis Street
Mobile, Alabama 36602
Clifton C. Inge, Jr.
300 St. Francis Street
Mobile, Alabama 36602
Byron A. Adams, Jr.
300 St. Francis Street
Mobile, Alabama 36602
3
<PAGE>
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this Certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this August 20, 1998.
/s/ Harry M. Zimmerman, Jr.
---------------------------
Harry M. Zimmerman, Jr.
701 Poydras Street
4500 One Shell Square
New Orleans, Louisiana 70139
4
<PAGE>
EXHIBIT 3(a)(ii)
OFFSHORE TOOL & ENERGY CORPORATION
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
(PURSUANT TO SECTION 241)
The undersigned duly authorized President of Offshore Tool & Energy
Corporation, a Delaware Corporation (the "Corporation"), hereby certifies and,
within the meaning of Section 103(b)(2) of the Delaware General Corporation Law,
acknowledges that:
1. The Corporation has not received payment for any of its stock.
2. On October 1, 1998, by the unanimous written consent of all the
directors of the Corporation, the Board of Directors of the Corporation amended
the Corporation's Certificate of Incorporation as follows:
RESOLVED, that Section D of Article 5 of the Certificate of
Incorporation of the Corporation is hereby amended in its entirety,
and hereafter Section D of Article 5 shall read in its entirety as
follows:
D. Removal. Subject to Section (E) of this Article 5, and
notwithstanding any other provisions of this Certificate of
Incorporation or the Corporation's Bylaws, any director or the
entire Board of Directors may be removed at any time at a
stockholders' meeting called for such purpose by the affirmative
vote of holders of not less than 50% of the outstanding capital
stock of the Corporation entitled to vote generally in an election
of directors, voting together as a single class, present or
represented at any such meeting. At the same meeting in which the
stockholders remove one or more directors, the stockholders may
elect a successor or successors for the unexpired term of the
director or directors removed. Except as set forth in this Article
5, Section (D), directors shall not be subject to removal.
This Certificate is made, signed and acknowledged on this 2nd day of
October, 1998 in Mobile, Alabama.
/s/ McGowin I. Patrick, Jr.
---------------------------------------
McGowin I. Patrick, Jr.
President
Offshore Tool & Energy Corporation
<PAGE>
EXHIBIT 3(b)
SECOND AMENDED AND RESTATED BYLAWS
OF
OFFSHORE TOOL & ENERGY CORPORATION
FEBRUARY 1, 1999
SECTION 1
OFFICES
1.1 REGISTERED OFFICE. The registered office of Offshore Tool & Energy
Corporation (the "Corporation") shall be in the City of Wilmington, County of
New Castle, State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Corporation's Board of
Directors may from time to time determine or the business of the Corporation may
require.
SECTION 2
MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETINGS. Annual meetings of stockholders shall be held for the
election of directors at such date, time and place either within or without the
State of Delaware as shall be designated by the Board of Directors and stated in
the notice of the meeting.
2.2 SPECIAL MEETINGS. (a) Special meetings of the stockholders for any purpose
or purposes may be called by the Chairman of the Board of Directors or upon a
vote of the majority of the Board of Directors, at such date, time and place
either within or without the State of Delaware as shall be stated in the notice
of the meeting.
(b) Except as otherwise provided in the Certificate of Incorporation or
required by applicable law, the Corporation's Secretary shall call a special
meeting of the stockholders, to be held on such date as the Secretary shall
determine, not less than 15 nor more than 60 days after the actual receipt of a
request in writing of any Beneficial Owner or Owners of at least 35% of the
Voting Stock. Such request shall set forth:
(i) a complete and accurate description of the matter not to exceed 500
words, of the action proposed to be taken at such meeting, the reasons for the
action and any material interest of the stockholder in the matter;
(ii) the name, business address and residential address of each
Beneficial Owner composing the group making the request, the number of shares of
Voting Stock of which each such person is the Beneficial Owner and the dates on
which each person acquired his or her Voting Stock;
(iii) a representation that at least one such Beneficial Owner or a
representative thereof intends to appear in person at the meeting to propose the
action specified in the request; and
(iv) if any proposed action consists of or includes a proposal to amend
either the Certificate of Incorporation or the Bylaws, the language of the
proposed amendment.
The Corporation's Secretary may require any person or persons submitting a
request to call a special meeting of stockholders to furnish such documentary
information as may be reasonably required by the Corporation to determine that
such person or persons as a group is the Beneficial Owner of at least 35% of the
Voting Stock. The Secretary may refuse to call a special meeting unless the
request is made in compliance with the foregoing procedure.
2.3 NOTICE OF STOCKHOLDER NOMINATIONS AND STOCKHOLDER BUSINESS. (a) At any
meeting of stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. Except as otherwise provided in the
Certificate of Incorporation or required by applicable law, nominations for the
election of directors
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at a meeting at which directors are to be elected or other matters to be
properly brought before any meeting of stockholders (other than any special
meeting of stockholders called pursuant to Section 2.2(b)) must be (i) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, including matters covered by Rule 14a-8 of
the Securities and Exchange Commission, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by any person who (A) has been for at least
one year the Beneficial Owner of at least 1% of any class or series of
outstanding Voting Stock entitled to be voted on the proposed business and (B)
complies with the procedures set forth below.
(b) A notice of the intent of a stockholder to make a nomination or to
bring any other matter before the meeting shall be made in writing and received
by the Corporation's Secretary not more than 270 days and not less than 60 days
in advance of the first anniversary of the preceding year's annual meeting of
stockholders or, if a special meeting or an annual meeting of stockholders
scheduled to be held either 30 days earlier or later than such anniversary date,
such notice shall be received by the Corporation's Secretary within 15 days of
the earlier of the date on which notice of such meeting is first mailed to
stockholders or public disclosure of the meeting date is made.
(c) Every such notice by a stockholder shall set forth:
(i) the name, age, business address and residential address of the
stockholder who intends to make a nomination or bring up any other matter, and
any person acting in concert with such stockholder;
(ii) the number of shares of Voting Stock of which the stockholder is
the Beneficial Owner and the dates on which such person acquired his or her
Voting Stock;
(iii) a representation that the stockholder intends to appear in person
at the meeting to make the nomination or bring up the matter specified in the
notice;
(iv) with respect to notice of an intent to make a nomination, a
description of all agreements, arrangements or understandings among the
stockholder, any person acting in concert with the stockholder, each proposed
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the stockholder;
(v) with respect to notice of an intent to make a nomination, (A) the
name, age, business address and residential address of each person proposed for
nomination, (B) the principal occupation or employment of such person, (C) the
class and number of shares of capital stock of the Corporation of which such
person is the Beneficial Owner, and (D) any other information relating to such
person that would be required to be disclosed in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had such
nominee been nominated by the Board of Directors; and
(vi) with respect to notice of an intent to bring up any other matter,
a complete and accurate description of the matter not to exceed 50 words, the
reasons for conducting such business at the meeting, and any material interest
of the stockholder in the matter.
(d) The Corporation's Secretary may require any stockholder submitting a
notice of an intent to make a nomination or bring up other business to furnish
such documentary information as may be reasonably required by the Corporation to
determine that such stockholder has been for at least one year the Beneficial
Owner of at least 1% of any class or series of outstanding Voting Stock entitled
to be voted on the proposed business.
(e) Notice of an intent to make a nomination shall be accompanied by the
written consent of each nominee to serve as a director of the Corporation if so
elected and an affidavit of each such nominee certifying that he or she meets
the qualifications necessary to serve as a director of the Corporation. The
Corporation may require any proposed nominee to furnish such other information
as may be reasonably required by the Corporation to determine the eligibility
and qualifications of such person to serve as a director.
(f) With respect to any proposal by a stockholder to bring before a meeting
any matter other than the nomination of directors, the following shall govern:
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(i) If the Corporation's Secretary has received sufficient notice of a
proposal that may properly be brought before the meeting, a proposal sufficient
notice of which is subsequently received by the Secretary and that is
substantially duplicative of the first proposal shall not be properly brought
before the meeting. If in the judgment of the Board of Directors a proposal
deals with substantially the same subject matter as a prior proposal submitted
to stockholders at a meeting held within the preceding five years, it shall not
be properly brought before any meeting held within three years after the latest
such previous submission if (A) the proposal was submitted at only one meeting
during such preceding period and it received affirmative votes representing less
than 3% of the total number of votes cast in regard thereto, (B) the proposal
was submitted at only two meetings during such preceding period and it received
at the time of its second submission affirmative votes representing less than 6%
of the total number of votes cast in regard thereto, or (C) the proposal was
submitted at three or more meetings during such preceding period and it received
at the time of its latest submission affirmative votes representing less than
10% of the total number of votes cast in regard thereto.
(ii) Notwithstanding compliance with all of the procedures set forth
above in this Section, no proposal shall be deemed to be properly brought before
a meeting of stockholders if, in the judgment of the Board of Directors, it is
not a proper subject for action by stockholders under Delaware Law.
(g) At the meeting of stockholders, the chairman shall declare out of order
and disregard any nomination or other matter that is not presented in accordance
with the foregoing procedures or that is otherwise contrary to the foregoing
terms and conditions.
(h) Nothing in this Section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement or to solicit their own proxies pursuant to the proxy rules of the
Securities and Exchange Commission.
2.4 NOTICE OF MEETING. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
shall state the place, date and time of the meeting, and the purpose or purposes
for which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given to each stockholder entitled to vote at
such meeting not less than 10 nor more than 60 days before the date of the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
2.5 STOCKHOLDER LIST. The Secretary shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, with respect to each matter considered and voted
upon at any stockholders' meeting, the holders of a majority of the outstanding
shares of each class of Capital Stock, or series thereof, entitled to vote
thereon, present in person or represented by proxy, shall constitute a quorum,
provided that two or more classes or series shall be considered a single class
if the holders thereof are entitled to vote together as a single class with
respect to such matter. If, however, a quorum shall not be present or
represented at any meeting of the stockholders (or with respect to any matter to
be considered and voted upon thereat), the holders of any class of Capital Stock
or series thereof entitled to vote thereat (or with respect to any such matter),
present in person or represented by proxy, shall have the power to adjourn the
meeting (or the vote upon such matter, without prejudice to the right of the
stockholders to vote upon any matter as to which a quorum does exist) from time
to time, without notice other than announcement at the meeting, until a quorum
shall be presented or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted that might have
been transacted at the meeting as originally notified. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the
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adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting (or with respect to such
matter).
2.7 VOTE REQUIRED. When a quorum is present with respect to any matter
considered at any meeting of stockholders, the vote of the holders of a majority
of the Voting Stock shall decide such matter, unless the matter is one upon
which by express provision of law, the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such matter.
2.8 VOTING RIGHTS OF STOCKHOLDERS. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
Voting Stock held of record by such holder. If the Certificate of Incorporation
provides for more or less than one vote for any share of Voting Stock on any
matter, every reference in these Bylaws to a majority or other proportion of
Voting Stock shall refer to such majority or other proportion of the votes of
such stock.
2.9 PROXIES. (a) Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such stockholder
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
(b) Execution of a proxy may be accomplished by a stockholder or his or her
authorized officer, director, employee or agent signing such writing or causing
his or her signature to be affixed to such writing by any reasonable means
including, without limitation, by facsimile signature. A stockholder may
authorize another person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors shall specify the information upon which they relied.
(c) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission may be substituted or used in lieu of the original
writing or transmission for any and all purposes for which the original writing
or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
(d) A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy that is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary.
2.10 UNANIMOUS WRITTEN CONSENT. Unless otherwise provided in the Certificate
of Incorporation, any action required to be taken at any annual or special
meeting of stockholders, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, by the unanimous written consent of all holders
of Capital Stock that would be entitled to vote thereon if an annual or special
meeting had been called for the taking of such action.
2.11 TREASURY STOCK. Shares of Voting Stock held in the treasury of the
Corporation shall not be deemed to be outstanding shares for the purpose of
voting or determining the presence of a quorum or the total number of shares
entitled to vote on any matter.
2.12 PRESIDING OFFICER. All meetings of stockholders shall be presided over by
the Chairman of the Board of Directors, or in his absence, by a chairman
designated by the Board of Directors. The Secretary shall act as secretary of
the meeting, or in the absence of the Secretary by an Assistant Secretary, or in
their absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
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2.13 INSPECTORS. Prior to a meeting of stockholders, the Board shall appoint
one or more inspectors to act at the meeting and make a written report thereof.
Each inspector shall take and sign an oath faithfully to execute the duties of
with strict impartiality and according to the best of his or her ability. The
inspectors shall (i) ascertain the number of shares outstanding and the voting
power of each, (ii) determine the shares represented at a meeting and the
validity of the proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and (vi) perform such other functions as the
presiding officer of the meeting shall determine. The inspectors may appoint or
retain other persons or entities to assist them in the performance of their
duties.
2.14 ADJOURNMENTS. Any annual or special meeting of stockholders may be
adjourned by the presiding officer from time to time to reconvene at the same or
some other place, and notice need not be given of any such adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 3
DIRECTORS
3.1 POWERS. The business and affairs of the Corporation shall be managed under
the direction of a Board of Directors (the "Board"), except as otherwise
provided by Delaware Law or by the Certificate of Incorporation.
3.2 NUMBER. Subject to the restriction that the number of directors shall not
be less than the number required by Delaware Law, and subject further to the
creation or lapse of directorships upon the occurrence of events specified in
the Certificate of Incorporation, the number of directors shall be fixed, from
time to time, by a resolution adopted by a majority of the directors. Until
otherwise fixed by the directors, the number of directors constituting the
entire Board shall be six. The Secretary shall have the power to certify at any
time as to the number of directors authorized.
3.3 RESIGNATION. Any director may resign at any time upon written notice to
the Chairman of the Board. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective.
3.4 NOMINATIONS. Only persons who are nominated in accordance with the
procedures set forth in Section 2.3 shall be eligible for election as directors.
Notwithstanding any provision of these Bylaws to the contrary, the provisions of
Section 2.3 shall not apply to the election of any directors which the holders
of any class or series of Preferred Stock, voting separately as a class, may be
entitled to elect.
3.5 ELECTION OF DIRECTORS. Unless otherwise provided in the Certificate of
Incorporation, at each meeting of the stockholders for the election of directors
at which a quorum is present, directors shall be elected by a plurality of the
votes of the shares of Voting Stock present in person or represented by proxy at
the meeting.
3.6 COMPENSATION. Unless otherwise restricted by the Certificate of
Incorporation or of these Bylaws, the Board shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board. The directors may be paid a stated
salary as director or a fixed sum for attendance at each meeting of the Board or
committee. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
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SECTION 4
MEETINGS OF THE BOARD
4.1 MEETINGS. The Board may hold meetings, both regular and special, either
within or without the State of Delaware.
4.2 REGULAR MEETINGS. Regular meetings of the Board may be held without notice
at such time and at such place as shall from time to time be determined by the
Board.
4.3 SPECIAL MEETINGS. Special meetings of the Board may be called by the
Chairman of the Board on two days' notice to each director, either personally or
by mail, telephone or telegram. Special meetings shall be called by the Chairman
of the Board in like manner and on like notice on the written request of at
least 25% of the directors.
4.4 QUORUM. At all meetings of the Board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board, except as may be otherwise specifically provided by law or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of the Board, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
4.5 ACTION AT MEETING. If a quorum is present when any meeting of the Board is
convened, the directors may continue to do business, taking action by vote of a
majority of a quorum as fixed in Section 4.4, until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum or the refusal of
any director present to vote.
4.6 ACTION BY CONSENT. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
4.7 MEETINGS BY TELEPHONE. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board or any committee designated
by the Board may participate in a meeting of the Board or any committee, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
4.8 PRESIDING OFFICER. The Chairman of the Board shall preside at all meetings
of the Board or, in his absence, a chairman appointed by the Board. The
Secretary or in the absence of the Secretary, an Assistant Secretary, shall act
as secretary of each meeting, but in the absence of the Secretary and an
Assistant Secretary, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
4.9 VALIDATION OF MEETING DEFECTIVELY CALLED OR NOTICED. The transactions of
any meeting of the Board, however called and noticed or wherever held, are as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a waiver of notice, a consent to holding the
meeting, or an approval of the minutes thereof.
SECTION 5
COMMITTEES OF THE BOARD
5.1 DESIGNATION OF COMMITTEES. The Board may, by resolution passed by a
majority of the directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not
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disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
5.2 AUTHORITY OF COMMITTEES. Any such committee shall have those powers of the
Board in the management of the business and affairs of the Corporation provided
in the resolution of the Board designating such committee, provided that no such
committee shall have the power or authority to propose amendments to the
Certificate of Incorporation, adopt an agreement of merger or consolidation,
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property or assets, recommend to the
stockholders a dissolution of the Corporation or a revocation or a dissolution,
or amend these Bylaws.
5.3 MINUTES. Each committee shall keep regular minutes of its meetings and
report the same to the Board when required.
5.4 COMPENSATION COMMITTEE. The Board shall establish and maintain a
Compensation Committee consisting of two or more directors, each of whom (i)
shall be qualified to the extent appropriate as a "non-employee director" under
Rule 16b-3 of the Securities Exchange Commission and as an "outside director"
under Section 162(m) of the Internal Revenue Code and (ii) shall meet any
further qualifications designated by the Board. The Compensation Committee
shall review and analyze the compensation of the Corporation's executive
officers; review and provide general guidance as to compensation of the
Corporation's other managers; evaluate the performance of the Corporation's
executive officers; administer the Corporation's incentive compensation plan or
plans, including grants thereunder; and perform such other services as may be
designated by the Board.
5.5 AUDIT COMMITTEE. The Board shall establish an Audit Committee consisting
of at least two directors, a majority of whom are not officers or employees of
the Corporation or of any of its affiliates. The Audit Committee shall (i)
facilitate communication among the Corporation's directors, management,
independent accountants and internal auditing personnel regarding matters
relating to financial accounting, reporting and controls, (ii) assist the Board
of Directors in fulfilling its fiduciary responsibilities as to accounting
policies and reporting practices of the Corporation and all subsidiaries and the
sufficiency of auditing practices and procedures and system of internal
accounting controls and reporting to the Board with respect thereto, (iii)
operate as the Board's principal agent in ensuring the independence of the
Corporation's independent accountants, the integrity of management and the
adequacy of disclosure to shareholders, and (iv) perform such other services as
may be designated by the Board.
SECTION 6
NOTICES
6.1 FORM OF NOTICE. Unless provided otherwise by law, the Certificate of
Incorporation or these Bylaws, any notice that is required to be given to
stockholders shall be given in writing, by mail, addressed to such stockholder,
at his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to directors may
be given in like manner or may be given by telephone or facsimile transmission
or by sending the same by national commercial courier service for next-day
delivery.
6.2 WAIVER. Whenever any notice is required to be given under law, the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
SECTION 7
OFFICERS
7.1 GENERAL. The officers of the Corporation shall be chosen by the Board at
its first meeting after each annual meeting of stockholders and shall be a
President, a Secretary and a Treasurer. The Board may also choose one or more
Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or the Bylaws otherwise provide.
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7.2 OTHER OFFICERS. The Board may appoint such other officers and agents as it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
7.3 COMPENSATION. The salaries of all officers and agents of the Corporation
shall be fixed by the Board.
7.4 TERM. The officers of the Corporation shall hold office until their
successors are chosen and qualify. Subject to such obligations of the
Corporation as may exist under any contract of employment, any officer elected
or appointed by the Board may be removed at any time by the President or by the
affirmative vote of a majority of the Continuing Directors. Any vacancy
occurring in any office of the Corporation shall be filled by the Board.
7.5 CHAIRMAN OF THE BOARD. The Board may appoint a Chairman of the Board who
shall preside at meetings of the Board of Directors and the stockholders and
perform such other duties as may be designated by the Board of Directors or
these Bylaws. The Chairman of the Board shall not, solely by virtue of such
position, be an officer of the Corporation.
7.6 PRESIDENT. The President shall have the general powers, duties and
responsibilities of supervision and management inherent in such office as well
as such additional powers and duties as the Board may from time to time
prescribe. The President shall control and direct the Corporation's business
and, except as the Board may otherwise direct, shall supervise, direct and
control the management and daily operations of the business of the Corporation
and have general charge of the Corporation's property and supervision over the
Corporation's officers, employees and agents. At the request of the Chairman of
the Board, or in his absence or during his disability, the President shall
perform the duties and exercise the functions of the Chairman of the Board.
Except as the Board may otherwise authorize, the President shall execute bonds,
mortgages and any other contracts of any nature on behalf of the Corporation.
7.7 VICE PRESIDENTS. In the absence of the President or in the event of his
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated by the
Board, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board may from time to time prescribe.
7.8 SECRETARY. The Secretary shall attend all meetings of the Board and all
meetings of the stockholders and record all the proceedings of the meetings of
the Corporation and of the Board in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the Board, and shall perform such other duties as may be prescribed
by the Board or President, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
7.9 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more than
one, the Assistant Secretaries in the order determined by the Board (or if there
be no such determination, then in the order of their election) shall, in the
absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.
7.10 TREASURER. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board. He shall disburse the
funds of the Corporation as may be ordered by the Board, taking proper vouchers
for such disbursements, and shall render to the President and the Board, at its
regular meetings, or when the Board so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation. If
required by the Board, he shall give the Corporation a bond (which shall be
renewed every six years)
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in such sum and with such surety or sureties as shall be satisfactory to the
Board for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
7.11 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be more
than one, the Assistant Treasurers in the order determined by the Board (or if
there be no such determination, then in the order of their election) shall, in
the absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.
SECTION 8
STOCK
8.1 CERTIFICATED OR UNCERTIFICATED. The shares of the Corporation shall be
uncertificated or shall be represented by certificates signed in the name of the
Corporation by the Chairman of the Board or the President or a Vice President
and by the Secretary or an Assistant Secretary of the Corporation. Upon the face
or back of each stock certificate issued to represent any partly paid shares, or
upon the books and records of the Corporation in the case of uncertificated
partly paid shares, shall be set forth the total amount of the consideration to
be paid therefor and the amount paid thereon shall be stated.
8.2 SUMMARY OF RIGHTS. The powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
of each class of stock, and of each series of any class, and the qualifications,
limitations or restrictions of such preferences and rights shall be set forth in
full or summarized on the face or back of the certificate that the Corporation
shall issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of Delaware Law, or in any act amending,
supplementing or substituted for such section, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and rights.
8.3 NOTICE TO HOLDERS OF UNCERTIFICATED STOCK. Within a reasonable time after
the issuance or transfer of uncertificated stock, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to Sections 151,
156, 202(a) or 218(a) of Delaware Law or a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights.
8.4 FACSIMILE SIGNATURES. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES. The Board may direct a new certificate or certificates
or uncertificated shares to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the Board may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
8.6 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty
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of the Corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books. Upon
receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
8.7 TRANSFER OF EXEMPT OFFERING STOCK. The Board shall refuse to register any
transfer of stock of the Company sold without registration under the Securities
Act of 1933, as amended ("Act"), (i) pursuant to Regulation S of the Securities
and Exchange Commission ("Commission"), not made in accordance with the
provisions of Regulation S, pursuant to registration under the Securities Act,
or pursuant to an available exemption from registration, or (ii) pursuant to
Regulation D of the Commission, not made pursuant to registration under the
Securities Act or pursuant to an available exemption from registration.
8.8 REGISTERED STOCKHOLDERS. Except as otherwise provided by law, the
Corporation, and its directors, officers and agents, may recognize and treat a
person registered on its records as the owner of shares, as the owner in fact
thereof for all purposes, and as the person exclusively entitled to have and to
exercise all rights and privileges incident to the ownership of such shares, and
rights under this Section 8.7 shall not be affected by any actual or
constructive notice that the Corporation, or any of its directors, officers or
agents, may have to the contrary.
SECTION 9
INDEMNIFICATION
9.1 INDEMNITY. (a) Except with respect to an action or Claim (other than as
authorized in Section 9.2) commenced by an Indemnitee against the Corporation or
by an Indemnitee as a derivative action by or in the right of the Corporation
that has not been authorized by the Board, the Corporation shall indemnify,
defend and hold harmless any Indemnitee against Expenses reasonably incurred or
suffered in connection with any Claim against Indemnitee, whether the basis of
such Claim is alleged action or inaction in an official or other capacity while
serving as a director or officer of the Corporation or while serving at the
request of the Corporation as a director, officer or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise or an
employee benefit plan of the Corporation (including appearances as a witness or
in connection with giving testimony or evidence), if:
(i) the Indemnitee is successful in his defense of the Claim on the
merits or otherwise, or
(ii) the Indemnitee has been found by the Determining Body to have met
the Standard of Conduct (as determined in accordance with the procedures set
forth in this Section 9.1), provided that no indemnification shall be made in
respect of any Claim by or in the right of the Corporation as to which
Indemnitee shall have been adjudicated in a final judgment to be liable to the
Corporation, unless, and only to the extent that the court in which such Claim
was brought shall determine upon application that, despite such adjudication of
liability but in view of all the circumstances of the case, Indemnitee is fairly
and reasonably entitled to indemnity for such Expenses which the court shall
deem proper.
(b) For purposes of this Section 9, the "Standard of Conduct" is met when
conduct by an Indemnitee with respect to which a Claim is asserted was conduct
performed in good faith which he reasonably believed to be in, or not opposed
to, the best interest of the Corporation, and, in the case of a Claim which is a
criminal action or proceeding, conduct that the Indemnitee had no reasonable
cause to believe was unlawful. The termination of any Claim by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not meet the
Standard of Conduct.
(c) Promptly upon becoming aware of the existence of any Claim as to which
Indemnitee may be indemnified hereunder, Indemnitee shall notify the Chairman of
the Board of the Corporation, but the failure to promptly notify the Chairman of
the Board shall not relieve the Corporation from any obligation under this
Section 9. Upon receipt of such request, the Chairman of the Board shall
promptly advise the members of the Board of the request and that the
establishment of a Determining Body with respect to Indemnitee's request for
indemnification as to the Claim will be presented at the next regularly
scheduled meeting of the Board. If a meeting of the Board is not regularly
scheduled within 90 calendar days of the date the Chairman of the Board receives
notice of the Claim, the
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Chairman of the Board shall cause a special meeting of the Board of Directors to
be called within such period in accordance with the provisions of the Bylaws.
After the Determining Body has been established, the Determining Body shall
inform the Indemnitee of the constitution of the Determining Body and Indemnitee
shall provide the Determining Body with all facts relevant to the Claim known to
such Indemnitee, and deliver to the Determining Body all documents relevant to
the Claim in Indemnitee's possession. Before the 60th day after its receipt from
the Indemnitee of such information (the "Determination Date"), together with
such additional information as the Determining Body may reasonably request of
Indemnitee prior to such date (the receipt of which shall not begin a new 60-day
period) the Determining Body shall determine whether or not Indemnitee has met
the Standard of Conduct and shall advise Indemnitee of its determination. If
Indemnitee shall have supplied the Determining Body with all relevant
information, including all additional information reasonably requested by the
Determining Body, any failure of the Determining Body to make a determination by
or on the Determination Date as to whether the Standard of Conduct was met shall
be deemed to be a determination that the Standard of Conduct was met by
Indemnitee.
(d) If at any time during the 60-day period ending on the Determination
Date, Indemnitee becomes aware of any relevant facts not theretofore provided by
him to the Determining Body, Indemnitee shall inform the Determining Body of
such facts, unless the Determining Body has obtained such facts from another
source. The provision of such facts to the Determining Body shall not begin a
new 60 day period.
(e) The Determining Body shall have no power to revoke a determination that
Indemnitee met the Standard of Conduct unless Indemnitee (i) submits to the
Determining Body at any time during the 60 days prior to the Determination Date
fraudulent information, (ii) fails to comply with the provisions of Section
9.1(d), or (iii) intentionally fails to submit information or documents relevant
to the Claim reasonably requested by the Determining Body prior to the
Determination Date.
(f) In the case of any Claim not involving any threatened or pending
criminal proceeding:
(i) if prior to the Determination Date the Determining Body has
affirmatively made a determination that Indemnitee met the Standard of Conduct
(not including a determination deemed to have been made by inaction), the
Corporation may, in its sole discretion, after notice to Indemnitee, assume all
responsibility for the defense of the Claim with counsel satisfactory to
Indemnitee (who shall not, except with the written consent of Indemnitee, be
counsel to the Corporation), and, in any event, the Corporation and the
Indemnitee each shall keep the other informed as to the progress of the defense
of the Claim, including prompt disclosure of any proposals for settlement;
provided that if the Corporation is a party to the Claim and Indemnitee
reasonably determines that there is any conflict between the positions of the
Corporation and Indemnitee, with respect to the Claim or otherwise, then
Indemnitee shall be entitled to conduct his defense with counsel of his choice
at the Corporation's expense in accordance with the terms and conditions of this
Section 9; and provided further that Indemnitee shall in any event be entitled
at his expense to employ counsel chosen by him to participate in the defense of
the Claim; and
(ii) The Corporation shall not be obligated to indemnify Indemnitee for
any amount paid in a settlement that the Corporation has not approved. The
Corporation shall fairly consider any proposals by Indemnitee for settlement of
the Claim. If the Corporation proposes a settlement of the Claim and such
settlement is acceptable to the person asserting the Claim, or the Corporation
believes a settlement proposed by the person asserting the Claim should be
accepted, it shall inform Indemnitee of the terms of such proposed settlement
and shall fix a reasonable date by which Indemnitee shall respond. If Indemnitee
agrees to such terms, he shall execute such documents as shall be necessary to
make final the settlement. If Indemnitee does not agree with such terms,
Indemnitee may proceed with the defense of the Claim in any manner he chooses,
provided that if Indemnitee is not successful on the merits or otherwise, the
Corporation's obligation to indemnify such Indemnitee as to any Expenses
incurred following his disagreement shall be limited to the lesser of (A) the
total Expenses incurred by Indemnitee following his decision not to agree to
such proposed settlement or (B) the amount that the Corporation would have paid
pursuant to the terms of the proposed settlement.
(g) In the case of any Claim involving a proposed, threatened or pending
criminal proceeding, Indemnitee shall be entitled to conduct the defense of the
Claim with counsel of his choice and to make all decisions with respect thereto;
provided, that the Corporation shall not be obliged to indemnify Indemnitee for
any amount paid in settlement of such a Claim unless the Corporation has
approved such settlement.
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(h) After notifying the Corporation of the existence of a Claim in
accordance with Section 9.1(c), Indemnitee may from time to time request the
Corporation to pay the Expenses (other than judgments, fines, penalties or
amounts paid in settlement) that he incurs in pursuing a defense of the Claim
prior to the time that the Determining Body determines whether the Standard of
Conduct has been met. The Disbursing Officer shall pay to Indemnitee the amount
requested (regardless of Indemnitee's apparent ability to repay such amount)
upon receipt of an undertaking by or on behalf of Indemnitee to repay such
amount along with any other amounts advanced or paid after the Determination
Date in accordance with the provisions of this Section 9.1, if (i) the
Determining Body determines prior to the Determination Date that Indemnitee did
not meet the Standard of Conduct or (ii) Indemnitee is prohibited from being
indemnified by the Corporation by virtue of the provisions of Delaware Law.
(i) After it has been determined that the Standard of Conduct has been
met, for so long as and to the extent that the Corporation is required to
indemnify Indemnitee under this Section 9, the provisions of Section 9.1(h)
shall continue to apply with respect to Expenses incurred after such time except
that (i) no undertaking shall be required of Indemnitee and (ii) the Disbursing
Officer shall pay to Indemnitee the amount of any fines, penalties or judgments
against him that have become final and for which he is entitled to
indemnification hereunder, and any amount of indemnification ordered to be paid
to him by a court.
(j) Any determination by the Corporation with respect to settlement of a
Claim shall be made by the Determining Body.
(k) All determinations and judgments made by the Determining Body hereunder
shall be made in good faith.
(l) The Corporation and Indemnitee shall keep confidential to the extent
permitted by law and their fiduciary obligations all facts and determinations
provided pursuant to or arising out of the operation of this Section 9 and the
Corporation and Indemnitee shall instruct its or his agents and employees to do
likewise.
9.2 ENFORCEMENT. The rights provided by this Section 9 shall be enforceable by
Indemnitee in any court of competent jurisdiction. If Indemnitee seeks a
judicial adjudication of his rights under this Section 9, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all Expenses actually and reasonably incurred by
him in connection with such proceeding but only if he prevails therein. If it
shall be determined that Indemnitee is entitled to receive part but not all of
the relief sought, then the Indemnitee shall be entitled to be reimbursed for
all Expenses incurred by him in connection with such judicial adjudication if
the amount to which he is determined to be entitled exceeds 50% of the amount of
his claim. Otherwise, the Expenses incurred by Indemnitee in connection with
such judicial adjudication shall be appropriately prorated.
9.3 REFORMATION. If any provision of this Section 9 is determined by a court
having jurisdiction over the matter to violate or conflict with applicable law,
the court shall be empowered to modify or reform such provision so that, as
modified or reformed, such provision provides the maximum indemnification
permitted by Delaware Law, and such provision, as so modified or reformed, and
the balance of this Section 9 shall be applied in accordance with their terms.
Without limiting the generality of the foregoing, if any portion of this Section
9 shall be invalidated on any ground, the Corporation shall nevertheless
indemnify an Indemnitee to the full extent permitted by any applicable portion
of this Section 9 that shall not have been invalidated and to the full extent
permitted by law with respect to that portion that has been invalidated.
9.4 SUCCESSORS AND ASSIGNS. This Section 9 shall be binding upon the
Corporation, its successors and assigns, and shall inure to the benefit of the
Indemnitee's heirs, administrators, executors, personal representatives and
assigns and to the benefit of the Corporation, its successors and assigns.
9.5 AMENDMENTS. No amendment to or modification of this Section 9 or any
portion hereof shall limit any Indemnitee's entitlement to indemnification in
accordance with the provisions hereof with respect to any acts or omissions of
Indemnitee which occur or accrue prior to such amendment or modification.
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9.6 CONTRIBUTION. If the indemnity provided for in this Section 9 is for any
reason unavailable or insufficient to hold harmless an Indemnitee with respect
to any Expenses, the Corporation shall make a contribution to the Indemnitee for
such liabilities to which the Indemnitee may be subject in such proportion as is
appropriate to reflect the intent of this Section 9.
9.7 RELIANCE. Each person who is serving as an Indemnitee shall be deemed to
be doing so in reliance upon the indemnification provided for in this Section 9.
The rights of an Indemnitee hereunder shall be contract rights and shall vest in
the Indemnitee upon the occurrence of the event, or the first event in a chain
of events, giving rise to such Claim; provided that the adoption of the Bylaws
shall not affect any right or obligation of the Corporation or of any Indemnitee
which existed prior to such adoption.
9.8 NONEXCLUSIVITY. (a) The rights conferred herein on any person shall (i)
be severable, (ii) not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, certificate of incorporation,
contract or other agreement, authorization of stockholders or disinterested
directors or otherwise, and (iii) continue as to an Indemnitee who has ceased to
serve on behalf of the Corporation in respect of all claims arising out of
action (or inaction) occurring prior to such time.
(b) It is the intent of the Corporation to indemnify and hold harmless
Indemnitee to the fullest extent permitted by Delaware Law, as such law exists
or may be amended after the date the Bylaws are adopted, but, in the case of any
such amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than Delaware Law permitted prior to the
amendment, notwithstanding any provision in Section 9 to the contrary.
9.9 INSURANCE. The Corporation may procure or maintain insurance or other
similar arrangement on behalf of any Indemnitee or any person who is or was an
employee or agent of the Corporation, or is serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against or
incurred by him in his capacity as such, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of Delaware Law. Without limiting the power
of the Corporation to procure or maintain any other kind of insurance or similar
arrangement, the Corporation may create a trust fund or other form of self-
insurance arrangement for the benefit of any Indemnitee or such other person to
the fullest extent authorized by Delaware Law.
SECTION 10
GENERAL PROVISIONS
10.1 FIXING RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express unanimous consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect to any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix in advance a record date
which shall not be more than 60 nor less than ten days before the date of such
meeting, nor more than 60 days prior to any other action. Except as otherwise
provided in the Bylaws, a determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting, provided, however, that the Board may fix a new record date for
the adjourned meeting.
10.2 DIVIDENDS. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive to
the interest of the Corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
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10.3 CHECKS. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
10.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board.
10.5 SEAL. The corporate seal shall have inscribed thereon the name of the
Corporation and shall be in such form as may be approved from time to time by
the incorporator, or, after the appointment of directors, the Board of
Directors. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
SECTION 11
DEFINITIONS
The following terms, for all purposes of the Bylaws, shall have the following
meaning:
"Affiliate" or "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended (the term "registrant" in such
Rule 12b-2 meaning in this case the Corporation); provided, however, that in no
event shall the Corporation, any of its Subsidiaries, any employee benefit plan
or any of the other persons or entities exempted from the definition of
Interested Stockholder as provided in the Certificate of Incorporation be deemed
to be an Affiliate or Associate of any Interested Stockholder.
A person shall be deemed to be the "Beneficial Owner" of any shares of
Capital Stock (regardless whether owned of record):
(1) Which that person or any of its Affiliates or Associates, directly or
indirectly, owns beneficially;
(2) Which such person or any of its Affiliates or Associates has (A) the
right to acquire (whether exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement or
understanding; or
(3) Which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of voting capital stock of the Corporation or
any Subsidiaries.
"Capital Stock" means any Common Stock, Preferred Stock or other shares of
capital stock of the Corporation.
"Certificate of Incorporation" shall mean the certificate of incorporation
of the Corporation, as it may be amended from time to time.
"Claim" shall mean any threatened, pending or completed claim, action, suit
or proceeding, including appeals, whether civil, criminal, administrative or
investigative and whether made judicially or extra- judicially, including any
action by or in the right of the Corporation, or any separate issue or matter
therein, as the context requires.
"Common Stock" shall mean the common stock of the Corporation, as provided
for in the Certificate of Incorporation.
"Delaware Law" shall mean the General Corporation Law of the State of
Delaware.
"Determining Body" shall mean (i) those members of the Board of Directors
who do not have a direct or indirect interest the Claim for which
indemnification is being sought ("Impartial Directors"), if there are at least
two Impartial Directors, (ii) a committee of at least two Impartial Directors
appointed by the Board or a duly authorized
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committee thereof (regardless of whether the directors voting on such
appointment are Impartial Directors) and composed of Impartial Directors or
(iii) if there are fewer than two Impartial Directors or if the Board or a duly
authorized committee thereof so directs (regardless whether the members thereof
are Impartial Directors), independent legal counsel, which may be the regular
outside counsel of the Corporation, as determined by the Impartial Directors or,
if no such directors exist, the full Board.
"Disbursing Officer" shall mean the Treasurer of the Corporation or, if the
Treasurer has a direct or indirect interest in the Claim for which
indemnification is being sought, any officer who does not have such an interest
and who is designated by the Chairman of the Board to be the Disbursing Officer
with respect to indemnification requests related to the Claim, which designation
shall be made promptly after receipt of the initial request for indemnification
with respect to such Claim.
"Expenses" shall mean any expenses or costs, including, without limitation,
attorney's fees, judgments, punitive or exemplary damages, fines, excise taxes
or amounts paid in settlement.
"Indemnitee" shall mean any person who is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, employee
benefit plans of the Corporation).
"Preferred Stock" shall mean the preferred stock of the Corporation, as
provided for in the Certificate of Incorporation.
"Subsidiary" means any corporation, partnership or other entity of which
the Corporation, directly or indirectly, owns voting stock or similar interests
having a majority of the votes entitled to be cast.
"Voting Stock" means the outstanding shares of Capital Stock entitled to
vote generally in an election of directors.
SECTION 12
AMENDMENTS
The Corporation's Bylaws may be altered, amended, or repealed or new Bylaws
may be adopted as provided in the Corporation's Certificate of Incorporation.
CERTIFICATE
These Amended and Restated Bylaws were adopted by the Board of Directors of
the Company on February 1, 1999.
ATTEST: /s/ McGowin I. Patrick, Jr.
---------------------------
President
/s/ William L. Wann, Jr.
- ------------------------
Secretary
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EXHIBIT 10(a)(i)
AGREEMENT AND PLAN OF SHARE EXCHANGES
DATED AS OF OCTOBER 1, 1998
BY AND AMONG
OFFSHORE TOOL & ENERGY CORPORATION
a Delaware corporation
and
INTERNATIONAL TOOL & SUPPLY PLC
an English corporation
and
AERO INTERNATIONAL, L.L.C.
a Louisiana limited liability company
and
CERTAIN AERO HOLDERS
named herein
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS................................................. 1
Section 1.1 Definitions.............................................. 1
ARTICLE II - FORMATION OF HOLDING COMPANY............................... 10
Section 2.1 Formation of Holding Company............................. 10
Section 2.2 Engagement of Counsel, Accountants and Advisors.......... 11
ARTICLE III - TRANSACTION EXPENSES...................................... 13
Section 3.1 Transaction Expenses and Transaction Expense Shares...... 13
Section 3.2 Accounting for Transaction Expenses...................... 13
Section 3.3 Reimbursement of Transaction Expenses.................... 13
ARTICLE IV - CLOSING MATTERS; EFFECTIVE TIME AND RESCISSION............. 13
Section 4.1 Closing.................................................. 13
Section 4.2 ITS Share Exchange....................................... 13
Section 4.3 Aero Share Exchange...................................... 14
Section 4.4 Closing Deliveries....................................... 15
ARTICLE V - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES...... 16
Section 5.1 Conditions to the Obligations of Each of the Parties..... 16
Section 5.2 Additional Conditions to the Obligations of ITS PLC...... 17
Section 5.3 Additional Conditions to the Obligations of Aero......... 17
Section 5.4 Additional Conditions to the Obligations of the
Holding Company......................................... 18
Section 5.5 Additional Conditions to the Obligations of the
Aero Holders............................................ 19
ARTICLE VI - COVENANTS AND AGREEMENTS RELATING TO PRE-CLOSING PERIOD.... 19
Section 6.1 ITS Securities Holders Approvals......................... 19
Section 6.2 Best Efforts............................................. 19
Section 6.3 Corporate Status......................................... 19
Section 6.4 Status of Limited Liability Company...................... 20
Section 6.5 Access to Information.................................... 20
Section 6.6 Conduct of Businesses of ITS PLC and the Constituent
Companies............................................... 20
Section 6.7 Delivery of Financial Statements......................... 22
Section 6.8 Consents................................................. 22
Section 6.9 Public Statements........................................ 22
Section 6.10 Update of Disclosure..................................... 22
Section 6.11 Employee Benefit Contributions........................... 22
Section 6.12 Lock-up; No Shopping, Solicitations or Competing
Negotiations............................................ 23
Section 6.13 Compliance with Securities Act........................... 23
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF ITS PLC................. 23
Section 7.1 Organization and Good Standing........................... 23
Section 7.2 Capitalization of ITS PLC and the ITS Subsidiaries....... 25
Section 7.3 Subsidiaries; Investments................................ 28
Section 7.4 Execution and Effect of Agreement........................ 28
Section 7.5 Restrictions............................................. 28
Section 7.6 Consents................................................. 28
Section 7.7 ITS Securities Holders Approvals......................... 28
Section 7.8 ITS Financial Statements................................. 28
Section 7.9 Holding Company.......................................... 29
Section 7.10 Debt..................................................... 29
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Section 7.11 Guarantees............................................... 29
Section 7.12 No Undisclosed Liabilities............................... 29
Section 7.13 Litigation............................................... 29
Section 7.14 Properties; Absence of Encumbrances...................... 30
Section 7.15 Accounts Receivable...................................... 30
Section 7.16 Inventory................................................ 30
Section 7.17 Condition and Sufficiency of Assets...................... 30
Section 7.18 Intellectual Property.................................... 31
Section 7.19 Material Contracts....................................... 31
Section 7.20 Employee Benefits and Employment Matters................. 32
Section 7.21 Tax Matters.............................................. 34
Section 7.22 Environmental Matters.................................... 35
Section 7.23 Compliance with Laws..................................... 36
Section 7.24 Licenses and Permits..................................... 36
Section 7.25 Insurance................................................ 36
Section 7.26 Extraordinary Transactions............................... 36
Section 7.27 Books and Records........................................ 37
Section 7.28 Broker and Finder Fees................................... 37
Section 7.29 Adequate Disclosure...................................... 37
Section 7.30 No Adverse Change or Conditions.......................... 37
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF AERO................... 37
Section 8.1 Organization and Good Standing........................... 37
Section 8.2 Capitalization of Aero................................... 38
Section 8.3 Subsidiaries; Investments................................ 38
Section 8.4 Execution and Effect of Agreement........................ 38
Section 8.5 Restrictions............................................. 38
Section 8.6 Consents................................................. 39
Section 8.7 Aero Financial Statements................................ 39
Section 8.8 Debt..................................................... 39
Section 8.9 Guarantees............................................... 39
Section 8.10 No Undisclosed Liabilities............................... 39
Section 8.11 Litigation............................................... 40
Section 8.12 Properties; Absence of Encumbrances...................... 40
Section 8.13 Accounts Receivable...................................... 40
Section 8.14 Inventory................................................ 40
Section 8.15 Condition and Sufficiency of Assets...................... 41
Section 8.16 Intellectual Property.................................... 41
Section 8.17 Material Contracts....................................... 41
Section 8.18 Employee Benefits and Employment Matters................. 42
Section 8.19 Tax Matters.............................................. 43
Section 8.20 Environmental Matters.................................... 45
Section 8.21 Compliance with Laws..................................... 45
Section 8.22 Licenses and Permits..................................... 46
Section 8.23 Insurance................................................ 46
Section 8.24 Extraordinary Transactions............................... 46
Section 8.25 Books and Records........................................ 46
Section 8.26 Broker and Finder Fees................................... 47
Section 8.27 Adequate Disclosure...................................... 47
Section 8.28 No Adverse Change or Conditions.......................... 47
ARTICLE IX - REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY...... 47
Section 9.1 Organization and Good Standing........................... 47
Section 9.2 Authorized Capital Stock................................. 47
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Section 9.3 Subsidiaries; Investments................................ 48
Section 9.4 Execution and Effect of Agreement........................ 48
Section 9.5 Restrictions............................................. 48
Section 9.6 Consents................................................. 49
Section 9.7 Litigation............................................... 49
Section 9.8 Loans.................................................... 49
Section 9.9 Broker and Finder Fees................................... 49
Section 9.10 Adequate Disclosure...................................... 49
Section 9.11 Business of the Holding Company.......................... 49
ARTICLE X - REPRESENTATIONS AND WARRANTIES OF EACH AERO HOLDER.......... 50
Section 10.1 Ownership and Status of Member Interests................. 50
Section 10.2 Execution and Effect of Agreement........................ 50
Section 10.3 Restrictions............................................. 50
Section 10.4 Consents................................................. 50
Section 10.5 Litigation............................................... 50
Section 10.6 Broker and Finder Fees................................... 51
Section 10.7 Adequate Disclosure...................................... 51
Section 10.8 Investment Intent........................................ 51
Section 10.9 Accredited Investor...................................... 51
ARTICLE XI - TERMINATION OF AGREEMENT................................... 51
Section 11.1 Termination.............................................. 51
Section 11.2 Effects of Termination of Agreement...................... 52
Section 11.3. Liability of ITS PLC Following Transfer of Assets........ 52
ARTICLE XII - OTHER COVENANTS AND AGREEMENTS OF THE PARTIES............. 52
Section 12.1 Confidentiality.......................................... 52
Section 12.2 Maintenance of Indemnity Provisions in Charters and
Operating Agreements.................................... 53
Section 12.3 Limited Liability Company Tax Matters.................... 53
ARTICLE XIII - MISCELLANEOUS............................................ 54
Section 13.1 Entire Agreement......................................... 54
Section 13.2 Amendment and Waiver..................................... 54
Section 13.3 Binding Agreement and Successors......................... 54
Section 13.4 Assignment............................................... 54
Section 13.5 No Third Party Beneficiaries............................. 54
Section 13.6 Closing Committee........................................ 54
Section 13.7 Aero Holders Representative.............................. 55
Section 13.8 Survival................................................. 55
Section 13.9 Effect of Due Diligence.................................. 55
Section 13.10 Notices.................................................. 55
Section 13.11 Further Assurances....................................... 56
Section 13.12 Articles and Section Headings............................ 56
Section 13.13 Governing Law............................................ 56
Section 13.14 Construction............................................. 56
Section 13.15 Counterparts............................................. 56
Section 13.16 Time of the Essence...................................... 56
Section 13.17 Enforcement of the Agreement............................. 56
Section 13.18 Severability............................................. 57
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SCHEDULES
Schedule 1.1 Aero Employees
Schedule 4.3.2 Aero Exchange Consideration
Schedule 6.6(g) Payments of Debt
Schedule 6.6(i) Dividends
Schedule 6.6(j) Asset Sales
Schedule 6.6(k) Material Contracts
Schedule 10.1 Aero Membership Interests
EXHIBITS
Exhibit A Certificate of Incorporation of the Holding Company
Exhibit B Form of Bylaws of the Holding Company
Exhibit C Form Series A Subordinated Debenture Indenture
Exhibit D Form of Series B Junior Subordinated Note Agreement
Exhibit E Form of Series A Increasing Warrants
Exhibit F Form of Series B Warrants
Exhibit G Form of Aero Exchange Notes
Exhibit H Forms of Employment Agreements
Exhibit I Form of Registration Rights Agreement
Exhibit J Form of Indemnity Agreements
Exhibit K Form of Section 110 Agreement
Exhibit L Irrevocable Undertakings
Exhibit M(1) Form of First EGM Proposals
Exhibit M(2) Form of Second EGM Proposals
Exhibit M(3) Form of ITS Warrantholders Meeting Proposals
Exhibit N Form of ITS PLC Officer's Certificate
Exhibit O Form of ITS PLC Secretary's Certificate
Exhibit P Form of Holding Company Officer's Certificate
Exhibit Q Form of Aero Officer's Certificate
Exhibit R Form of Aero Holder's Certificate
Exhibit S Series A Subordinated Debenture Subscription Agreements
Exhibit T Forms of Closing Legal Opinions
Exhibit U Form of Deed of Undertaking and Indemnity
Exhibit V Form of Stock Incentive Plan
Exhibit W Form of U.S. Person Certificate
Exhibit X Form of Non-U.S. Person Certificate
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AGREEMENT AND PLAN OF SHARE EXCHANGES
THIS AGREEMENT AND PLAN OF SHARE EXCHANGES (together with the Schedules and
Exhibits hereto, hereinafter referred to as this "Agreement") is made and
entered into as of the 1st day of October, 1998, by and among OFFSHORE TOOL &
ENERGY CORPORATION, a Delaware corporation (the "Holding Company"),
INTERNATIONAL TOOL AND SUPPLY PLC, an English corporation ("ITS PLC"), AERO
INTERNATIONAL, L.L.C., a Louisiana limited liability company ("Aero"), and the
persons and entities listed on the signature page hereof under the caption "AERO
HOLDERS" (collectively, the "Aero Holders", and each of such persons,
individually, an "Aero Holder"). Certain capitalized terms used herein without
definition shall have the meanings given to such terms in Article I.
EXPLANATORY STATEMENT:
1. ITS PLC is the holder of all of the issued and outstanding capital stock of
(a) ITS Investments Inc., a Texas corporation ("ITS Investments"), which is the
holder, directly and indirectly, of all the issued and outstanding capital stock
of New London Acquisition Company, a Delaware corporation, New London (WSI)
Inc., a Delaware corporation, New London Oil Inc., a Delaware corporation, ITS
(US) Holdings, Inc., a Delaware corporation, ITS Supply & Logistics Inc., a
Delaware corporation, ITS Drilling Services Inc., a Delaware corporation, ITS
Environmental Services Inc., a Delaware corporation, ITS Engineered Systems
Inc., a Delaware corporation, and ITS Water Technologies Inc., a Delaware
corporation (the "ITS Investments Subsidiaries") and (b) ITS Holdings Limited,
an English corporation ("ITS UK"), which is the holder, directly and indirectly,
of all the issued and outstanding capital stock of ITS Drilling Services
Limited, an English corporation, International Tool & Supply Nigeria Limited, a
Nigerian corporation, ITS Engineered Systems (Venezuela) S.A. and ITS Drilling
Services Pte Limited, a Singapore corporation, (the "ITS UK Subsidiaries");
which companies are engaged in the businesses of designing and manufacturing
engineered systems for enhanced oil recovery and water treatment systems and
providing marketing and service for a select range of drilling products,
including mud recovery systems, mixing systems and trash compactors, and
providing incineration services.
2. Aero is engaged in the business of constructing and repairing offshore
cranes and manufacturing equipment and spare and component parts for the oil and
gas, dredging, marine and mining industries.
3. The Aero Holders own all of the outstanding limited liability company
common member interests in Aero.
4. Each of the parties hereto believes that it would be in their respective
best interests to combine the ownership of their respective businesses in the
manner provided for herein.
NOW, THEREFORE, this Agreement witnesseth that, in consideration of the
foregoing premises and the mutual covenants and agreements of the parties
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS.
The following terms, whenever used in capitalized form in this Agreement,
shall have the following meanings:
"Accredited Investor" shall have the meaning assigned in Rule 501 of
Regulation D of the Commission under the Securities Act.
"Advisor" shall mean Jefferies & Company, Inc.
<PAGE>
"Aero" shall mean Aero International, L.L.C., a Louisiana limited liability
company.
"Aero Balance Sheet" shall mean the unaudited consolidated balance sheet of
Aero at July 31, 1998, included in the Aero Financial Statements.
"Aero Class B Preferred Membership Units" shall mean the $12,000,000 par
amount of outstanding units of limited liability company preferred membership
interests in Aero held by the Aero Preferred Holders.
"Aero Common Holders" shall mean IPC Industries, Inc., an Alabama corporation,
Byron A. Adams, Jr., Thomas W. Pritchard and W. Steven McKenzie, collectively;
and "Aero Common Holder" shall mean a Person who is one of the Aero Common
Holders, individually.
"Aero Common Membership Units" shall mean the 2,000,000 outstanding units of
limited liability company common membership interests in Aero held by the Aero
Common Members.
"Aero Disclosure Letter" shall mean the Disclosure Letter dated of even date
with this Agreement submitted by Aero to ITS PLC and to the Holding Company in
connection with the representations and warranties made by Aero in this
Agreement.
"Aero Employees" shall mean those Persons listed on Schedule 1.1 who shall
enter into Employment Agreements with the Holding Company at the Closing; and
"Aero Employee" shall mean a Person who is one of the Aero Employees,
individually.
"Aero Exchange Consideration" shall have the meaning assigned in
Section 4.3.1.
"Aero Exchange Notes" shall mean the promissory notes of the Holding Company
in the aggregate amount of $1,000,000 and in substantially the form of Exhibit
G.
"Aero Exchange Shares" shall mean the 29,500,000 shares of Common Stock to be
issued to the Aero Holders in the Aero Share Exchange.
"Aero Financial Statements" shall have the meaning assigned in Section 8.7.
"Aero Holder's Certificate" shall mean the certificate in substantially the
form of Exhibit R to be delivered by each Aero Holder at the Closing respecting
the accuracy of such Aero Holder's representations and warranties and compliance
with such Aero Holder's covenants.
"Aero Holders" shall mean the Aero Common Holders and the Aero Preferred
Holders, collectively; and "Aero Holder" shall mean a Person who is one of the
Aero Holders, individually.
"Aero Holders Representative" shall have the meaning assigned in Section 13.7.
"Aero Officer's Certificate" shall mean the certificate in substantially the
form of Exhibit Q to be delivered by Aero at the Closing respecting the accuracy
of Aero's representations and warranties and compliance with Aero's covenants.
"Aero Preferred Holders" shall mean IPC Industries, Inc., an Alabama
corporation, and Mobile Pulley Marine Services, Inc., an Alabama corporation,
collectively; and "Aero Preferred Holder" shall mean a Person who is one of the
Aero Preferred Holders, individually.
"Aero Property" shall have the meaning assigned in Section 8.20.1.
"Aero Share Exchange" shall mean the transactions contemplated by Section 4.3.
2
<PAGE>
"AIM" shall mean the Alternative Investment Market of the London Stock
Exchange.
"AIM Application" shall mean the application of the Holding Company to have
the Common Stock admitted to trading on the AIM.
"Ancillary Agreements" shall mean the Section 110 Agreement, the Registration
Rights Agreement, the Indemnity Agreements, the Deed of Undertaking and
Indemnity and the Employment Agreements, collectively.
"Applicable Laws" shall mean any law, statute, ordinance, code, rule,
regulation, standard, ruling, decree, judgment, award, order or other
requirement of any Governmental Authority that is applicable to a Constituent
Company.
"Benefit Arrangements" shall mean all life and health benefits,
hospitalization, savings, bonus, deferred compensation, incentive compensation,
severance pay, disability, sick pay, vacation pay, stock option, award or
similar plans, and fringe benefit plans, individual employment and severance
contracts and other policies and practices, whether written or oral, providing
employee or executive compensation or benefits to Employees of a Constituent
Company or their dependents, other than an Employee Benefit Plan.
"Breach" shall mean in reference to this Agreement any inaccuracy in or breach
of, or any failure to perform or comply with, any representation, warranty,
covenant, obligation or other provision of this Agreement or any instrument
delivered pursuant to this Agreement by any party hereto.
"Closing" shall mean the consummation of the transactions contemplated by this
Agreement, effective as of the Effective Time.
"Closing Committee" shall mean the committee comprised of the individuals
named in Section 13.6.
"Closing Date" shall mean the date on which the Closing actually shall occur
pursuant to this Agreement.
"Closing Deliveries" shall mean the deliveries required to be made by the
parties at the Closing as provided in Articles IV and V and Section 9.9.
"Closing Investors" shall mean those Persons who have executed the Series A
Subordinated Debenture Subscription Agreements.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the United States Securities and Exchange Commission.
"Common Stock" shall mean the common stock, $0.01 par value, of the Holding
Company.
"Constituent Companies" shall mean and refer to the ITS Subsidiaries and to
Aero, collectively; and "Constituent Company" shall mean an entity which is one
of such Constituent Companies, individually.
"Contributing Parties" or "Contributing Party" shall refer only to Aero and
ITS PLC.
"Conversion Shares" shall have the meaning assigned in Section 9.2.
"Debt" shall mean without duplication (in each case whether such obligation is
with full or limited recourse), (i) any and all obligations for borrowed money,
(ii) any and all obligations in respect of the deferred purchase price for any
real or personal property or services, (iii) any and all obligations in respect
of any capital lease, (iv) any and all amounts in respect of which a Person may
be liable, contingently or otherwise, under any guarantees of Debt of another
Person, and (v) any items required to be reported as short-term or long-term
debt on the balance sheet of a Person in accordance with GAAP.
3
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"Deed of Undertaking and Indemnity" shall mean the agreement in substantially
the form of Exhibit U to be entered into by and among ITS PLC, the Holding
Company and the Liquidators prior to the Closing.
"DOL" shall mean the United States Department of Labor.
"Effective Time" shall mean the time and date that the Common Stock is
admitted to trading on the AIM.
"Employee Benefit Plan" shall mean each "employee benefit plan," as defined in
Section 3(3) of ERISA, maintained or contributed to by any of the Constituent
Companies or any of their respective Subsidiaries or any of its ERISA
Affiliates, but excluding Multiemployer Plans.
"Employees" or "Employee" shall mean and refer to the current employees,
former employees and retired employees of a Constituent Company.
"Employment Agreements" shall mean the Employment Agreements in substantially
the forms attached collectively as Exhibit H, which will be entered into at the
Closing by, on the one hand, the Holding Company, and on the other hand, by each
of the Aero Employees.
"Encumbrance" shall mean any interest of any Person, including, without
limitation, any right to acquire, option, right of preemption, or any mortgage,
lease, charge, pledge, lien, encumbrance, assignment, hypothecation, security
interest, title retention, claim, covenant, condition, easement or any other
security agreement or arrangement or any restriction of any kind or character.
"Environmental Laws" shall mean any law, statute, regulation, rule, order,
consent, decree, or governmental requirement that relates to or otherwise
imposes liability or standards of conduct concerning Hazardous Materials or
discharges or releases of any Hazardous Materials into air, water or land,
including (but not limited to) the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended; the Resource Conservation
and Recovery Act of 1978, as amended; the Clean Water Act, the Clean Air Act, or
any other similar federal, state or local statutes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any Person that is treated as a single employer
with the Person in question under Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" shall mean the United States Securities Exchange Act of 1934,
as amended and in effect from time to time, and the rules and regulations of the
Commission adopted or promulgated thereunder.
"Final Tax Amount" shall have the meaning assigned in Section 12.3.3.
"First EGM" shall mean the First Extraordinary General Meeting of the ITS
Stockholders to be called, noticed and convened by ITS PLC (and any adjournment
thereof) in accordance with Section 6.1.
"First EGM Proposals" shall mean the proposals to be submitted to the ITS
Stockholders by ITS PLC at the First EGM pursuant to Section 6.1 in
substantially the form of Exhibit M(1).
"GAAP" shall mean generally accepted accounting principles in effect in the
United States as of the date of this Agreement.
"Governmental Authority" shall mean any government or state (or any
subdivision thereof), whether domestic, foreign or multinational, or any agency,
authority, bureau, commission, department or similar body or instrumentality
thereof, or any governmental court or tribunal.
4
<PAGE>
"Guarantees" shall mean any obligations, contingent or otherwise, of a Person
in respect of any Debt, obligation or liability of another Person, including but
not limited to direct or indirect guarantees, endorsements (except for
collection or deposit in the ordinary course of business), notes co-made or
discounted, recourse agreements, take-or-pay agreements, keep-well agreements,
agreements to purchase or repurchase such Debt, obligation or liability or any
security therefor or to provide funds for the payment or discharge thereof,
agreements to maintain solvency, assets, level of income, or other financial
condition, and agreements to make payment other than for value received.
"Hazardous Materials" shall mean (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; and (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; and (c) any "hazardous material" as defined by the Hazardous
Materials Transportation Act, as amended from time to time, and regulations
promulgated thereunder; and shall include without limitation, asbestos, PCBs,
petroleum products, and urea-formaldehyde (in situations where considered
hazardous or toxic).
"Holding Company" shall mean Offshore Tool & Energy Corporation, a Delaware
corporation.
"Holding Company Disclosure Letter" shall mean the Disclosure Letter dated of
even date with this Agreement submitted by the Holding Company to each of the
other parties hereto in connection with the representations and warranties made
by the Holding Company in this Agreement.
"Holding Company Officer's Certificate" shall mean the certificate in
substantially the form of Exhibit P to be delivered by the Holding Company at
the Closing respecting the accuracy of the Holding Company's representations and
warranties and compliance with its covenants.
"Incentive Shares" shall have the meaning assigned in Section 9.2.
"Income Taxes" shall mean any income, gross receipts, gains, net worth,
surplus, franchise or withholding taxes (including interest, penalties or other
additions to Tax) imposed by a Tax Authority.
"Indemnity Agreements" shall mean the Indemnity Agreements in substantially
the form of Exhibit J to be entered into and delivered at the Closing by the
Holding Company and each of the Initial Directors.
"Initial Directors" shall have the meaning assigned in Section 2.1.4.
"Intellectual Property" shall mean all patents, patent applications,
trademarks, trademark registrations and applications therefor, service marks,
service mark registrations and applications therefor, copyrights, copyright
registrations and applications therefor, trade names, trade secrets, software
and computer programs, know-how, inventions, processes and procedures.
"Interim Tax Amount" shall have the meaning assigned in Section 12.3.2.
"Interim Tax Distributions" shall have the meaning assigned in Section 12.3.2.
"Irrevocable Undertakings" shall mean the letters received by ITS PLC on or
prior to the date of this Agreement and attached collectively as Exhibit L
pursuant to which the Persons signing such Irrevocable Undertakings have agreed
to vote all ITS Ordinary Shares and, where applicable, ITS Warrants held of
record by each such Person in favor of the ITS Securities Holders Proposals.
"IRS" shall mean the United States Internal Revenue Service.
"ITS Accounts Receivable" shall have the meaning assigned in Section 7.14.
5
<PAGE>
"ITS Balance Sheet" shall mean the unaudited consolidated balance sheet of ITS
PLC at July 31, 1998 included in the ITS Financial Statements.
"ITS Exchange Shares" shall mean the 20,500,000 shares of Common Stock to be
issued to the ITS Securities Holders in the ITS Share Exchange.
"ITS Financial Statements" shall have the meaning assigned in Section 7.8.
"ITS Group" shall mean ITS PLC and the ITS Subsidiaries.
"ITS Investments" shall mean ITS Investments, Inc., a Texas corporation, and a
wholly-owned subsidiary of ITS PLC.
"ITS Investments Subsidiaries" shall mean the Subsidiaries of ITS Investments,
including the Subsidiaries named in paragraph 1 of the Explanatory Statement of
this Agreement.
"ITS Ordinary Shares" shall mean the ordinary shares, nominal value of 5 pence
per share, of ITS PLC.
"ITS PLC" shall mean International Tool and Supply plc, an English
corporation.
"ITS PLC Disclosure Letter" shall mean the Disclosure Letter dated of even
date with this Agreement submitted by ITS PLC to each of the other parties
hereto in connection with the representations and warranties made by ITS PLC in
this Agreement.
"ITS PLC Officer's Certificate" shall mean the certificate in substantially
the form of Exhibit N to be delivered by ITS PLC at the Closing respecting the
accuracy of the representations and warranties of ITS PLC and compliance with
its covenants.
"ITS PLC Secretary's Certificate" shall mean the certificate in substantially
the form of Exhibit O to be delivered by ITS PLC at the Closing respecting the
adoption of the ITS Securities Holders Proposals.
"ITS Property" shall have the meaning assigned in Section 7.22.4.
"ITS Securities Holder Certificate" shall mean the certificate required to be
given by each ITS Securities Holder as a condition to the receipt of the ITS
Exchange Shares as provided in Section 4.1.2.
"ITS Securities Holders" shall mean the ITS Stockholders and the ITS
Warrantholders, collectively.
"ITS Securities Holders Approvals" shall mean, collectively, the approval by
the ITS Stockholders of the First EGM Proposals and the Second EGM Proposals,
and the approval by the ITS Warrantholders of the ITS Warrantholders Proposals.
"ITS Securities Holders Approval Date" shall mean the date the ITS
Stockholders approve the Second EGM Proposals.
"ITS Securities Holders Circular" shall mean the informational circular
distributed to the ITS Securities Holders along with the notices of the First
EGM, the Second EGM and the ITS Warrantholders Meeting, respectively.
"ITS Securities Holders Proposals" shall mean the First EGM Proposals, the
Second EGM Proposals and the ITS Warrantholders Proposals, collectively.
"ITS Share Exchange" shall mean the transactions contemplated by Section 4.2.
"ITS Stockholders" shall mean the holders of record of the ITS Ordinary
Shares.
6
<PAGE>
"ITS Subsidiaries" shall mean the Subsidiaries of ITS, including ITS
Investments and the ITS Investments Subsidiaries, and ITS UK and the ITS UK
Subsidiaries, collectively; and "ITS Subsidiary" shall mean an entity which is
one of the ITS Subsidiaries, individually.
"ITS UK" shall mean ITS Holdings Limited, an English corporation and a wholly-
owned subsidiary of ITS PLC.
"ITS UK Subsidiaries" shall mean the Subsidiaries of ITS UK, including the
Subsidiaries named in paragraph 1 of the Explanatory Statement of this
Agreement.
"ITS Warrants" shall mean the outstanding warrants to subscribe for ITS
Ordinary Shares.
"ITS Warrantholders" shall mean the holders of record of the ITS Warrants.
"ITS Warrantholders Meeting" shall mean the meeting of the ITS Warrantholders
to be called, noticed and convened by ITS PLC (and any adjournment thereof) in
accordance with Section 6.1.
"ITS Warrantholders Proposals" shall mean the proposals to be submitted to the
ITS Warrantholders by ITS PLC at the ITS Warrantholders Meeting pursuant to
Section 6.1 in substantially the form of Exhibit M(3).
"Liquidators" shall mean the proposed liquidators of ITS PLC named in the
Section 110 Agreement.
"Material Adverse Effect" shall mean a material adverse change in the
business, assets, rights, properties, liabilities, financial condition or
prospects of a Person.
"Material Contracts" shall mean those contracts, agreements, commitments or
understandings required to be disclosed by a party in its Disclosure Letter
pursuant to this Agreement.
"Multiemployer Plan" shall mean a plan described in Sections 3(37) and
4001(a)(3) of ERISA to which any of the Constituent Companies or any of their
respective Subsidiaries has an obligation to contribute.
"Non-Majority Subsidiary" as it relates to any Person, shall mean a
corporation, limited liability company, partnership, joint venture or other
Person 20% or more and 50% or less of the outstanding equity interests of which
is owned directly or indirectly by such Person.
"Non-U.S. Person" shall mean a Person who is not a U.S. Person; and "Non-U.S.
Persons" means all such Persons, collectively.
"Non-U.S. Person Certificate" means the certificate in the form of Exhibit X
required to be completed, signed and delivered to ITS PLC or its agent by Non-
U.S. Persons as a condition to the delivery of certificates for ITS Exchange
Shares.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any Employee Benefit Plan that is an "employee
pension benefit plan" as defined in Section 3(2) of ERISA.
"Permits" shall mean all governmental consents, certificates, approvals,
licenses, permits or other authorizations for the operation of a business.
"Person" shall mean any individual, corporation, unincorporated association,
business trust, estate, partnership, limited liability company, limited
liability partnership, trust, government or any agency or political subdivision
thereof, or any other entity.
7
<PAGE>
"Record Date" shall have the meaning assigned in the ITS Securities Holders
Circular.
"Registration Rights Agreement" shall mean the Registration Rights Agreement
in substantially the form of Exhibit I to be entered into and delivered at the
Closing by the Holding Company and the Aero Holders.
"Rescission Date" shall have the meaning assigned in Section 11.3.
"Second EGM" shall mean the Second General Meeting of the ITS Stockholders to
be called, noticed and convened by ITS PLC (and any adjournment thereof) in
accordance with Section 6.1.
"Second EGM Proposals" shall mean the proposals to be submitted to the ITS
Stockholders by ITS PLC at the Second EGM pursuant to Section 6.1 in
substantially the form of Exhibit M(2).
"Section 110 Agreement" shall mean an agreement to be entered into by ITS PLC,
the Liquidators and the Holding Company in substantially the form of Exhibit K
to give effect to the ITS Share Exchange and the Section 110 Scheme as
contemplated by this Agreement.
"Section 110 Scheme" shall mean the scheme and arrangement of reconstruction
of ITS PLC by means of a transfer of all of its assets (subject to its
liabilities) to the Holding Company and a voluntary winding-up of ITS PLC under
Section 110 of the Insolvency Act of 1986.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended and in effect from time to time, and the rules and regulations of the
Commission adopted or promulgated thereunder.
"Series A Subordinated Debenture Indenture" shall mean the Indenture for the
Series A Subordinated Debentures in substantially the form of Exhibit C.
"Series A Subordinated Debentures" shall mean the $12,000,000 principal amount
of Series A Subordinated Debentures of the Holding Company in substantially the
form included in Article II of the Series A Subordinated Debenture Indenture,
and which shall be issued with the Series A Increasing Warrants to the Aero
Preferred Holders and the Closing Investors at the Closing.
"Series A Subordinated Debenture Subscription Agreements" shall mean the
agreements to purchase $6,500,000 principal amount of Series A Subordinated
Debentures received by the Holding Company from the Closing Investors on or
prior to the date of this Agreement and attached collectively as Exhibit S.
"Series A Increasing Warrants" shall mean the 5,000,000 initial issuance
Series A Increasing Warrants of the Holding Company in substantially the form of
Exhibit E, and which shall be issued at the Closing with the Series A
Subordinated Debentures.
"Series B Junior Subordinated Note Agreement" shall mean the Note Agreement
for the Series B Junior Subordinated Notes in substantially the form of
Exhibit D.
"Series B Junior Subordinated Notes" shall mean the $4,000,000 principal
amount of Series B Junior Subordinated Notes of the Company in substantially the
form included in the Series B Junior Subordinated Note Agreement, and which
shall be issued to the Aero Common Holders at the Closing.
"Series B Warrants" shall mean the 3,000,000 Series B Warrants of the Holding
Company which shall have substantially the terms set forth in Exhibit F, and
which shall be issued at the Closing to the Advisor as set forth in Section 9.9.
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"Stock Incentive Plan" shall mean the Offshore Tool & Energy Corporation Stock
Incentive Plan in substantially the form of Exhibit V that shall be adopted by
the sole shareholder of the Holding Company prior to the Closing as provided in
Section 2.1.6.
"Stub Year" shall have the meaning assigned in Section 10.4.2.
"Subsidiary" as it relates to any Person, shall mean a corporation, limited
liability company, partnership, joint venture or other Person more than 50% of
the outstanding equity interests of which is owned directly or indirectly by
such Person.
"Tax Authority" shall mean a foreign or United States federal, state, or local
Governmental Authority having jurisdiction over the assessment, determination,
collection or imposition of any Tax, as the context requires.
"Tax Returns" shall mean all returns (including information returns and
amended returns), declarations, reports, claims for refunds, estimates and
statements regarding Taxes, required to be filed under Applicable Laws.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including without limitation, all net income, gross income, gross receipts,
sales, use, value added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, windfall profit, alternative or add on
minimum, excise, estimated, severance, stamp, occupation, property or other
taxes, customs, duties, fees, assessments, or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any Tax Authority.
"Termination Date" shall mean the 14th day after the date of the Second EGM,
unless such date is extended by the written consent of all the parties to this
Agreement.
"Transaction Expense Accounting" shall mean a statement prepared by Arthur
Andersen L.L.P. ("Arthur Andersen"), or such other public accounting firm that
shall be mutually agreed upon by the Contributing Parties, which shall, based
solely on information provided to Arthur Andersen or such other accounting firm
by the Contributing Parties and the Holding Company, (a) set forth the total
Transactional Expenses incurred and the total Transactional Expenses paid by
each of the Contributing Parties and the Holding Company, and (b) calculate the
amount that should be paid by each of the Contributing Parties or either of them
to the Holding Company and/or the other Contributing Party in order to (i)
provide sufficient funds to the Holding Company to pay all outstanding
Transaction Expenses and (ii) to effect the payment by each Contributing Party,
or by one of the Contributing Parties, as the case may be, of the Transaction
Exchange Share of such Contributing Party as determined under Section 3.1.
"Transaction Expenses" shall mean expenses comprised of fees and expenses of
certain third party providers of services incurred through the Closing Date, as
provided in Section 3.1.
"Transaction Expenses Shares" shall have the meaning assigned in Section 3.1.
"U.S. Person" shall mean (i) a "U.S. person" as that term is defined in
Regulation S of the Commission under the Securities Act, and (ii) any Person who
is located in the United States; and "U.S. Persons" means all such Persons,
collectively.
"U.S. Person Certificate" means the certificate in the form of Exhibit W
pursuant to which any signing U.S. Person shall certify that he, she or it is an
Accredited Investor and which shall be completed, signed and delivered to ITS
PLC or its agent by such U.S. Person as a condition to the receipt of
certificates for ITS Exchange Shares.
"Warrant Shares" shall have the meaning assigned in Section 9.2.
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ARTICLE II
FORMATION OF HOLDING COMPANY
Section 2.1 FORMATION OF HOLDING COMPANY.
2.1.1 The Holding Company. Each of the parties to this Agreement hereby
confirms and ratifies its authorization and approval of the formation by Aero,
on behalf of ITS PLC and Aero, of Offshore Tools & Energy Corporation, a
Delaware corporation (the "Holding Company"). Prior to the Closing, Aero will
capitalize the Holding Company initially by contributing the amount of $1,000,
for which Aero will receive in exchange 100 shares of common stock, $.01 par
value ("Common Stock"), of the Holding Company, as the nominee of Aero and ITS
PLC. All of the shares of Common Stock issued to Aero pursuant to the initial
capitalization of the Holding Company shall be redeemed by the Holding Company
effective as of the Effective Time.
2.1.2 Charter and Bylaws. At the Closing, the Certificate of
Incorporation of the Holding Company shall be substantially in the form attached
as Exhibit A and the Bylaws of the Holding Company shall be substantially in the
form attached as Exhibit B.
2.1.3 Initial Officers. The initial officers of the Holding Company
shall be the following persons, each of whom shall hold the offices and have the
titles indicated opposite their respective names effective as of the date of
this Agreement, and shall serve in such capacities until his or her respective
successor shall have been duly elected by the Board of Directors and qualified:
NAME OFFICES AND TITLES
- ---- ------------------
Clifton C. Inge, Jr. Chief Executive Officer
McGowin I. Patrick, Jr. President and Chief Operating Officer
Byron A. Adams, Jr. Executive Vice President, Business Development
W. Steven McKenzie Executive Vice President, Operations
William L. Wann, Jr. Secretary
Greg O'Brien Treasurer
Notwithstanding anything contained in the Certificate of Incorporation or
the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial officer of the Holding Company shall be
removed from any such office prior to Closing, except with the written consent
of each of the parties to this Agreement.
2.1.4 Initial Directors. The Board of Directors of the Holding Company
consists of five Initial Directors named below in this Section 2.1.4. ITS PLC
has designated two Initial Directors and Aero has designated three Initial
Directors. It is contemplated by ITS PLC and Aero that prior to or following the
Closing, the Board of Directors shall enlarge the number of directors to seven,
and shall elect two additional directors, both of whom shall be "Non-Employee
Directors" as that term is defined in Rule 16b-3 of the Commission under the
Exchange Act. Such additional directors shall be elected only upon the unanimous
vote or consent of all the directors of the Holding Company, and shall be
Initial Directors of the Company. Each of the Initial Directors shall serve in
such capacity until the expiration of his term as provided in the Certificate of
Incorporation of the Holding Company, and until his respective successor shall
have been duly elected and qualified.
NAME DESIGNATING PARTY
---- -----------------
The Honorable Robert A. Rayne ITS PLC
Bernard Duroc-Danner ITS PLC
McGowin I. Patrick, Jr. Aero
Clifton C. Inge, Jr. Aero
Byron A. Adams, Jr. Aero
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Notwithstanding anything contained in the Certificate of Incorporation or the
Bylaws which may be inconsistent or to the contrary, none of the Initial
Directors of the Holding Company shall be removed as a director prior to
Closing, except with the written consent of the party which originally
designated such person as a director of the Holding Company. In the event that
an Initial Director dies or resigns prior to Closing, the party or parties which
originally designated such person as a director of the Holding Company shall
have the right to designate his successor.
2.1.5 Committees of the Board. There shall initially be at least two
committees of the Board of Directors of the Holding Company; namely, an Audit
Committee and a Compensation Committee. Messrs. Rayne and Duroc-Danner shall be
the initial members of the Audit Committee and Mr. Duroc-Danner and another
Non-Employee Director shall be the initial members of the Compensation
Committee. Each of such committees shall have all of the powers of the Board of
Directors delegated to such committee pursuant to the Bylaws of the Holding
Company. Notwithstanding anything contained in the Certificate of Incorporation
or the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial member of either of such committees shall be
removed by the Board of Directors as a member of such committee prior to
Closing, except with the prior written consent of the party which originally
designated such person as a director of the Holding Company.
2.1.6 Stock Incentive Plan. The parties hereby consent to the
approval and adoption of the Stock Incentive Plan by Aero, in its capacity as
the sole shareholder of the Holding Company prior to the Closing.
2.1.7 Closing Authority. The Holding Company shall not be authorized
to waive any condition to Closing set forth herein or any other material
provision of this Agreement without the prior unanimous affirmative vote or
written consent of the Closing Committee.
Section 2.2 ENGAGEMENT OF COUNSEL, ACCOUNTANTS AND ADVISORS.
2.2.1 Engagement of U.S. Holding Company Counsel. Each of the parties
hereby agrees and consents to, and ratifies, the prior engagement by Aero, on
behalf of the Holding Company, of the law firm of Adams and Reese, L.L.P., a
Louisiana limited liability partnership ("Adams and Reese"), as counsel to the
Holding Company in connection with the negotiation and preparation of this
Agreement, documents relating to matters under the jurisdiction of the
Securities and Exchange Commission, AIM Application, the Section 110 Agreement
and related matters, and agrees that the fees of and the expenses incurred by
Adams and Reese in rendering services for the Holding Company pursuant to the
engagement letter between the Holding Company and Adams and Reese shall be
deemed to be part of the Transaction Expenses. Each of the parties hereto (other
than Aero) hereby acknowledges that it understands that (a) Adams and Reese has
represented Aero as its principal outside legal counsel, (b) Adams and Reese has
represented, and will continue to represent, Aero in connection with the
negotiations relating to this Agreement and (c) Adams and Reese also will be
representing the Holding Company in connection with negotiations relating to
this Agreement. Each such party acknowledges that it has been advised by Adams
and Reese and their respective legal counsel that there may be potential
conflicts of interest as a result of such dual representation by Adams and
Reese. Aero further acknowledges that it has been advised by Adams and Reese
that in the event of a conflict between Aero and the Holding Company, Adam and
Reese's representation of the Holding Company in connection with these
transactions may limit the protections that normally would be afforded to Aero
by the attorney/client privilege doctrine as it relates to communications
between Aero and Adams and Reese relating to these matters and that Adams and
Reese may be required to disclose to the other parties to this Agreement certain
otherwise confidential communications between Aero and Adams and Reese. The
parties to this Agreement also understand and agree that in the event that any
dispute or controversy should arise by and between or by and among any of the
parties to this Agreement (including disputes between Aero and the Holding
Company), Adams and Reese will continue to represent Aero and its interests in
connection with such dispute or controversy, and, in the event such dispute is
between Aero and the Holding Company, Adams and Reese will withdraw from its
representation of the Holding Company. Nevertheless, despite having been advised
as to these matters, each of the parties hereto, in the interest of cost-savings
and efficiency, consents to the dual representation by Adams and Reese of the
Holding Company and Aero. Adams and Reese may rely on the acknowledgments,
agreements and consents of the parties pursuant to this Section 2.2.1.
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2.2.2 Engagement of English Holding Company Counsel. Each of the parties
hereby agrees, consents to and ratifies the prior engagement by ITS PLC, on
behalf of the Holding Company, of the law firm of Lovell White Durrant ("Lovell
White"), London, England, as counsel to the Holding Company in connection with
the AIM Application, the Section 110 Agreement and related matters, and agrees
that the fees of and expenses incurred by Lovell White in rendering services for
the Holding Company pursuant to the engagement letter between the Holding
Company and Lovell White shall be deemed part of the Transaction Expenses. Each
of the parties hereto (other than ITS PLC) hereby acknowledges that it
understands that (a) Lovell White has represented ITS PLC as its principal
outside legal counsel, (b) Lovell White has represented, and will continue to
represent ITS PLC in connection with the negotiations relating to this Agreement
and (c) Lovell White will be representing ITS PLC in connection with
negotiations relating to this Agreement. Each such party acknowledges that it
has been advised by Lovell White and their respective legal counsel that there
may be potential conflicts of interest as a result of such dual representation
by Lovell White. ITS PLC further acknowledges that it has been advised by
Lovell White that in the event of a conflict between ITS PLC and the Holding
Company, Lovell White's representation of the Holding Company in connection with
these transactions may limit the protections that normally would be afforded to
ITS PLC by the attorney/client privilege doctrine as it relates to
communications between ITS PLC and Lovell White relating to these matters, and
that Lovell White may be required to disclose to the other parties to this
Agreement certain otherwise confidential communications between ITS PLC and
Lovell White. The parties to this Agreement also understand and agree that in
the event that any dispute or controversy should arise by and between or by and
among any of the parties to this Agreement (including disputes between ITS PLC
and the Holding Company) Lovell White will continue to represent ITS PLC and its
interests in connection with such dispute or controversy, and, in the event such
dispute is between ITS PLC and the Holding Company, Lovell White will withdraw
from its representation of the Holding Company. Nevertheless, despite having
been advised as to these matters, each of the parties hereto, in the interest of
cost-savings and efficiency, consents to the dual representation by Lovell White
of the Holding Company and ITS PLC. Lovell White may rely on the
acknowledgments, agreements and consents of the parties pursuant to this
Section 2.2.2.
2.2.3 Engagement of Certified Public Accountants. Each of the parties
hereby agrees, consents to and ratifies the prior engagement by Aero, on behalf
of the Holding Company, of the accounting firm of Arthur Andersen L.L.P.
("Arthur Andersen") to act as the certified independent public accountants for
the Holding Company, and agrees that the fees of and the expenses incurred by
Arthur Andersen in rendering services for the Holding Company pursuant to the
engagement letter between the Holding Company and Arthur Andersen shall be
deemed to be part of the Transaction Expenses.
2.2.4 Engagement of Investment Advisors. Each of the parties hereby
agrees, consents to and ratifies the prior engagement by ITS PLC, on behalf of
the Holding Company, of the investment banking firm of Guinness Mahon & Co.
Limited, ("Guinness Mahon"), London, England, to act as investment banking
advisor to the Holding Company in connection with the AIM Application, and
agrees that the fees of and expenses incurred by Guinness Mahon in rendering
services for the Holding Company pursuant to the Nominated Advisor and Nominated
Broker Agreement between the Holding Company and Guinness Mahon shall be deemed
part of the Transaction Expenses. Each of the parties hereto (other than ITS
PLC) hereby acknowledges that it understands that Guinness Mahon has served ITS
PLC as its investment banking advisor and will continue to render advice to ITS
PLC in connection with the negotiations relating to this Agreement. Each such
party acknowledges that it has been advised by Guinness Mahon and their
respective legal counsel that there may be potential conflicts of interest as a
result of such dual representation by Guinness Mahon. The parties to this
Agreement also understand and agree that in the event that any dispute or
controversy should arise by and between or by and among any of the parties to
this Agreement (including disputes between ITS PLC and the Holding Company),
Guinness Mahon will continue to advise ITS PLC and its interests in connection
with such dispute or controversy, and, in the event such dispute is between ITS
PLC and the Holding Company, Guinness Mahon will withdraw from its
representation of the Holding Company. Nevertheless, despite having been
advised as to these matters, each of the parties hereto, in the interest of
cost-savings and efficiency, consents to the dual representation by Guinness
Mahon of the Holding Company and ITS PLC. Guinness Mahon may rely on the
acknowledgments, agreements and consents of the parties pursuant to this
Section 2.2.4.
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ARTICLE III
TRANSACTION EXPENSES
Section 3.1 TRANSACTION EXPENSES AND TRANSACTION EXPENSE SHARES.
All fees and expenses set forth in Section 2.2 and incurred by the Holding
Company or by Aero or ITS PLC on behalf of and previously approved by the
Holding Company shall constitute "Transaction Expenses". Only the Contributing
Parties shall be responsible for the Transaction Expenses under and pursuant to
the terms of this Article III, and the share of each of the Contributing Parties
to the Transactional Expenses (the "Transactional Expense Share") shall be 50%
for Aero and 50% for ITS PLC.
Section 3.2 ACCOUNTING FOR TRANSACTION EXPENSES.
From and after the date hereof through and including Closing or the earlier
termination of this Agreement, Aero, ITS PLC and the Holding Company shall
maintain records of all Transaction Expenses incurred by each of them. Any
single Transaction Expense incurred by any such party in excess of $10,000 shall
be approved by the Closing Committee.
Section 3.3 REIMBURSEMENT OF TRANSACTION EXPENSES.
If this Agreement shall terminate and the transactions contemplated hereby
shall not be consummated, each of the Contributing Parties shall, within 10
business days following date of the receipt of the Transaction Expense
Accounting, make such payments to the Holding Company and/or the other
Contributing Party as set forth in the Transaction Expense Accounting in
accordance with its respective Transaction Expense Share (it being understood
and agreed that the obligations of each of the Contributing Parties to pay its
Transaction Expense Share in respect of Transaction Expenses under this Section
3.3 shall survive the termination of this Agreement).
ARTICLE IV
CLOSING MATTERS; EFFECTIVE TIME AND RESCISSION
Section 4.1 CLOSING.
The Closing of the transactions contemplated by this Agreement shall take
place concurrently at the offices of Lovell White Durrant, 65 Holborn Viaduct,
London, England, and the offices of Fulbright & Jaworski, 1301 McKinney Street,
Suite 5100, Houston, Texas, beginning at 3:30 p.m., London time, on the ITS
Securities Holders Approval Date, or at such other time or place as all the
parties may agree in writing (the "Closing Date").
Section 4.2 ITS SHARE EXCHANGE.
4.2.1 Execution and Effectuation of the Section 110 Agreement. At the
Closing ITS PLC, the Holding Company and the Liquidators each shall execute and
deliver the Section 110 Agreement, and each of ITS PLC, the Holding Company and
the Liquidators shall take and effect all actions required of such party under
the Section 110 Agreement, including, effective as of the Effective Time, (a)
the transfer to the Holding Company by ITS PLC, through the Liquidators, of all
the assets of ITS PLC, including, without limitation, all outstanding common
stock of ITS Investments and ITS UK, (b) the assumption by the Holding Company
of all the liabilities of ITS PLC and (c) the allotment, registration and
issuance by the Holding Company of the ITS Exchange Shares in such names and
denominations as shall be specified by the Liquidators.
4.2.2 Delivery of Certificates for ITS Exchange Shares by the Holding
Company. The Holding Company shall deliver the certificates for the ITS
Exchange Shares to the Liquidators as soon as practicable following the
Effective Time.
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4.2.3 Delivery of Certificates for ITS Exchange Shares by the Liquidators.
The Liquidators shall not be authorized to deliver the ITS Exchange Shares
received from the Holding Company pursuant to the Section 110 Agreement except
in strict compliance with this Section 4.2.
(a) Delivery to U.S. Persons. The Liquidators shall not deliver any
ITS Exchange Shares to any U.S. Person in the absence of both (i) written
confirmation by ITS PLC of its receipt of a completed and signed U.S.
Person Certificate from such U.S. Person, and (ii) the written consent of
the Holding Company (which shall be withheld only upon reasonable grounds
for belief that such delivery may violate the Securities Act).
(b) U.S. Person Restrictive Legend. All certificates for ITS Exchange
Shares delivered to U.S. Persons pursuant to this Section 4.2 shall bear
the following restrictive legend:
These shares have not been registered under the Securities Act of 1933
and may not be offered, sold or otherwise transferred without
registration under the Securities Act of 1933 unless an exemption from
such registration is available.
(c) Delivery to Non-U.S. Persons. The Liquidator shall not deliver any
ITS Exchange Shares to any Non-U.S. Person in the absence of both (i)
written confirmation by ITS PLC of its receipt of a completed and signed
Non-U.S. Person Certificate and (ii) the written consent of the Holding
Company (which consent shall be withheld only upon reasonable grounds for
belief that such delivery may violate the Securities Act).
(d) Non-U.S. Person Restrictive Legend. All certificates for ITS
Exchange Shares delivered to Non-U.S. Persons pursuant to this Section 4.2
shall bear the following restrictive legend:
These shares ("Shares") have not been registered under the U.S.
Securities Act of 1933, as amended (the "Act"), and, accordingly, may
not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons, except as set forth below. By its
acquisition hereof, the Holder (1) represents that it is not a U.S.
person and is acquiring these Shares in an offshore transaction, (2)
agrees that it will not resell or otherwise transfer these Shares
except (A) to the Company or any subsidiary thereof, (B) pursuant to an
effective registration statement under the Act, (C) inside the United
States, to a Qualified Institutional Buyer in compliance with Rule 144A
under the Act; (D) outside the United States, in an offshore
transaction in compliance with Rules 904 and 905 under the Act, (E)
pursuant to the exemption from registration provided by Rule 144 under
the Act (if available), or (F) pursuant to any other exemption from
registration under the Securities Act (if available) and (3) agrees
that it will give each person to whom these Shares are transferred a
notice substantially to the effect of this legend. In connection with
any transfer of these Shares pursuant to clauses (E) or (F) above, the
holder must, prior to such transfer, furnish to the company such
certifications, legal opinions or other information as it may
reasonably require to confirm that such transfer is being made pursuant
to an exemption or in a transaction not subject to the registration
requirements of the Act. As used herein, the terms `offshore
transaction', `United States,' and `U.S. Person' have the meanings
given to them by Regulation S under the Act.
Section 4.3 AERO SHARE EXCHANGE.
4.3.1 Aero Share Exchange. At the Closing:
(a) (i) the Aero Common Holders shall exchange and deliver to the
Holding Company all of the outstanding Aero Common Membership Units and
(ii) the Holding Company shall exchange and deliver to the Aero
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Holders (A) the Aero Exchange Shares, (B) $4,000,000 principal amount of
Series B Junior Subordinated Notes, and (C) the Aero Exchange Notes;
(b) (i) the Aero Preferred Holders shall exchange and deliver to the
Holding Company $5,500,000 par amount of outstanding Aero Class B Preferred
Membership Units, (ii) the Holding Company shall exchange and deliver to
the Aero Preferred Holders (A) $5,500,000 principal amount of Series A
Subordinated Debentures and (B) 2,291,667 Series A Increasing Warrants, and
(iii) Aero shall pay to the Aero Preferred Holders all accrued and unpaid
dividends on such exchanged Aero Class B Preferred Membership Units through
the day before the Closing.
(c) (i) the Aero Preferred Holders shall exchange and deliver to the
Holding Company $6,500,000 par amount of outstanding Aero Class B Preferred
Membership Units, (ii) the Holding Company shall exchange and deliver to
the Aero Preferred Holders cash in the amount of $6,500,000, and (iii) Aero
shall pay to the Aero Preferred Holders all accrued and unpaid dividends on
such exchanged Aero Class B Preferred Membership Units through the day
before the Closing (collectively, the Aero Exchange Shares, the Series B
Junior Subordinated Notes, the Aero Exchange Notes, the Series A
Subordinated Debentures, the Series A Increasing Warrants and the payment
of $6,500,000, the "Aero Exchange Consideration").
4.3.2 Deliveries.
(a) The Aero Exchange Consideration shall be delivered by the Holding
Company to the Aero Holders in the denominations and amounts set forth in
Schedule 4.3.2.
(b) (i) each Aero Common Holder shall deliver to the Holding Company
the certificates representing all of the Aero Common Membership Units owned
by such Aero Common Holder, duly endorsed in blank or accompanied by stock
powers duly executed in blank by such Aero Common Holder, (ii) each Aero
Preferred Holder shall deliver to Aero for redemption the certificates
representing all of the Aero Class B Preferred Membership Units owned by
such Aero Preferred Holder, duly endorsed in blank or accompanied by stock
powers duly executed in blank by such Aero Preferred Holder.
4.3.3 Aero Restrictive Legend.
All certificates for the Aero Exchange Shares, Series A Subordinated
Debentures, Series B Junior Subordinated Notes and Series A Increasing Warrants
delivered to the Aero Holders shall bear the following restrictive transfer
legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
sold or otherwise transferred except pursuant to an effective
registration statement under the Act or an available exemption from
such registration.
The Holding Company shall issue stop transfer instructions to its transfer agent
with respect to the Aero Exchange Shares.
4.3.4 Cancellation. All Aero Class B Preferred Membership Units exchanged as
set forth in this Section 4.3 shall be cancelled on the books of Aero.
Section 4.4 CLOSING DELIVERIES.
The parties shall make the Closing Deliveries.
Section 4.5 EFFECTIVE TIME; RESCISSION.
All Closing Deliveries shall be held in trust and escrow for the benefit of
the parties by Lovell White Durrant,
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until the first to occur of the Effective Time and 5:00 p.m., London, England
time, on the 14th day following the Closing Date (such day and time, the
"Rescission Date"). If the Effective Time shall occur before the Rescission
Date, Lovell White Durrant shall distribute the Closing Deliveries to the
respective parties to which such Closing Deliveries were made at the Closing. If
the Rescission Date shall occur before the Effective Time (unless the Rescission
Date shall be extended by the written consent of all parties), the Closing and
the Closing Deliveries shall be rescinded and Lovell White Durrant shall return
the Closing Deliveries to the respective parties which made such Closing
Deliveries. All parties by virtue of their acceptance and execution of this
Agreement hereby agree to hold Lovell White Durrant harmless and to indemnify it
against all costs, expenses and liabilities arising out of or under this Section
4.5, without any limitation whatever.
ARTICLE V
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
Section 5.1 CONDITIONS TO THE OBLIGATIONS OF EACH OF THE PARTIES.
The obligations of each of the parties to this Agreement to consummate the
transactions contemplated by Article IV to be consummated at Closing and to
perform the other obligations under this Agreement which are to be performed at
and after Closing are subject to the satisfaction of each of the conditions set
forth in this Section 5.1 (any of which may be waived by written instrument
executed by all of the parties to this Agreement):
5.1.1 Compliance with the Terms of this Agreement. Each of the parties to this
Agreement shall have performed or complied with in all material respects all of
the covenants and agreements made by each of them, respectively, which are to be
performed or complied with prior to the Closing Date or at Closing pursuant to
the terms of this Agreement unless the failure to have so performed or complied
with such covenants and agreements in the aggregate has not had or is not
reasonably likely to have a Material Adverse Effect on the Constituent Companies
taken as a whole.
5.1.2 Representations and Warranties True. Each of the representations and
warranties made by the parties to this Agreement pursuant to the terms of this
Agreement shall have been true and correct as of the date hereof and be true and
correct in all material respects as of the Closing Date (except with respect to
those representations and warranties made with respect to a certain date other
than the date of this Agreement or the Closing Date, which representations and
warranties need be true and correct only as of such certain date) unless the
falsity or inaccuracy of such representations and warranties in the aggregate
has not had or is not reasonably likely to have Material Adverse Effect on the
party making such representations and warranties taken as a whole.
5.1.3 Consents and Approvals Obtained. Each of the parties shall have obtained
all consents, approvals, waivers and authorizations from governmental
authorities, courts, lenders and other third parties whose consent, approval,
waiver or authorization is necessary or advisable in order to consummate the
transactions contemplated hereby, unless the failure to obtain such consents,
approvals, waivers or authorizations in the aggregate is not reasonably likely
to have a Material Adverse Effect on the Constituent Companies taken as whole.
5.1.4 ITS Securities Holders Approvals. The ITS Securities Holders Approvals
shall have been obtained.
5.1.5 No Injunctions or Restraining Orders. There shall be no injunction,
restraining order or decree of any nature whatsoever that is in effect which
restrains or prohibits the consummation of the transactions contemplated hereby.
5.1.6 Indemnity Agreement. The Holding Company shall have entered into and
delivered at the Closing an Indemnity Agreement in favor of each of the Initial
Directors.
5.1.7 Section 110 Agreement. ITS PLC, the Holding Company and the
Liquidators shall have entered into and delivered at the Closing the Section 110
Agreement and the Agreement shall be effective pursuant to its terms.
5.1.8 Deed of Undertaking and Indemnity. ITS PLC, the Holding Company and
the Liquidators shall have entered into and delivered at the Closing the Deed of
Undertaking and Indemnity.
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5.1.9 AIM Admission. Guinness Mahon shall have been informed by the London
Stock Exchange that the Common Stock will be admitted to trading on the AIM
subject only to the filing of instruments relating to the Closing.
5.1.10 Dissenters' Rights. The total number of ITS Ordinary Shares as to
which dissenters' rights shall have been preserved with respect to the Section
110 Scheme shall not exceed 2% of the outstanding ITS Ordinary Shares on the
Record Date, provided that such percentage may be increased upon the written
consent of all parties to this Agreement.
5.1.11 Additional Investments. At the Closing, $6,500,000 principal amount
of Series A Subordinated Debentures (including 2,708,333 Series A Increasing
Warrants) shall have been purchased by the Closing Investors.
Section 5.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ITS PLC.
In addition to the conditions set forth in Section 5.1 above, the obligations
of ITS PLC to consummate the transactions contemplated by Article IV at the
Closing and to perform the other obligations of ITS PLC under this Agreement are
subject to the satisfaction of each of the conditions set forth in this Section
5.2 (any of which may be waived by written instrument executed by ITS PLC):
5.2.1 Delivery of Holding Company Documents. At the Closing the Holding
Company shall deliver or cause to be delivered to ITS PLC:
(a) Holding Company Officer's Certificate, signed by the President of
the Holding Company; and
(iii) an opinion dated the Closing Date and addressed to ITS PLC
from counsel for the Holding Company in substantially the form included
in Exhibit T.
5.2.2 Delivery of Aero Documents. At the Closing, Aero shall deliver or cause
to be delivered to ITS PLC:
(a) the Aero Officer's Certificate, signed by the President of Aero;
and
(b) an opinion dated the Closing Date and addressed to ITS PLC from
counsel for Aero in substantially the form included in Exhibit T.
5.2.3 Delivery of Aero Holder Documents. At the Closing, the Aero Holders
shall deliver or cause to be delivered to ITS PLC:
(a) the Aero Holders Certificates, signed by the respective Aero
Holders; and
(b) an opinion dated the Closing Date and addressed to ITS PLC from
counsel for the Aero Holders in substantially the form included in
Exhibit T.
Section 5.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF AERO.
In addition to the conditions set forth in Section 5.1 above, the obligations
of Aero to consummate the transactions contemplated by Article IV at the Closing
and to perform the other obligations of Aero under this Agreement are subject to
the satisfaction of each of the conditions set forth in this Section 5.3 (any of
which may be waived by written instrument executed by Aero):
5.3.1 Delivery of ITS PLC Documents. At the Closing, ITS PLC shall deliver or
cause to be delivered to Aero:
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(a) the ITS PLC Officer's Certificate, signed by the Chairman of ITS
PLC;
(b) the ITS PLC Secretary's Certificate, signed by the Secretary of ITS
PLC; and
(c) an opinion dated the Closing Date and addressed to Aero from
counsel for ITS PLC in substantially the form included in Exhibit T.
5.3.2 Delivery of Holding Company Documents. At the Closing, the Holding
Company shall deliver or cause to be delivered to Aero:
(a) the Employment Agreements executed by the Holding Company;
(b) the Holding Company Officer's Certificate, signed by the President
of the Holding Company; and
(c) an opinion dated the Closing Date and addressed to Aero by counsel
for the Holding Company in substantially the form included in Exhibit T.
Section 5.4 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE HOLDING COMPANY.
In addition to the conditions set forth in Section 5.1 above, the obligations
of the Holding Company to consummate the transactions contemplated by Article IV
at the Closing and to perform the other obligations of the Holding Company under
this Agreement subject to the satisfaction of each of the conditions set forth
in this Section 5.4 (any of which may be waived by written instrument executed
by the Holding Company, subject to the provisions of Section 2.1.6):
5.4.1 Delivery of ITS PLC Documents. At the Closing, ITS PLC shall deliver
or cause to be delivered to the Holding Company:
(a) the ITS PLC Officer's Certificate, signed by the Chairman of ITS
PLC;
(b) the ITS PLC Secretary's Certificate, signed by the Secretary of ITS
PLC; and
(c) an opinion dated the Closing Date and addressed to the Holding
Company from counsel for ITS PLC in substantially the form included in
Exhibit T.
5.4.2 Delivery of Aero Documents. At the Closing, Aero shall deliver or cause
to be delivered to the Holding Company:
(a) the Employment Agreements executed by the Aero Employees;
(b) the Aero Officer's Certificate, signed by the President of Aero;
and
(c) an opinion dated the Closing Date and addressed to the Holding
Company from counsel for Aero in substantially the form included in
Exhibit T.
5.4.3 Delivery of Aero Holder Documents. At the Closing, the Aero Holders
shall deliver or cause to be delivered to the Holding Company:
(a) the Aero Holders Certificates, signed by the respective Aero
Holders; and
(b) an opinion dated the Closing Date and addressed to the Holding
Company from counsel for the Aero Holders in substantially the form
included in Exhibit T.
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5.4.4 Material Breaches Cured. Prior to or at the Closing, ITS PLC shall
deliver or cause to be delivered to the Holding Company:
(a) the written agreement of Capital Bank plc consistent with the
description thereof in Section 7.19.2(2) of the ITS PLC Disclosure Letter;
and
(b) written waivers by NWS Bank plc and Capital Bank plc to the breaches
described in Section 7.19.2(3) of the ITS PLC Disclosure Letter.
Section 5.5 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE AERO HOLDERS.
In addition to the conditions set forth in Section 5.1 above, the obligations
of each of Aero Holder to consummate the transactions contemplated by Article IV
and to perform the other obligations of each such Aero Holder under this
Agreement are subject to the satisfaction of each of the conditions set forth in
this Section 5.5 (any of which may be waived by written instrument executed by
the affected Aero Holder).
5.5.1 Delivery of Registration Rights Agreement. At the Closing, the Holding
Company shall execute and deliver to the Aero Holders the Registration Rights
Agreement.
5.5.2 Delivery of Certificates. At the Closing, ITS PLC shall deliver to the
Aero Holders the ITS PLC Officer's Certificate, signed by the Chairman of ITS
PLC, and the ITS PLC Secretary's Certificate, signed by the Secretary of ITS
PLC, and the Holding Company shall deliver to the Aero Holders the Holding
Company Certificate, signed by the President of the Holding Company.
5.5.3 Delivery of Legal Opinions. ITS PLC shall deliver to the Aero Holders
an opinion dated the Closing Date addressed to the Aero Holders by counsel for
ITS PLC in substantially the form included in Exhibit T, and the Holding Company
shall deliver to the Aero Holders an opinion dated the Closing Date and
addressed to the Aero Holders by counsel for the Holding Company in
substantially the form included in Exhibit T.
ARTICLE VI
COVENANTS AND AGREEMENTS RELATING TO PRE-CLOSING PERIOD
Section 6.1 ITS SECURITIES HOLDERS APPROVALS.
ITS PLC shall (a) use its best efforts to call, notice and convene as soon as
reasonably practicable the First EGM, the ITS Warrantholders Meeting and the
Second EGM, to consider and vote upon, respectively, the First EGM Proposals,
the ITS Warrantholders Proposals and the Second EGM Proposals, and (b) subject
to the fiduciary duties of the Board of Directors of ITS PLC under applicable
law as advised by counsel to ITS PLC, ITS PLC shall recommend approval of the
ITS Securities Holders Proposals to the ITS Securities Holders.
Section 6.2 BEST EFFORTS.
Each of the parties will use their respective reasonable best efforts to cause
the conditions in Article V to be satisfied on or before the Closing Date and to
effect the transactions contemplated by this Agreement.
Section 6.3 CORPORATE STATUS.
From and after the date hereof through and including the Closing Date or the
earlier termination of this Agreement, ITS PLC shall, and shall cause each of
the ITS Subsidiaries to, take all actions, corporate or otherwise, reasonably
necessary or appropriate to maintain its status as a corporation validly
existing and in good standing under the laws of its state of incorporation and
to maintain its qualifications as a foreign corporation in good standing under
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the laws of each jurisdiction in which the conduct of its business or the
ownership or operation of its assets and properties requires such qualification.
Section 6.4 STATUS OF LIMITED LIABILITY COMPANY.
From and after the date hereof through and including the Closing Date or the
earlier termination of this Agreement, Aero shall take all actions reasonably
necessary or appropriate to maintain its status as a limited liability company
validly existing and in good standing under the laws of the state of its
organization and to maintain its qualifications as a foreign limited liability
company in good standing under the laws of each jurisdiction in which the
conduct of its business or the ownership or operation of its assets and
properties requires such qualification. In addition, from and after the date
hereof through and including the Closing Date or the earlier termination of this
Agreement, Aero shall take all actions reasonably necessary or appropriate to
maintain its status as a "partnership" for federal income tax purposes.
Section 6.5 ACCESS TO INFORMATION.
Except as prohibited or limited by law or regulation, each of the parties to
this Agreement shall, from and after the date hereof through and including the
Closing Date or the earlier termination of this Agreement, provide to each of
the other parties, and their respective employees, counsel, accountants and
other representatives, so long as each remains a party to this Agreement, full
and complete access upon reasonable notice during normal business hours, to all
officers, employees, offices, properties, agreements, records and affairs of
such party and its business, and will provide copies of such information
concerning such party and its business as any other party hereto may reasonably
request in connection with the transactions contemplated by this Agreement.
Section 6.6 CONDUCT OF BUSINESSES OF ITS PLC AND THE CONSTITUENT COMPANIES.
From and after the date hereof through and including the Closing Date or the
earlier termination of this Agreement, except with the prior written consent of
a majority of the Closing Committee, each of the parties to this Agreement
shall, and shall cause each of the Constituent Companies over which it has
control to, conduct its business in the ordinary course in a manner consistent
with its past practices. In addition, without limiting the generality of the
foregoing, each of the parties to this Agreement covenants and agreement that,
from and after the date hereof through and including the Closing, it shall, and
shall cause each of the Constituent Companies over which it has control to abide
by and comply with the following (as applicable):
(a) No Changes in Accounting Methods. Neither ITS PLC nor any of the
Constituent Companies shall adopt any change in any method of accounting or
accounting practice, except as contemplated or required by GAAP or in order
to conform such methods or practices to GAAP.
(b) No Amendments to Corporate or Similar Documents. Neither ITS PLC
nor any of the Constituent Companies shall, in the case of a corporation,
amend its charter or bylaws, or, in the case of a limited liability
company, amend its articles of organization or operating agreement.
(c) No New Employees or Employee Benefits. Except as may be required in
accordance with contractual obligations existing on the date hereof that
are contained in written agreements in effect on the date hereof which have
been disclosed in the Disclosure Letter submitted by such party to the
other parties pursuant to this Agreement, neither ITS PLC nor any of the
Constituent Companies shall employ any additional employees otherwise than
as may be necessary in the ordinary course of business, pay to any current
or former Employee any benefit that is not required by any Employee Benefit
Plan or Benefit Arrangement or adopt, amend or increase any benefits
payable under any Employee Benefit Plan or Benefit Arrangement covering any
Employee (or beneficiary or dependent).
(d) No Mergers, Etc. Neither ITS PLC nor any of the Constituent
Companies shall merge or consolidate with, or agree to merge or consolidate
with, or purchase or agree to purchase all or substantially all of the
assets of, or otherwise acquire, or make any investments in any other
business entity or interest therein or enter into any joint
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venture or similar arrangement with any other person, party or business entity
except as may be contemplated specifically by the terms of this Agreement.
(e) No Issuance or Redemption of Securities. Except (i) as contemplated
by this Agreement or (ii) as may be required in accordance with obligations
under options, warrants or other contractually enforceable obligations to sell
or issue stock or equity interests or securities convertible into or
exchangeable for stock or equity interests, which have been disclosed in the
Disclosure Letter submitted by such parties to the other parties pursuant to
this Agreement, neither ITS PLC nor any of the Constituent Companies shall
authorize for issuance, issue or sell any additional shares of its capital stock
or any additional equity interests or any securities or obligations convertible
into or exchangeable for shares of its capital stock or equity interests or
issue or grant any option, warrant or other right to purchase any shares of its
capital stock or equity interests or redeem, purchase or otherwise acquire, or
propose or commit to, redeem, purchase or otherwise acquire, any shares of its
capital stock or other equity interests or securities or any securities or
obligations convertible into or exchangeable for shares of its capital stock or
equity interests.
(f) No New Debt or Debt Restructuring. Except (i) in the ordinary course
of business, (ii) to pay Transaction Expenses, (iii) with the prior approval of
the Closing Committee or (iv) in connection with transactions otherwise
permitted by this Section 6.6, neither ITS PLC nor any of the Constituent
Companies shall incur or agree to incur any Debt or restructure any existing
Debt, nor shall ITS PLC or any of the Constituent Companies make any loans,
advances or capital contributions to, or investments in, any Person.
(g) Payments; Amortization of Debt. Except as described on Schedule
6.6(g), from and after the date hereof, ITS PLC and each of the Constituent
Companies shall pay its current liabilities in the ordinary course of business
consistent with past practices and amortize its Debt in the ordinary course of
business in accordance with the contractual agreements evidencing such Debt,
and, except in accordance with contractual obligations existing on the date
hereof that are contained in written agreements in effect on the date hereof
which have been disclosed in the Disclosure Letter submitted by such party to
the other parties pursuant to this Agreement, neither ITS PLC nor any of the
Constituent Companies shall make, or agree to make, except in the ordinary
course of business, consistent with past practices, any payments to any Person
on account of Debt or otherwise.
(h) No New Bids or Proposals. Neither ITS PLC nor any of the Constituent
Companies shall make or submit any bid, proposal or commitment to provide
services or to purchase or distribute any products (in response to a request for
proposal or otherwise) otherwise than in the ordinary course of business
consistent with its past practices.
(i) No Dividends or Distributions. Except as described on Schedule
6.6(i), neither ITS PLC nor any of the Constituent Companies shall declare or
distribute or pay any dividend or make any other distribution of cash or any
other asset to any stockholder, shareholder or member.
(j) No Sales of Assets Except in Ordinary Course. Except as described on
Schedule 6.6(j), neither ITS PLC nor any of the Constituent Companies shall sell
or agree to sell any assets, rights or properties otherwise than in the ordinary
course of business, or create, or suffer to exist, any Encumbrance on any of its
assets, rights or properties other than Encumbrances existing as of the date of
this Agreement.
(k) No New Material Contracts Except in Ordinary Course. Except (i) in
the ordinary course of business or (ii) as disclosed on Schedule 6.6(k), neither
ITS PLC nor any of the Constituent Companies shall make any capital expenditures
exceeding $10,000 individually or enter into or become a party to any
arrangement or contract of a type that would require the expenditure of more
than $50,000 in any 12 month period or which would otherwise be required to be
disclosed by such party in its Disclosure Letter without the prior written
consent of a majority or more of the Closing Committee.
(l) No Changes to Compensation Arrangements. Except as required by law
or contractual obligations existing on the date hereof that are contained in
written agreements in effect on the date hereof which have been disclosed in the
Disclosure Letter submitted by such party to the other parties pursuant to this
Agreement, neither ITS PLC nor any of the Constituent Companies shall (i)
increase in any manner the compensation (other than increases in the ordinary
course of business and consistent with past practice) of, or enter into any new
bonus or incentive agreement or
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arrangement with, any of its Employees, officers or directors, (ii) pay or agree
to pay any pension, retirement allowance or similar employee benefit to any
Employee, officer or director, (iii) enter into any new employment, severance,
consulting or other compensation agreement with any existing Employee, officer
or director; or (iv) commit itself to any additional pension, profit-sharing,
deferred compensation, group insurance, severance pay, retirement or other
Employee Benefit Plan, fund or similar arrangement or amend or commit itself to
amend any of such plans, funds or similar arrangements in existence on the date
hereof.
Section 6.7 DELIVERY OF FINANCIAL STATEMENTS.
On or before September 30, 1998, (a) ITS PLC shall deliver to Aero and to the
Holding Company the unaudited consolidated balance sheet and the related
statement of operations of ITS PLC as at August 31, 1998 and for the five month
period then ended, and (b) Aero shall deliver to ITS PLC and to the Holding
Company the unaudited balance sheet and related statement of operations of Aero
as at August 31, 1998 and for the eight month period then ended; provided that,
if the Closing Date shall be after October 20, 1998, (c) ITS PLC shall also
deliver to Aero and to the Holding Company the unaudited consolidated balance
sheet and the related statement of operations of ITS PLC as at September 30,
1998 and for the six month period then ended, and (d) Aero shall also deliver to
ITS PLC and to the Holding Company the unaudited balance sheet and related
statement of operations of Aero as at September 30, 1998 and for the nine month
period then ended.
Section 6.8 CONSENTS.
From and after the date hereof, ITS PLC and each of the Constituent Companies
shall use their reasonable best efforts to (i) obtain all consents, waivers and
authorizations and make all filings with and give all notices that may be
necessary or reasonably required to consummate the transactions contemplated
hereby, and (ii) cause each of the conditions to the obligations of each of the
other parties to this Agreement to be satisfied.
Section 6.9 PUBLIC STATEMENTS.
From and after the date hereof through and including the Closing Date or the
earlier termination of this Agreement, neither ITS PLC nor any of the
Constituent Companies shall disclose to any Person other than its stockholders
or members the terms of this Agreement, or release any information concerning
any of the transactions contemplated hereby, that is intended for or is
reasonably likely to result in public dissemination thereof without the prior
written consent of the Closing Committee, except as may be required by law or by
the rules and regulations of any regulatory body including, without limitation,
the London Stock Exchange.
Section 6.10 UPDATE OF DISCLOSURE.
From and after the date hereof through and including the Closing Date or the
earlier termination of this Agreement, ITS PLC and each of the Constituent
Companies shall promptly notify the other parties hereto of the occurrence of
any material facts or circumstances that would have required disclosure pursuant
to the representations and warranties made by such party pursuant to the terms
of this Agreement if such facts or circumstances had been known to it prior to
the execution of this Agreement and of any matters that would cause any
representation or warranty to be untrue, incorrect or misleading.
Section 6.11 EMPLOYEE BENEFIT CONTRIBUTIONS.
On or prior to the Closing Date, ITS PLC and each of the Constituent Companies
shall make, and shall cause each of its ERISA Affiliates to make, all
contributions, and shall pay, or cause each of its ERISA Affiliates to pay, all
premiums with respect to liabilities arising under any Benefit Arrangement or
Employee Benefit Plan provided to its Employees with respect to liabilities or
obligations which have accrued on or prior to the Closing Date or which will
accrue following the Closing Date in respect of periods prior to and through the
Closing Date.
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Section 6.12 LOCK-UP; NO SHOPPING, SOLICITATIONS OR COMPETING NEGOTIATIONS.
Each of the parties to this Agreement hereby agrees that, from and after the
date hereof through and including the Closing Date or the earlier termination of
this Agreement, and subject to the fiduciary duties of the Board of Directors of
ITS PLC under applicable law as advised by counsel to ITS PLC, it shall not
encourage, solicit, entertain or hold any negotiations or other discussions with
any other Person relating to the possible acquisition of all or any part of its
business, whether pursuant to a sale of assets, merger, consolidation, share
exchange, tender offer or otherwise.
Section 6.13 COMPLIANCE WITH SECURITIES ACT.
The parties acknowledge that the Common Stock will not be registered under the
Securities Act in reliance upon, in respect of Non-U.S. Persons, the exemption
from registration provided by Regulation S of the Commission under the
Securities Act, and in respect of U.S. Persons, the exemption from registration
provided by Regulation D of the Commission under the Securities Act. The
parties agree to use their respective best efforts to assure that the
transactions contemplated by this Agreement will be effected in full compliance
with the requirements of Regulations D and S of the Commission.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF ITS PLC
In order to induce each of the other parties to enter into this Agreement and
to consummate the transactions contemplated hereby, and subject to the
exceptions set forth in the ITS PLC Disclosure Letter, ITS PLC represents and
warrants to Aero, the Holding Company and the Aero Holders that all of the
following representations and warranties are as of the date of this Agreement
and will be on the Closing Date and immediately before the Effective Time true
and correct:
Section 7.1 ORGANIZATION AND GOOD STANDING.
7.1.1 ITS PLC. ITS PLC is a corporation duly organized, validly existing and
in good standing under the laws of England, and has full corporate power and
authority to own, operate and lease its properties, and to conduct its business
as it is now being conducted, and is qualified to transact business as a foreign
corporation in each jurisdiction in which the operation of its business or the
ownership of its properties requires such qualification.
7.1.2 ITS Subsidiaries. ITS Investments is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, and
has full corporate power and authority to own, operate and lease its properties,
and to conduct its business as it is now being conducted, and is qualified to
transact business as a foreign corporation in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification. New London Acquisition Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power and authority to own, operate and lease its
properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. New London Oil Inc. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to own, operate and lease its properties, and
to conduct its business as it is now being conducted, and is qualified to
transact business as a foreign corporation in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification. ITS (US) Holdings Inc. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to own, operate and lease its properties, and
to conduct its business as it is now being conducted, and is qualified to
transact business as a foreign corporation in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification. ITS Supply & Logistics Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power and authority to own, operate and lease its
properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. ITS Drilling Services Inc. is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, and has full corporate power and authority to own, operate and lease
its properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. ITS Environmental Services Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has full corporate power and authority to own, operate and lease
its properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. ITS Engineered Systems Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power and authority to own, operate and lease its
properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. ITS Water Technologies Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has full corporate power and authority to own, operate and lease its
properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. New London (WSI) Inc. is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, and has full
corporate power and authority to own, operate and lease its properties, and to
conduct business as it is now being conducted, and is qualified to transact
business as a foreign corporation in each jurisdiction in which the operation of
its business or the ownership of its properties requires such qualification. ITS
UK is a corporation duly organized, validly existing and in good standing under
the laws of England, and has full corporate power and authority to own, operate
and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification. ITS Drilling Services Limited is a
corporation duly organized, validly existing and in good standing under the laws
of England, and has full corporate power and authority to own, operate and lease
its properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. International Tool & Supply Nigeria Limited is a corporation
duly organized, validly existing and in good standing under the laws of Nigeria,
and has full corporate power and authority to own, operate and lease its
properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. ITS Engineered Systems (Venezuela) S.A. is a corporation
duly organized, validly existing and in good standing under the laws of
Venezuela, and has full corporate power and authority to own, operate and lease
its properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification. ITS Drilling Services Pte Limited is a corporation duly
organized, validly existing and in good standing under the laws of Singapore,
and has full corporate power and authority to own, operate and lease its
properties, and to conduct its business as it is now being conducted, and is
qualified to transact business as a foreign corporation in each jurisdiction in
which the operation of its business or the ownership of its properties requires
such qualification.
7.1.3 Non-Majority Subsidiaries. All of the Non-Majority Subsidiaries of ITS
PLC and the ITS Subsidiaries and the equity interests in the Non-Majority
Subsidiaries are listed in the ITS Disclosure Letter.
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Section 7.2 CAPITALIZATION OF ITS PLC AND THE ITS SUBSIDIARIES.
7.2.1 Authorized Capital; Outstanding Shares.
(a) The authorized capital stock of ITS PLC consists solely of (i)
350,000,000 ITS Ordinary Shares, of which 242,926,526 ITS Ordinary Shares
have been issued and are outstanding as of the date of this Agreement. Each
of the ITS Ordinary Shares issued and outstanding as of the date hereof has
been duly authorized and validly issued and is fully paid and non-
assessable. None of the issued and outstanding ITS Ordinary Shares has been
issued in violation of shareholder preemptive rights. ITS PLC has no issued
or outstanding equity securities, debt securities or other instruments
which are convertible into or exchangeable for at any time for equity
securities of ITS PLC, except as follows: 550,000 issued and outstanding
options to purchase the corresponding number of Ordinary Shares, 19,511,358
issued and outstanding warrants to purchase the corresponding number of
Ordinary Shares, and issued and outstanding debt instruments convertible
into 1,586,000 Ordinary Shares.
(b) The authorized capital stock of ITS Investments consists solely of
(i) 25,000,000 shares of common stock, $.10 par value, of which 9,283,815
shares have been issued and are outstanding as of the date of this
Agreement, (ii) 500,000 shares of Class B non-voting common stock, $0.10
par value, of which 120,000 shares have been issued and are outstanding as
of the date of this Agreement and (iii) 10,000,000 shares of preferred
stock, $.10 par value, of which no shares have been issued as of the date
of this Agreement. Each of the shares of the capital stock of ITS
Investments issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of ITS Investments
has been issued in violation of shareholder preemptive rights. ITS
Investments has no issued or outstanding equity securities, debt securities
or other instruments which are convertible into or exchangeable for at any
time equity securities of ITS Investments.
(c) The authorized capital stock of New London Acquisition Company
consists solely of 10,000 shares of a single class of common stock, $.01
par value, of which 1,000 shares have been issued and are outstanding as of
the date of this Agreement. Each of the shares of the capital stock of New
London Acquisition Company issued and outstanding as of the date hereof has
been duly authorized and validly issued and is fully paid and non-
assessable. None of the shares of the issued and outstanding capital stock
of New London Acquisition Company has been issued in violation of
shareholder preemptive rights. New London Acquisition Company has no issued
or outstanding equity securities, debt securities or other instruments
which are convertible into or exchangeable for at any time equity
securities of New London Acquisition Company.
(d) The authorized capital stock of New London Oil Inc. consists solely
of 10,000 shares of a single class of common stock, $.01 par value, of
which 10,000 shares have been issued and are outstanding as of the date of
this Agreement. Each of the shares of the capital stock of New London Oil
Inc. issued and outstanding as of the date hereof has been duly authorized
and validly issued and is fully paid and non-assessable. None of the shares
of the issued and outstanding capital stock of New London Oil Inc. has been
issued in violation of shareholder preemptive rights. New London Oil Inc.
has no issued or outstanding equity securities, debt securities or other
instruments which are convertible into or exchangeable for at any time into
equity securities of New London Oil Inc.
(e) The authorized capital stock of ITS (US) Holdings Inc. consists
solely of 1,000 shares of a single class of common stock, $.01 par value,
of which 1,000 shares have been issued and are outstanding as of the date
of this Agreement. Each of the shares of the capital stock of ITS (US)
Holdings Inc. issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of ITS (US) Holdings
Inc. has been issued in violation of shareholder preemptive rights. ITS
(US) Holdings Inc. has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable
for at any time into equity securities of ITS (US) Holdings Inc.
(f) The authorized capital stock of ITS Supply & Logistics Inc. consists
solely of 1,000 shares of a single class of common stock, $.01 par value,
of which 1,000 shares have been issued and are outstanding as of the date
of this Agreement. Each of the shares of the capital stock of ITS Supply &
Logistics Inc. issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares
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of the issued and outstanding capital stock of ITS Supply & Logistics Inc.
has been issued in violation of shareholder preemptive rights. ITS Supply &
Logistics Inc. has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable
for at any time into equity securities of ITS Supply & Logistics Inc.
(g) The authorized capital stock of ITS Drilling Services Inc. consists
solely of 1,000 shares of a single class of common stock, $.01 par value,
of which 1,000 shares have been issued and are outstanding as of the date
of this Agreement. Each of the shares of the capital stock of ITS Drilling
Services Inc. issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of ITS Drilling
Services Inc. has been issued in violation of shareholder preemptive
rights. ITS Drilling Services Inc. has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into
or exchangeable for at any time into equity securities of ITS Drilling
Services Inc.
(h) The authorized capital stock of ITS Environmental Services Inc.
consists solely of 1,000 shares of a single class of common stock, $.01 par
value, of which 100 shares have been issued and are outstanding as of the
date of this Agreement. Each of the shares of the capital stock of ITS
Environmental Services Inc. issued and outstanding as of the date hereof
has been duly authorized and validly issued and is fully paid and non-
assessable. None of the shares of the issued and outstanding capital stock
of ITS Environmental Services Inc. has been issued in violation of
shareholder preemptive rights. ITS Environmental Services Inc. has no
issued or outstanding equity securities, debt securities or other
instruments which are convertible into or exchangeable for at any time into
equity securities of ITS Environmental Services Inc.
(i) The authorized capital stock of ITS Engineered Systems Inc. consists
solely of 3,000 shares of a single class of common stock, no par value, of
which 1,000 shares have been issued and are outstanding as of the date of
this Agreement. Each of the shares of the capital stock of ITS Engineered
Systems Inc. issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of ITS Engineered
Systems Inc. has been issued in violation of shareholder preemptive rights.
ITS Engineered Systems Inc. has no issued or outstanding equity securities,
debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of ITS Engineered
Systems Inc.
(j) The authorized capital stock of New London (WSI) Inc. consists
solely of 10,000 shares of a single class of common stock, $0.01 par value,
of which 10,000 shares have been issued and are outstanding as of the date
of this Agreement. Each of the shares of the capital stock of New London
(WSI) Inc. issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of New London (WSI)
Inc. has been issued in violation of shareholder preemptive rights. New
London (WSI) Inc. has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable
for at any time into equity securities of New London (WSI) Inc.
(k) The authorized capital stock of ITS Water Technologies Inc. consists
solely of 1,000 shares of a single class of common stock, $.01 par value,
of which 1,000 shares have been issued and are outstanding as of the date
of this Agreement. Each of the shares of the capital stock of ITS Water
Technologies Inc. issued and outstanding as of the date hereof has been
duly authorized and validly issued and is fully paid and non-assessable.
None of the shares of the issued and outstanding capital stock of ITS Water
Technologies Inc. has been issued in violation of shareholder preemptive
rights. ITS Water Technologies Inc. has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into
or exchangeable for at any time into equity securities of ITS Water
Technologies Inc.
(l) The authorized capital stock of ITS UK consists solely of 100
ordinary shares, (Pounds)1.00 par value, of which 2 shares have been issued
and are outstanding as of the date of this Agreement and 25,500,000
Ordinary Shares, $1.00 par value, of which 4,750,000 shares have been
issued and are outstanding as of the date of this Agreement. Each of the
shares of the capital stock of ITS UK issued and outstanding as of the date
hereof has been duly authorized and validly issued and is fully paid and
non-assessable. None of the shares of the issued and outstanding capital
stock of ITS UK has been issued in violation of shareholder preemptive
rights. ITS UK has no issued or
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outstanding equity securities, debt securities or other instruments which
are convertible into or exchangeable for at any time into equity securities
of ITS UK.
(m) The authorized capital stock of ITS Drilling Services Limited
consists solely of 1,000,000 ordinary shares, (Pounds)1.00 par value, of
which 1,000,000 shares have been issued and are outstanding as of the date
of this Agreement. Each of the shares of the capital stock of ITS Drilling
Services Limited issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of ITS Drilling
Services Limited has been issued in violation of shareholder preemptive
rights. ITS Drilling Services Limited has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into
or exchangeable for at any time into equity securities of ITS Drilling
Services Limited.
(n) The authorized capital stock of International Tool & Supply Nigeria
Limited consists solely of 2,000,000 shares of a single class of common
stock, N1.00 par value, of which 2,000,000 shares have been issued and are
outstanding as of the date of this Agreement. Each of the shares of the
capital stock of International Tool & Supply Nigeria Limited issued and
outstanding as of the date hereof has been duly authorized and validly
issued and is fully paid and non-assessable. None of the shares of the
issued and outstanding capital stock of International Tool & Supply Nigeria
Limited has been issued in violation of shareholder preemptive rights.
International Tool & Supply Nigeria Limited has no issued or outstanding
equity securities, debt securities or other instruments which are
convertible into or exchangeable for at any time into equity securities of
International Tool & Supply Nigeria Limited.
(o) The authorized capital stock of ITS Engineered Systems (Venezuela)
S.A. consists solely of 500,000 shares of a single class of common stock,
Bs 1,000 par value, of which 5,000 shares have been issued and are
outstanding as of the date of this Agreement. Each of the shares of the
capital stock of ITS Engineered Systems (Venezuela) S.A. issued and
outstanding as of the date hereof has been duly authorized and validly
issued and is fully paid and non-assessable. None of the shares of the
issued and outstanding capital stock of ITS Engineered Systems (Venezuela)
S.A. has been issued in violation of shareholder preemptive rights. ITS
Engineered Systems (Venezuela) S.A. has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into
or exchangeable for at any time into equity securities of ITS Engineered
Systems (Venezuela) S.A.
(p) The authorized capital stock of ITS Drilling Services Pte Limited
consists solely of 5,000 shares of a single class of common stock, S$2.00
par value, of which 241,000 shares have been issued and are outstanding as
of the date of this Agreement. Each of the shares of the capital stock of
ITS Drilling Services Pte Limited issued and outstanding as of the date
hereof has been duly authorized and validly issued and is fully paid and
non-assessable. None of the shares of the issued and outstanding capital
stock of ITS Drilling Services Pte Limited has been issued in violation of
shareholder preemptive rights. ITS Drilling Services Pte Limited has no
issued or outstanding equity securities, debt securities or other
instruments which are convertible into or exchangeable for at any time into
equity securities of ITS Drilling Services Pte Limited.
7.2.2 No Obligations to Issue or Redeem Shares. Neither ITS PLC nor any of the
ITS Subsidiaries is subject to any commitment or obligation which would require
the issuance or sale of shares of its capital stock at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of any of ITS
PLC or the ITS Subsidiaries. Neither ITS PLC nor any of the ITS Subsidiaries has
any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
7.2.3 Ownership of Shares. As of the date hereof the ITS PLC Disclosure Letter
contains a true, complete and accurate list of each of the record and beneficial
owners of the shares of the capital stock of each of the ITS Subsidiaries,
together with the name and address of each such holder. There are no agreements,
pledges, powers of attorney, assignments or similar agreements or arrangements
either (a) restricting the transferability of any of the shares of the capital
stock of any of the ITS Subsidiaries or (b) which reasonably could be expected
to prohibit or delay the consummation of the transactions contemplated hereby.
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Section 7.3 SUBSIDIARIES; INVESTMENTS.
Except for the ITS Subsidiaries, ITS PLC does not own any shares of capital
stock or equity securities of, or any interest in any other entity, and ITS PLC
has good, valid and marketable title, free and clear of all Encumbrances, to all
shares of capital stock or equity securities of, or interests in, ITS
Investments and ITS UK.
Section 7.4 EXECUTION AND EFFECT OF AGREEMENT.
ITS PLC has the corporate power to enter into this Agreement and the Ancillary
Agreements to which it is a party and to perform its obligations hereunder and
thereunder. This Agreement has been duly executed and delivered by ITS PLC and
constitutes and when executed and delivered hereunder by ITS PLC, each of the
Ancillary Agreements to which it is a party will constitute the legal, valid and
binding obligation of ITS PLC, fully enforceable against ITS PLC in accordance
with its terms; except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the exercise of judicial discretion in accordance with
general principles of equity.
Section 7.5 RESTRICTIONS.
The execution and delivery by ITS PLC of this Agreement and the Ancillary
Agreements to which it is a party, the consummation of the transactions
contemplated hereby by ITS PLC, and, subject to the ITS Securities Holders
Approvals, the performance of the obligations of ITS PLC hereunder, will not (a)
violate any of the provisions of the charter or by-laws of ITS PLC, (b) violate
or conflict with the provisions of any Applicable Laws, (c) result in the
creation of any Encumbrance upon any of the assets, rights or properties of ITS
PLC, or (d) conflict with, violate any provisions of, result in a breach of or
give rise to a right of termination, modification or cancellation of, constitute
a default of, or accelerate the performance required by, with or without the
passage of time or the giving of notice or both, the terms of any material
agreement, indenture, mortgage, deed of trust, security or pledge agreement,
lease, contract, note, bond, license, permit, authorization or other instrument
to which ITS PLC or any of the ITS Subsidiaries is a party or to which any of
the assets of ITS PLC or any of the ITS Subsidiaries is subject.
Section 7.6 CONSENTS.
No filing with, or consent, waiver, approval or authorization of, or notice
to, any Governmental Authority or any third party is required to be made or
obtained by ITS PLC or any of the ITS Subsidiaries in connection with the
execution and delivery of this Agreement, any Ancillary Agreement to which ITS
PLC or any of the ITS Subsidiaries is a party or any other document or
instrument contemplated hereby to which ITS PLC or any of the ITS Subsidiaries
is a party, the consummation of any of the transactions contemplated hereby or
the performance of any of its or their respective obligations hereunder or
thereunder.
Section 7.7 ITS SECURITIES HOLDERS APPROVALS.
No approval by the ITS Securities Holders of the consummation and performance
by ITS PLC of the transactions contemplated by this Agreement is required except
for the ITS Securities Holders Approvals.
Section 7.8 ITS FINANCIAL STATEMENTS.
The ITS PLC Disclosure Letter contains true and correct copies of the audited
consolidated balance sheets and related statements of profit and loss and cash
flows as at March 31, 1996 and 1997 and for the years then ended; the audited
combined balance sheets and related statements of income, cash flows and
shareholders' equity of ITS Investments and ITS UK as at March 31, 1996, 1997
and 1998; the unaudited consolidated balance sheet and related statement of
income of ITS PLC as at March 31, 1998 and for the year then ended; and the
unaudited consolidated balance sheet and related statement of income of ITS PLC
as at July 31, 1998 and for the four month period then ended (collectively,
including the financial statements delivered by ITS PLC pursuant to Section 6.7,
the "ITS Financial Statements"). All of the audited and unaudited consolidated
financial statements of ITS PLC have been prepared in accordance with the
Companies Act 1985, and the audited combined financial statements of ITS
Investments and ITS
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UK have been prepared in accordance with GAAP. All of the ITS Financial
Statements have been prepared in a manner consistent with each other and the
books and records of ITS PLC or the ITS Subsidiaries, and fairly present in all
material respects the financial condition and results of operations of ITS PLC
or the ITS Subsidiaries at the dates and for the periods indicated therein. The
regular books of account of ITS PLC and each of the ITS Subsidiaries fairly and
accurately reflect all material transactions involving ITS PLC or such ITS
Subsidiary, are true, correct and complete and have been prepared on a basis
consistent with the ITS Financial Statements.
Section 7.9 HOLDING COMPANY.
ITS PLC engages in no operations, and does not own, lease or hold rights to or
in any material assets, properties or rights or any nature other than the
outstanding capital stock of ITS Investments and ITS UK.
Section 7.10 DEBT.
The ITS PLC Disclosure Letter contains a true, complete and accurate listing
as of the date hereof the original principal amount of all of the Debt of ITS
PLC and each of the ITS Subsidiaries, the remaining principal balance thereof,
the interest rate(s) payable by ITS PLC and each of the ITS Subsidiaries in
respect thereof, if any, and the date(s) of maturity thereof. All of the Debt
of ITS PLC and each of the ITS Subsidiaries may be prepaid at any time, without
premium, prepayment penalties, termination fees or other fees or charges.
Section 7.11 GUARANTEES.
The ITS PLC Disclosure Letter contains a complete list of all Guarantees
provided by ITS PLC or any of the ITS Subsidiaries for the benefit of any other
party and of all Guarantees provided by any other party for the benefit of ITS
PLC or any of the ITS Subsidiaries or any party doing business with ITS PLC or
any of the ITS Subsidiaries.
Section 7.12 NO UNDISCLOSED LIABILITIES.
Neither ITS PLC nor any of the ITS Subsidiaries has any material liabilities
or obligations of any nature whatsoever (whether known or unknown, due or to
become due, absolute, accrued, contingent or otherwise, and whether or not
determined or determinable), except for (a) liabilities or obligations to the
extent expressly reflected on or reserved against in the ITS Balance Sheet or
disclosed in the notes thereto, (b) liabilities or obligations of a type
reflected on the ITS Balance Sheet and incurred in the ordinary course of
business and consistent with past practices since July 31, 1998, and (c)
liabilities or obligations which do not exceed $25,000 and which arise under the
terms of the Material Contracts of ITS PLC or any of the ITS Subsidiaries.
Except as otherwise contemplated or permitted by this Agreement, no dividends
declared on any capital stock of ITS PLC or any of the ITS Subsidiaries are
unpaid.
Section 7.13 LITIGATION.
There is no suit, claim, action at law or in equity, proceeding or
governmental investigation or audit pending, or, to the knowledge of the
management of ITS PLC, threatened, by or before any court, any Governmental
Authority or arbitrator, against ITS PLC or any of the ITS Subsidiaries that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. There is no material suit, claim, action at
law or in equity, proceeding or governmental investigation or audit pending, or
to the knowledge of the management of ITS PLC, threatened, by or before any
arbitrator, court, or other Governmental Authority, against any of the ITS
Subsidiaries or involving any of the former or present employees, agents,
businesses, properties, rights or assets of any of the ITS Subsidiaries, nor, to
the knowledge of the management of ITS PLC, is there any basis for the assertion
of any of the foregoing. There are no judgments, orders, injunctions, decrees,
stipulations or awards rendered by any court, Governmental Authority or
arbitrator currently binding or effective against any of the ITS Subsidiaries or
any of their respective former or present employees, agents, properties or
assets.
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Section 7.14 PROPERTIES; ABSENCE OF ENCUMBRANCES.
The ITS PLC Disclosure Letter sets forth a complete list of all real property
owned by or leased to ITS PLC or any of the ITS Subsidiaries, and, with respect
to all properties leased by ITS PLC or any of the ITS Subsidiaries, a
description of the term of such lease and the monthly rental thereunder. None
of the ITS Subsidiaries is in default (and will not be in default with the
passage of time or the receipt of notice or both) and has not received notice of
default, under any lease of real property. All real property leased to any of
the ITS Subsidiaries is available for immediate use in the operation of its
business and for the purpose for which such property currently is being
utilized. Subject in the case of leased property to the terms and conditions of
the respective leases, one or more of the ITS Subsidiaries has full legal and
practical access to all such real property. The ITS Subsidiaries own (with good
and marketable title in the case of real estate) all the property and assets
(whether real, personal, tangible or intangible) that they purport to own,
including without limitation, all of the properties and assets reflected in the
ITS Balance Sheets and all properties and assets purchased or otherwise acquired
by the ITS Subsidiaries since July 31, 1998. All material properties and assets
reflected in the ITS Balance Sheets are free and clear of all Encumbrances, and
are not, in the case of real property, subject to any rights of way, servitudes,
use restrictions or limitations of any nature except (a) mortgage or security
interests shown on the ITS Balance Sheets as securing specified liabilities or
obligations, with respect to which no default (or event of that, with notice or
lapse of time or both would constitute a default) exists, (b) liens for current
taxes not yet due, (c) minor imperfections of title, if any, none of which is
substantial in amount, materially detracts from the value or materially impairs
the use of the property or impairs the operations of any ITS Subsidiary and (d)
zoning and other land use restrictions of general application that do not impair
the present or anticipated use of the property.
Section 7.15 ACCOUNTS RECEIVABLE.
All accounts receivable of the ITS Subsidiaries that are reflected on the ITS
Balance Sheets or on the accounting records of the ITS Subsidiaries as of the
Closing Date (collectively, the "ITS Accounts Receivable") represent and will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business of the ITS Subsidiaries.
ITS PLC has no accounts receivable. Unless paid prior to the Closing Date, the
ITS Accounts Receivable are and will be as of the Closing Date current and
collectible net of the respective reserves shown on the ITS Balance Sheets or on
the accounting records of the ITS Subsidiaries as of the Closing Date. Such
reserves are adequate and have been and will be calculated consistent with past
practice. Such reserves as of the Closing Date will not constitute a greater
percentage of the ITS Accounts Receivable on the Closing Date than such
percentage of reserves reflected on the ITS Balance Sheets. As of the Closing
Date, there will be no material adverse changes in the composition of the ITS
Accounts Receivable in terms of aging. Subject to such reserves, each of the
ITS Accounts Receivable either has been or will be collected in full, without
any set-off, within 90 days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the ordinary course of business of the ITS Subsidiaries relating to the amount
or validity of such ITS Accounts Receivable.
Section 7.16 INVENTORY.
All inventory of the ITS Subsidiaries, whether or not reflected in the ITS
Balance Sheets, consists of a quality and quantity usable and salable in the
ordinary course of business, except for obsolete items and items below-standard
quality, all of which have been written off or written down to net realizable
value in the ITS Balance Sheets or on the accounting records of the ITS
Subsidiaries as of the Closing Date, as the case may be. ITS PLC has no
inventory. All inventories not written off or written down have been priced at
the lower of cost or market. The quantities of each line of inventory (whether
raw materials, work-in-progress, or finished goods) are not excessive, but are
reasonable in the present circumstances of the ITS Subsidiaries.
Section 7.17 CONDITION AND SUFFICIENCY OF ASSETS.
The buildings, plants, structures, and equipment of the ITS Subsidiaries are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment of the ITS Subsidiaries
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are sufficient for the continued conduct of the businesses of the ITS
Subsidiaries after Closing in substantially the same manner as conducted prior
to Closing.
Section 7.18 INTELLECTUAL PROPERTY.
7.18.1 List of Intellectual Property. The ITS PLC Disclosure Letter sets
forth a complete list of all Intellectual Property owned, used or licensed by
ITS PLC and any of the ITS Subsidiaries, together with the identity of the owner
thereof, and all license agreements pursuant to which any Intellectual Property
is licensed to or by ITS PLC or any of the ITS Subsidiaries. Each of ITS
Subsidiaries owns its respective Intellectual Property free and clear of any and
all Encumbrances, or, in the case of licensed Intellectual Property, has valid,
binding and enforceable rights to use such Intellectual Property. Each of the
ITS Subsidiaries has duly and timely filed all renewals, continuations and other
filings necessary to maintain its Intellectual Property or registrations
thereof.
7.18.2 No Infringement. Except as disclosed in the ITS PLC Disclosure
Letter, none of the ITS Subsidiaries has received any notice or claim to the
effect that the use of any Intellectual Property infringes upon, conflicts with
or misappropriates the rights of any other party or that any of the Intellectual
Property is not valid or enforceable or has made any claim that any party has
violated or infringed upon its rights with respect to any Intellectual Property.
Section 7.19 MATERIAL CONTRACTS.
7.19.1 List of Material Contracts. The ITS PLC Disclosure Letter sets forth as
of the date hereof a list of all material written, and a description of all
oral, commitments, agreements or contracts to which ITS PLC or any of the ITS
Subsidiaries is a party or by which ITS PLC or any of the ITS Subsidiaries is
obligated, identifying in each case the parties to each such commitment,
agreement or contract, including, but not limited to, all commitments,
agreements or contracts embodying or evidencing the following transactions or
arrangements: (a) agreements for the employment of, or independent contractor
arrangements with, any officer or other individual employee of ITS PLC or any of
the ITS Subsidiaries; (b) any consulting agreement, agency agreement and any
other service agreement that will continue in force after the Closing Date with
respect to the employment or retention by ITS PLC or any of the ITS Subsidiaries
of consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (c) any single contract, purchase order or commitment providing for
expenditures by ITS PLC or any of the ITS Subsidiaries after the date hereof of
more than $25,000 or which has been entered into by ITS PLC or any of the ITS
Subsidiaries otherwise than in the ordinary course of business; (d) agreements
between ITS PLC or any of the ITS Subsidiaries and suppliers to ITS PLC or any
of the ITS Subsidiaries pursuant to which ITS PLC or any of the ITS Subsidiaries
is obligated to purchase or to sell or distribute the products of any other
party other than current purchase orders entered into in the ordinary course of
business consistent with past practices; (e) any contract containing covenants
limiting the freedom of ITS PLC or any of the ITS Subsidiaries or any officer,
director, or employee of ITS PLC or any of the ITS Subsidiaries to engage in any
line or type of business or with any person in any geographic area; (f) any
commitment or arrangement by ITS PLC or any of the ITS Subsidiaries to
participate in a strategic alliance, partnership, joint venture, limited
liability company or other cooperative undertaking with any other Person; (g)
any commitments by ITS PLC or ITS PLC or any of the ITS Subsidiaries for capital
expenditures involving more than $25,000 individually or $50,000 in the
aggregate; and (h) any other contract, commitment, agreement, understanding or
arrangement that the management of ITS PLC deems to be material to the business
of any of the ITS Subsidiaries.
7.19.2 No Breaches or Defaults. ITS PLC and each of the ITS Subsidiaries are
in full compliance with each, and are not in default under any, Material
Contract to which it is a party, and no event has occurred that, with notice or
lapse of time or both, would constitute such a default thereunder. Neither ITS
PLC nor any of the ITS Subsidiaries has waived any rights under or with respect
to any of the Material Contracts to which it is a party. The management of ITS
PLC has no knowledge, has not received any notice to the effect, that any party
with whom ITS PLC or any of the ITS Subsidiaries has contractual arrangements
under the Material Contracts, is in default under any such contractual
arrangements or that any event has occurred that, with notice or lapse of time
or both, would constitute such a default thereunder. Each of the Material
Contracts constitutes a legal, valid and binding obligation of each of the
parties thereto and is enforceable against each of the parties thereto in
accordance with its respective terms; except as enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance,
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moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 7.20 EMPLOYEE BENEFITS AND EMPLOYMENT MATTERS.
7.20.1 Plans and Arrangements. The ITS PLC Disclosure Letter sets forth a
true, complete and correct list of all Employee Benefit Plans and all Benefit
Arrangements to which ITS PLC or any of the ITS Subsidiaries or any ERISA
Affiliate of ITS PLC or any of the ITS Subsidiaries is a party or to which ITS
PLC or any of the ITS Subsidiaries or any ERISA Affiliate of ITS PLC or any of
the ITS Subsidiaries is obligated to contribute. None of the Employee Benefit
Plans to which ITS PLC or any of the ITS Subsidiaries or any ERISA Affiliate of
ITS PLC or any of the ITS Subsidiaries is a party, which ITS PLC or any of the
ITS Subsidiaries or any ERISA Affiliate of ITS PLC or any of the ITS
Subsidiaries sponsors or maintains or to which ITS PLC or any of the ITS
Subsidiaries or any ERISA Affiliate of ITS PLC or any of the ITS Subsidiaries
contributes is subject to the requirements of Section 302 of ERISA or Section
412 of the Code.
7.20.2 Compliance with Laws and Terms of Plans. Each Employee Benefit Plan and
Benefit Arrangement to which ITS PLC or any of the ITS Subsidiaries or any ERISA
Affiliate of ITS PLC or any of the ITS Subsidiaries is a party or to which ITS
PLC or any of the ITS Subsidiaries or any ERISA Affiliate of ITS PLC or any of
the ITS Subsidiaries is obligated to contribute has been operated or maintained
in compliance in all material respects with all Applicable Laws, including,
without limitation, ERISA and the Code, and has been maintained in material
compliance with its terms and in material compliance with the terms of any
applicable collective bargaining agreement. With respect to any Employee Benefit
Plan that is intended to qualify under Section 401 of the Code, a favorable
determination letter as to qualification under Section 401 of the Code that
considered the Tax Reform Act of 1986 has been issued and any amendments
required for continued qualification under Section 401 of the Code have been
timely adopted and nothing has occurred subsequent to the date of such
determination letter that could adversely affect the qualified status of any
such Plan.
7.20.3 Contributions. All contributions required to be made to or benefit
liabilities arising under the terms of each Employee Benefit Plan or Benefit
Arrangement to which ITS PLC or any of the ITS Subsidiaries or any ERISA
Affiliate of ITS PLC or any of the ITS Subsidiaries is a party or to which ITS
PLC or any of the ITS Subsidiaries or any ERISA Affiliate of ITS PLC or any of
the ITS Subsidiaries is obligated to contribute, under ERISA or the Code, for
all periods of time prior to the date hereof and that are attributable to
Employees of ITS PLC or any of the ITS Subsidiaries or any ERISA Affiliate of
ITS PLC or any of the ITS Subsidiaries have been paid or otherwise adequately
accrued for or reserved against in the ITS Financial Statements.
7.20.4 Arrearages and Employment Disputes. Neither ITS PLC nor any of the ITS
Subsidiaries is liable for any arrearage of wages, any accrued or vested
vacation pay or any tax or penalty for failure to comply with any Applicable Law
relating to employment or labor above the level accrued for or reserved against
on the ITS Balance Sheet, and there is no controversy pending, threatened or in
prospect between ITS PLC or any of the ITS Subsidiaries and any of their
respective Employees nor is the management of ITS PLC aware of any basis for any
such controversy. There is no unfair labor practice charge or complaint
currently pending against ITS PLC or any of the ITS Subsidiaries with respect to
or relating to any of their respective Employees before the National Labor
Relations Board or any other agency having jurisdiction over such matters and no
charges or complaints are currently pending against ITS PLC or any of the ITS
Subsidiaries before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in the normal course of operation of such Employee
Benefit Plans or Benefit Arrangements, and, to the knowledge of the management
of ITS PLC, no Employee Benefit Plan or Benefit Arrangement is under audit or
investigation by any Governmental Authority.
7.20.5 Severance Obligations. All current employees of ITS PLC and any of the
ITS Subsidiaries may be terminated at will, without notice and without incurring
any severance or other liability or obligation to the employee in connection
with the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the ITS PLC Disclosure
Letter, neither the execution, delivery or performance of this
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Agreement nor the consummation of the Closing will (a) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (b)
result in the acceleration of the time of payment or vesting of any such
benefits, or (c) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by ITS PLC or any of the ITS Subsidiaries or any ERISA
Affiliate of ITS PLC or any of the ITS Subsidiaries to any Employee in
connection with the execution, delivery or performance of this Agreement or as a
result of the consummation of the Closing.
7.20.6 Compliance with Laws on Employment Practices. ITS PLC and each of the
ITS Subsidiaries have complied in all material respects with all Applicable laws
relating to employment and employment practices, terms and conditions of
employment, wages and hours, and to the knowledge of the management of ITS PLC,
are not engaged in any unfair labor practice with respect to any of the current
employees of ITS PLC or any of the ITS Subsidiaries; and to the knowledge of ITS
PLC, none of the persons performing services for ITS PLC or any of the ITS
Subsidiaries or any ERISA Affiliate of ITS PLC or any of the ITS Subsidiaries
has been improperly classified as independent contractors or as being exempt
from payment of wages or overtime.
7.20.7 Collective Bargaining Agreements. None of the employees of ITS PLC or
any of the ITS Subsidiaries is subject to any collective bargaining agreement
nor is ITS PLC or any of the ITS Subsidiaries required under any agreement to
recognize or bargain with any labor organization or union on behalf of its
employees.
7.20.8 No Multi-Employer Plans. Neither ITS PLC nor any of the ITS
Subsidiaries or ERISA Affiliates of ITS or any of the ITS Subsidiaries has
contributed to, or had the obligation to contribute to, any Multiemployer Plan
within the five-year period ending on the date of this Agreement.
7.20.9 No Amendments to Plans. There has been no amendment to, written
interpretation or announcement (whether or not written) by ITS PLC or any of the
ITS Subsidiaries or any ERISA Affiliate of ITS PLC or any of the ITS
Subsidiaries relating to, or change in employee participation or coverage under,
any Employee Benefit Plan or Benefit Arrangement that would increase materially
the expense of maintaining such Employee Benefit Plan or Benefit Arrangement
above the level of the expense incurred in respect thereof for the fiscal year
of ITS PLC ended March 31, 1998.
7.20.10 No Unfunded Liabilities. Neither ITS PLC nor any of the ITS
Subsidiaries nor any ERISA Affiliate of ITS PLC or any of the ITS Subsidiaries
has any current or projected liability for any unfunded post-retirement medical
or life insurance benefits in connection with any Employee of ITS PLC or any of
the ITS Subsidiaries or any ERISA Affiliate of ITS PLC or any of the ITS
Subsidiaries.
7.20.11 No Prohibited Transactions. No event has occurred with respect to any
Employee Benefit Plan or any Employee Benefit Plan previously sponsored,
maintained or contributed to by ITS PLC or any of the ITS Subsidiaries or any
ERISA Affiliate of ITS PLC or any of the ITS Subsidiaries, which could subject
any such Employee Benefit Plan, ITS PLC, any ERISA Affiliate of ITS PLC, any of
the ITS Subsidiaries, any ERISA Affiliate of any of the ITS Subsidiaries, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither ITS PLC nor any of the ITS Subsidiaries nor
any ERISA Affiliate of ITS PLC or any of the ITS Subsidiaries has incurred a
"withdrawal" or "partial withdrawal," as defined in Sections 4203 and 4205 of
ERISA, from, or failed to timely make contributions to any Multiemployer Plan
which has resulted in any unpaid liability of ITS PLC or any of the ITS
Subsidiaries or any ERISA Affiliate of ITS PLC or any of the ITS Subsidiaries.
7.20.12 Welfare Benefit Plans. (a) None of the Employee Benefit Plans that are
"employee welfare benefit plans" as defined in ERISA Section 3(1) provides for
continuing benefits or coverage for any participant or beneficiary of a
participant after such participant's termination of employment, except to the
extent required by law; provided that any disclosure regarding this clause (a)
shall set forth (i) the number of individuals currently receiving such
continuing benefits or coverage, (ii) the limit on liability with respect to
such coverage, (iii) the terms and conditions of such coverage, and (iv) the
maximum number of current employees or independent contractors who could become
eligible for
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such continuing benefits or coverage; (b) to the knowledge of the management of
ITS PLC, there has been no violation of Code Section 4980B or ERISA Sections
601-609 with respect to any such plan that could result in any material
liability; (c) no such plans are "multiple employer welfare arrangements" within
the meaning of ERISA Section 3(40); (d) with respect to any such plans that are
self-insured, no claims have been made pursuant to any such plan that have not
yet been paid (other than claims which have not yet been paid but are in the
normal course of processing) and no individual has incurred injury, sickness or
other medical condition with respect to which claims may be made pursuant to any
such plan where the liability to the employer could in the aggregate with
respect to each such individual exceed $50,000 per year; (e) neither ITS PLC nor
any of the ITS Subsidiaries nor any ERISA Affiliate of ITS PLC or any of the ITS
Subsidiaries maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other welfare benefit fund as defined at Section 419(e) of the Code (such
disclosure to include the amount of any such funding); (f) no such plan is
intended to satisfy Code Section 125; (g) no amounts are required in connection
with any such plan to be included in income under Code Section 105(h) (under
official regulations thereof to date); and (h) neither ITS PLC nor any of the
ITS Subsidiaries nor any ERISA Affiliate of ITS PLC or any of the ITS
Subsidiaries maintains a nonconforming group health plan as defined at Section
5000(c) of the Code.
Section 7.21 TAX MATTERS.
7.21.1 Tax Returns and Payment of Taxes. ITS PLC and each of the ITS
Subsidiaries have timely filed or will timely file all federal, state, local,
and other Tax Returns required to be filed by it under Applicable Laws,
including estimated Tax returns and reports and consolidated federal Income Tax
Returns and state, local or foreign Income Tax Returns filed on a consolidated,
unitary or combined basis, and ITS PLC and each of the ITS Subsidiaries have
paid all required Income Taxes and other Taxes (including any additions to
Taxes, penalties and interest related thereto) due and payable on or before the
date hereof (and will duly and timely pay all such amounts required to be paid
between the date hereof and the Closing Date). ITS PLC and each of the ITS
Subsidiaries have paid, withheld, or will pay any and all Taxes in respect of
the conduct of its business or the ownership of its property and in respect of
any transaction for all periods (or portions thereof) through the close of
business on the Closing Date. ITS PLC and each of the ITS Subsidiaries have
collected all sales, use and value added Taxes and other withholding Taxes
required to be collected, and have remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and has furnished
properly completed exemption certificates for all exempt transactions.
7.21.2 Tax Reserves. The amount of the liability of ITS PLC and each of the
ITS Subsidiaries for unpaid Taxes for all periods ending on or before the date
of this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of the liability of ITS PLC and each of
the ITS Subsidiaries for unpaid Taxes for all periods ending on or before the
Closing Date will not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as such
accruals shall be reflected on the consolidated balance sheet of ITS PLC and the
ITS Subsidiaries as of the Closing Date.
7.21.3 Audits; No Deficiencies Asserted. None of the Tax Returns of ITS PLC or
any of the ITS Subsidiaries has ever been audited by any Tax Authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally), and all deficiencies asserted against ITS PLC or any of
the ITS Subsidiaries as a result of any Tax Authority examinations have been
paid or finally settled and no issue has been raised by any Tax Authority
examination that, by application of the same principles, is likely to result in
a proposed deficiency for any other period not so examined. No material
deficiencies with respect to Taxes, additions to Tax, interest, or penalties
have been proposed or asserted against and communicated to ITS PLC or any of the
ITS Subsidiaries, except those that have been paid in full and for those matters
that would not result in liability being imposed against ITS PLC or any of the
ITS Subsidiaries.
7.21.4 No Waivers of Limitations. There are no agreements, waivers of statutes
of limitations, or other arrangements providing for extensions of time in
respect of the assessment or collection of any unpaid Tax against ITS PLC or any
of the ITS Subsidiaries. ITS PLC and each of the ITS Subsidiaries have disclosed
on its or their United States federal Income Tax Returns all positions taken
therein that could, if not so disclosed, give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
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7.21.5 No Tax Liens. There are no Encumbrances on any of the assets, rights or
properties of ITS PLC or any of the ITS Subsidiaries with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that ITS PLC or
one or more of the ITS Subsidiaries are contesting in good faith through
appropriate proceedings and for which appropriate reserves have been established
on the ITS Financial Statements.
7.21.6 Special Tax Elections or Benefits. Neither ITS PLC nor any of the ITS
Subsidiaries is a party to any safe harbor lease within the meaning of Section
168(f)(8) of the Code. No election or consent under Section 341(f) of the Code
has been made or shall be made on or prior to the Closing Date by or on behalf
of ITS PLC or any of the ITS Subsidiaries.
7.21.7 Disqualified Leasebacks. Neither ITS PLC nor any of the ITS
Subsidiaries is a party to a "disqualified leaseback or long-term agreement"
described in Section 467(b)(4) of the Code.
7.21.8 Deferrals of Income. No income or gain of ITS PLC or any of the ITS
Subsidiaries has been deferred pursuant to Treasury Regulation (S) 1.1502-13 or
1.1502-14, or Temporary Treasury Regulation (S) 1.1502-13T or 1.1502-14T.
7.21.9 Tax Sharing and Similar Agreements. Neither ITS PLC nor any of the ITS
Subsidiaries is a party to or bound by any Tax sharing, Tax indemnity or Tax
allocation agreement or other similar arrangement with any Person other than a
Constituent Company of ITS PLC.
7.21.10 No Non-Deductible Compensation Payments. Neither ITS PLC nor any of
the ITS Subsidiaries has made any payments, and is not obligated to make any
payments, that would not be deductible under Section 280G of the Code or is a
party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 7.22 ENVIRONMENTAL MATTERS.
7.22.1 Compliance with Environmental Laws. The facilities presently or
formerly occupied or used by any of the ITS Subsidiaries and any other real
property presently or formerly owned by, used by or leased to or by ITS PLC or
any of the ITS Subsidiaries (collectively, the "ITS Property"), the existing and
prior uses of such ITS Property and all operations of the businesses of each of
the ITS Subsidiaries comply and have at all times complied with all
Environmental Laws and none of the ITS Subsidiaries is in violation or has
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
7.22.2 Permits, Registrations, Approvals and Licenses. Each of the ITS
Subsidiaries has all necessary permits, registrations, approvals and licenses
required by any Governmental Authority or Environmental Law.
7.22.3 Spills, Discharges, Etc. of Hazardous Materials. There has been no
spill, discharge, leak, emission, injection, disposal, escape, dumping or
release of any kind on, beneath or above such ITS Property or into the
environment surrounding such ITS Property of any Hazardous Materials.
7.22.4 Generation, Manufacture, Etc. of Hazardous Materials. There has been no
past, and there is no current or anticipated storage, disposal, generation,
manufacture, refinement, transportation, production or treatment of any
Hazardous Materials at, upon or from such ITS Property which have not been and
are not stored and/or discharged in compliance with all Environmental Laws. No
asbestos-containing materials, underground improvements (including, but not
limited to the treatment or storage tanks, sumps, or water, gas or oil wells) or
polychlorinated biphenyls (PCBs) transformers, capacitors, ballasts, or other
equipment which contain dielectric fluid containing PCBs at levels in excess of
fifty parts per million (50 PPM) are or have ever been located on such ITS
Property.
7.22.5 Claims, Notices, Etc. There are no claims, notices of violations,
notice letters, investigations, inquiries or other proceedings now pending or,
to the knowledge of the management of ITS PLC, threatened by any Governmental
Authority or third party with respect to the business or any Property of any of
the ITS Subsidiaries (or any Constituent in interest) in connection with (a) any
actual or alleged failure to comply with any requirement of any
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Environmental Law; (b) the ownership, use, maintenance or operation of the
Property by any person; (c) the alleged violation of any Environmental Law; or
(d) the suspected presence of any Hazardous Material thereon.
Section 7.23 COMPLIANCE WITH LAWS.
Each of ITS PLC and the ITS Subsidiaries has at all times conducted its
business in material compliance with all (and has not received any notice of any
claimed violation of any) Applicable Laws.
Section 7.24 LICENSES AND PERMITS.
Each of the ITS Subsidiaries possesses all Permits necessary for the operation
of its business. Each of the ITS Subsidiaries has complied with the terms and
conditions of all Permits in all material respects and all such Permits are in
full force and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of the management of
ITS PLC, threatened, which could cause or permit revocation or suspension of or
otherwise adversely affect the maintenance of any Permits. The transactions
contemplated by this Agreement will not lead to the revocation, cancellation,
termination or suspension of any Permits.
Section 7.25 INSURANCE.
Each of the ITS Subsidiaries has regularly maintained all policies of
commercial liability, products liability, fire, casualty, worker's compensation,
life and other forms of insurance on an "occurrence" rather than a "claims made"
basis in amounts and types required by law and generally carried by reasonably
prudent, similarly situated businesses. None of the ITS Subsidiaries is in
default with respect to any provision contained in any insurance policy, nor has
any of the ITS Subsidiaries failed to give any notice or present any claim
thereunder in due and timely fashion and no cancellation, non-renewal, reduction
of coverage or arrearage in premiums has been threatened or occurred with
respect to any policy, nor is the management of ITS PLC aware of any grounds
therefor.
Section 7.26 EXTRAORDINARY TRANSACTIONS.
Except as otherwise permitted by this Agreement, since March 31, 1998, none of
ITS PLC or any of the ITS Subsidiaries has (a) mortgaged, pledged or subjected
to any Encumbrance any of its assets; (b) canceled or compromised any claim of
or debts owed to it; (c) sold, licensed, leased, exchanged or transferred any of
its assets except in the ordinary course of business; (d) entered into any
material transaction other than in the ordinary course of business; (e)
experienced any material change in the relationship or course of dealing with
any supplier, franchisee, customer or creditor; (f) suffered any material
destruction, loss or damage to any of its assets; (g) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (h) declared, set aside
or paid any dividends on or made any distributions in respect of any outstanding
shares of capital stock or made any other distributions or payments to any of
its stockholders; (i) submitted any bid, proposal, quote or commitment to any
party in response to a request for proposal or otherwise; (j) engaged in any
merger or consolidation with, or agreed to merge or consolidate with, or
purchased or agreed to purchase, all or substantially all of the assets of, or
otherwise acquire, any other party; (k) entered into any strategic alliance,
partnership, joint venture or similar arrangement with any other party; (l)
incurred or agreed to incur any Debt or prepaid or made any prepayments in
respect of Debt; (m) issued or agreed to issue to any party, any shares of stock
or other securities; (n) redeemed, purchased or agreed to redeem or purchase any
of its outstanding shares of capital stock or other securities; (o) increased
the rate of compensation payable or to become payable to any of its officers,
directors, employees or agents over the rate being paid to them as of March 31,
1998 or agreed to do so otherwise than in accordance with contractual agreements
with such parties; (p) made or agreed to make any charitable contributions or
incurred or agreed to incur any non-business expenses; or (q) charged off any
bad debts or increased its bad debt reserve except in the manner consistent with
its past practices.
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Section 7.27 BOOKS AND RECORDS.
The books of account, minute books, stock record books and other records of
the ITS Subsidiaries are complete and correct and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. The minute books of each of the ITS
Subsidiaries accurately reflect all minutes of proceedings of and actions taken
by its directors and each committee of its Board of Directors and all records of
meetings of and actions taken by its stockholders that are required by
applicable laws to be recorded in or reflected in the corporate records thereof.
At Closing, all such books and records will be in the possession of the ITS
Subsidiaries.
Section 7.28 BROKER AND FINDER FEES.
Except as set forth in Section 9.9, ITS PLC has not engaged any broker or
finder in connection with the transactions contemplated by this Agreement, and
no action by any of the foregoing will cause or support any claim to be asserted
against ITS PLC, any ITS Subsidiary, the Holding Company, Aero or any Aero
Holder by any broker, finder or intermediary in connection with such
transaction.
Section 7.29 ADEQUATE DISCLOSURE.
No representation or warranty made by ITS PLC pursuant to this Agreement, or
any statement concerning ITS PLC contained in any Exhibit or Schedule to this
Agreement, or any certificate or document furnished or to be furnished by ITS
PLC or any of the ITS Subsidiaries pursuant to the terms of this Agreement in
connection with the transactions contemplated hereby, contains any untrue or
misleading statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein not misleading.
Section 7.30 NO ADVERSE CHANGE OR CONDITIONS.
Except as expressly contemplated or permitted by this Agreement, since
March 31, 1998, each of the ITS Subsidiaries has conducted its business in the
ordinary course and consistent with past practice, and none of the ITS
Subsidiaries has suffered any change that has had a Material Adverse Effect on
the ITS Subsidiaries, taken as a whole. There are no conditions, facts,
developments or circumstances of an unusual or special nature that reasonably
could be expected to have a Material Adverse Effect upon the ITS Subsidiaries,
taken as a whole.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF AERO
In order to induce each of the other parties to enter into this Agreement and
to consummate the transactions contemplated hereby, and subject to the
exceptions set forth in the Aero Disclosure Letter, Aero represents and warrants
to ITS PLC and the Holding Company that all of the following representations and
warranties are as of the date of this Agreement and will be as of the Closing
Date and immediately before the Effective Time true and correct:
Section 8.1 ORGANIZATION AND GOOD STANDING.
Aero is a limited liability company duly organized and validly existing and in
good standing under the laws of the State of Louisiana, and has full corporate
power and authority to own, operate and lease its properties, and to conduct its
business as it is now being conducted, and is qualified to transact business as
a foreign limited liability company in each jurisdiction in which the operation
of its business or the ownership of its properties requires such qualification.
Aero has the requisite corporate power to enter into, execute and deliver this
Agreement.
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Section 8.2 CAPITALIZATION OF AERO.
8.2.1 Authorized Capital; Outstanding Membership Interests.
The authorized limited liability company membership interests of Aero consists
solely of (a) 2,000,000 Aero Common Membership Units, of which 2,000,000 Units
have been issued and are outstanding, (b) 160,000 Class A Preferred Membership
Units, of which no Units have been issued or are outstanding, and (c) 960,000
Aero Class B Preferred Membership Units, of which 960,000 Units have been issued
and are outstanding. Except as disclosed in the Aero Disclosure Letter, Aero
has no issued or outstanding equity securities, debt securities or other
instruments which are convertible into or exchangeable for at any time equity
securities of Aero.
8.2.2 No Obligations to Issue or Redeem Shares. Except as disclosed in the
Aero Disclosure Letter, Aero is not subject to any commitment or obligation
which would require the issuance or sale of shares of any equity interest at any
time under options, subscriptions, warrants, rights, calls, preemptive rights,
convertible obligations or any other fixed or contingent obligations or which
would provide the holder thereof with the right to acquire any equity securities
of Aero. Except as disclosed in the Aero Disclosure Letter, Aero has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
8.2.3 Ownership of Shares. As of the date hereof the Aero Disclosure Letter
contains a true, complete and accurate list of each of the record and beneficial
owners of membership interests of Aero, together with the name and address of
each such holder. There are no agreements, pledges, powers of attorney,
assignments or similar agreements or arrangements either (a) restricting the
transferability of any of the membership interests of Aero or (b) which
reasonably could be expected to prohibit or delay the consummation of the
transactions contemplated hereby.
Section 8.3 SUBSIDIARIES; INVESTMENTS.
Aero does not own any shares of capital stock or equity securities of, or any
interest in any other entity.
Section 8.4 EXECUTION AND EFFECT OF AGREEMENT.
Aero has the power to enter into this Agreement and the Ancillary Agreements
to which it is a party and to perform its obligations hereunder and thereunder.
This Agreement has been duly executed and delivered by Aero and constitutes and
when executed and delivered hereunder by Aero, each of the Ancillary Agreements
to which Aero is a party will constitute the legal, valid and binding obligation
of Aero, fully enforceable against Aero in accordance with its terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
Section 8.5 RESTRICTIONS.
The execution and delivery by Aero of this Agreement and the Ancillary
Agreements to which it is a party, the consummation of the transactions
contemplated hereby by Aero, and, subject to the due authorization and approval
by the Aero Holders, the performance of the obligations of Aero hereunder, will
not (a) violate any of the provisions of the operating agreement or articles of
organization of Aero, (b) violate or conflict with the provisions of any
Applicable Laws, (c) result in the creation of any Encumbrance upon any of the
assets, rights or properties of Aero, or (d) conflict with, violate any
provisions of, result in a breach of or give rise to a right of termination,
modification or cancellation of, constitute a default of, or accelerate the
performance required by, with or without the passage of time or the giving of
notice or both, the terms of any material agreement, indenture, mortgage, deed
of trust, security or pledge agreement, lease, contract, note, bond, license,
permit, authorization or other instrument to which Aero is a party or to which
any of any of the assets of Aero is subject.
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Section 8.6 CONSENTS.
No filing with, or consent, waiver, approval or authorization of, or notice
to, any Governmental Authority or any third party is required to be made or
obtained by Aero in connection with the execution and delivery of this
Agreement, any Ancillary Agreement to which Aero is a party or any other
document or instrument contemplated hereby to which Aero is a party, the
consummation of any of the transactions contemplated hereby or the performance
of Aero's obligations hereunder or thereunder.
Section 8.7 AERO FINANCIAL STATEMENTS.
The Aero Disclosure Letter contains true and correct copies of the audited
consolidated balance sheets of Aero and its subsidiary undertaking, American
Aero Cranes, as at December 31, 1995, 1996 and 1997, and related statements of
operations, cash flow and changes in members/divisional equity for the years
ended December 31, 1995 and 1996, for the period from January 1, 1997 to
September 18, 1997 and for the period from September 19, 1997 to December 31,
1997; the audited balance sheets of Titan Industries, Inc. as at June 30, 1996
and 1997, and related statements of operations, cash flows and changes in
stockholders' equity for the years ended June 30, 1995, 1996 and 1997, for the
period from July 1, 1997 to November 5, 1997, and for the period from November
6, 1997 to December 31, 1997; the audited combined balance sheets of Mobile
Pulley & Machine Works, a division of IPC Industries, Inc., and Mobile Pulley
Marine Services, a division of Mobile Pulley Marine Services, Inc., and related
statements of earnings, cash flows and divisional equity as at December 31,
1995, 1996 and 1997 and for years then ended; and the unaudited consolidated
balance sheet and related statement of operations of Aero as at July 31, 1998
and for the seven month period then ended (collectively, including the financial
statements delivered by Aero pursuant to Section 6.7, the "Aero Financial
Statements"). All of the Aero Financial Statements have been prepared in
accordance with GAAP. All of the Aero Financial Statements have been prepared
in a manner consistent with each other and the books and records of Aero, and
fairly present in all material respects the financial condition and results of
operations of Aero at the dates and for the periods indicated therein. The
regular books of account of Aero fairly and accurately reflect all material
transactions involving Aero, are true, correct and complete and have been
prepared on a basis consistent with the Aero Financial Statements.
Section 8.8 DEBT.
The Aero Disclosure Letter contains a true, complete and accurate listing as
of the date hereof the original principal amount of all of the Debt of Aero, the
remaining principal balance thereof, the interest rate(s) payable by Aero in
respect thereof, if any, and the date(s) of maturity thereof. All of the Debt
of Aero may be prepaid at any time, without premium, prepayment penalties,
termination fees or other fees or charges.
Section 8.9 GUARANTEES.
The Aero Disclosure Letter contains a complete list of all Guarantees provided
by Aero for the benefit of any other party and of all Guarantees provided by any
other party for the benefit of Aero or any party doing business with Aero.
Section 8.10 NO UNDISCLOSED LIABILITIES.
Aero has no material liabilities or obligations of any nature whatsoever
(whether known or unknown, due or to become due, absolute, accrued, contingent
or otherwise, and whether or not determined or determinable), except for (a)
liabilities or obligations to the extent expressly reflected on or reserved
against in the Aero Balance Sheet or disclosed in the notes thereto, (b)
liabilities or obligations of a type reflected on the Aero Balance Sheet and
incurred in the ordinary course of business and consistent with past practices
since July 31, 1998, and (c) liabilities or obligations which do not exceed
$25,000 and which arise under the terms of the Material Contracts of Aero.
Except as otherwise contemplated or permitted by this Agreement, no dividends or
distributions have been declared on any membership interests of Aero which are
unpaid.
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Section 8.11 LITIGATION.
There is no suit, claim, action at law or in equity, proceeding or
governmental investigation or audit pending, or, to the knowledge of the
management of Aero, threatened, by or before any court, any Governmental
Authority or arbitrator, against Aero that reasonably could be expected to
prevent the consummation of any of the transactions contemplated hereby. There
is no material suit, claim, action at law or in equity, proceeding or
governmental investigation or audit pending, or to the knowledge of the
management of Aero, threatened, by or before any arbitrator, court, or other
Governmental Authority, against Aero or involving any of the former or present
employees, agents, businesses, properties, rights or assets of Aero, nor, to the
knowledge of the management of Aero, is there any basis for the assertion of any
of the foregoing. There are no judgments, orders, injunctions, decrees,
stipulations or awards rendered by any court, Governmental Authority or
arbitrator currently binding or effective against Aero or any of its former or
present Employees, agents, properties or assets.
Section 8.12 PROPERTIES; ABSENCE OF ENCUMBRANCES.
The Aero Disclosure Letter sets forth a complete list of all real property
owned by or leased to Aero, and, with respect to all properties leased by Aero,
a description of the term of such lease and the monthly rental thereunder. Aero
is not in default (and will not be in default with the passage of time or the
receipt of notice or both) and has not received notice of default, under any
lease of real property. All real property leased to Aero is available for
immediate use in the operation of its business and for the purpose for which
such property currently is being utilized. Subject in the case of leased
property to the terms and conditions of the respective leases, Aero has full
legal and practical access to all such real property. Aero owns (with good and
marketable title in the case of real estate) all the property and assets
(whether real, personal, tangible or intangible) that they purport to own,
including without limitation, all of the properties and assets reflected in the
Aero Balance Sheet and all properties and assets purchased or otherwise acquired
by Aero since July 31, 1998. Aero owns no properties or assets other than those
set forth in the Aero Disclosure Letter. All material properties and assets
reflected in the Aero Balance Sheet are free and clear of all Encumbrances, and
are not, in the case of real property, subject to any rights of way, servitudes,
use restrictions or limitations of any nature except (a) mortgage or security
interests shown on the Aero Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event of that, with notice or
lapse of time or both would constitute a default) exists, (b) liens for current
taxes not yet due, (c) minor imperfections of title, if any, none of which is
substantial in amount, materially detracts from the value or materially impairs
the use of the property or impairs the operations of Aero and (d) zoning and
other land use restrictions of general application that do not impair the
present or anticipated use of the property.
Section 8.13 ACCOUNTS RECEIVABLE.
All accounts receivable of Aero that are reflected on the Aero Balance Sheet
or on the accounting records of Aero as of the Closing Date (collectively, the
"Aero Accounts Receivable") represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business of Aero. Unless paid prior to the Closing Date, the Aero
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Aero Balance Sheet or on
the accounting records of Aero as of the Closing Date. Such reserves are
adequate and have been and will be calculated consistent with past practice.
Such reserves as of the Closing Date will not constitute a greater percentage of
the Aero Accounts Receivable on the Closing Date than such percentage of
reserves reflected on the Aero Balance Sheet. As of the Closing Date, there
will be no material adverse change in the composition of the Aero Accounts
Receivable in terms of aging. Subject to such reserves, each of the Aero
Accounts Receivable either has been or will be collected in full, without any
set-off, within 120 days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the ordinary course of business of Aero relating to the amount or validity of
such Aero Accounts Receivable.
Section 8.14 INVENTORY.
All inventory of Aero, whether or not reflected in the Aero Balance Sheet,
consists of a quality and quantity usable and salable in the ordinary course of
business, except for obsolete items and items below-standard quality, all of
which have been written off or written down to net realizable value in the Aero
Balance Sheet, or on the accounting records of Aero as of the Closing Date, as
the case may be. All inventories not written off or written down have been
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priced at the lower of cost or market. The quantities of each line of inventory
(whether raw materials, work-in-progress, or finished goods) are not excessive,
but are reasonable in the present circumstances of Aero.
Section 8.15 CONDITION AND SUFFICIENCY OF ASSETS.
The buildings, plants, structures, and equipment of Aero are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures, and equipment of Aero are sufficient for the continued
conduct of the businesses of Aero after Closing in substantially the same manner
as conducted prior to Closing.
Section 8.16 INTELLECTUAL PROPERTY.
8.16.1 List of Intellectual Property. The Aero Disclosure Letter sets forth
a complete list of all Intellectual Property owned, used or licensed by Aero,
together with the identity of the owner thereof, and all license agreements
pursuant to which any Intellectual Property is licensed to or by Aero. Aero
owns its Intellectual Property free and clear of any and all Encumbrances, or,
in the case of licensed Intellectual Property, has valid, binding and
enforceable rights to use such Intellectual Property. Aero has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof.
8.16.2 No Infringement. Aero has not received any notice or claim to the
effect that the use of any Intellectual Property infringes upon, conflicts with
or misappropriates the rights of any other party or that any of the Intellectual
Property is not valid or enforceable, or has not made any claim that any party
has violated or infringed upon its rights with respect to any Intellectual
Property.
Section 8.17 MATERIAL CONTRACTS.
8.17.1 List of Material Contracts. The Aero Disclosure Letter sets forth as of
the date hereof a list of all material written, and a description of all oral,
commitments, agreements or contracts to which Aero is a party or by which Aero
is obligated, including, but not limited to, all commitments, agreements or
contracts embodying or evidencing the following transactions or arrangements:
(a) agreements for the employment of, or independent contractor arrangements
with, any officer or other individual employee of Aero; (b) any consulting
agreement, agency agreement and any other service agreement that will continue
in force after the Closing Date with respect to the employment or retention by
Aero of consultants, agents, legal counsel, accountants or anyone else who is
not an Employee; (c) any single contract, purchase order or commitment providing
for expenditures by Aero after the date hereof of more than $25,000 or which has
been entered into by Aero otherwise than in the ordinary course of business; (d)
agreements between Aero and suppliers to Aero pursuant to which Aero is
obligated to purchase or to sell or distribute the products of any other party
other than current purchase orders entered into in the ordinary course of
business consistent with past practices; (e) any contract containing covenants
limiting the freedom of Aero or any officer, director, or employee of Aero to
engage in any line or type of business or with any person in any geographic
area; (f) any commitment or arrangement by Aero to participate in a strategic
alliance, partnership, joint venture, limited liability company or other
cooperative undertaking with any other Person; (g) any commitments by Aero for
capital expenditures involving more than $25,000 individually or $50,000 in the
aggregate; and (h) any other contract, commitment, agreement, understanding or
arrangement that the management of Aero deems to be material to the business of
Aero.
8.17.2 No Breaches or Defaults. Aero is in full compliance with each, and is
not in default under any, Material Contract to which it is a party, and no event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Aero has not waived any rights under or with respect to any
of the Material Contracts to which it is a party. The management of Aero has no
knowledge, has not received any notice to the effect, that any party with whom
Aero has contractual arrangements under the Material Contracts, is in default
under any such contractual arrangements or that any event has occurred that,
with notice or lapse of time or both, would constitute such a default
thereunder. Each of the Material Contracts constitutes a legal, valid and
binding obligation of each of the parties thereto and is enforceable against
each of the parties thereto in accordance with its respective terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance,
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moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 8.18 EMPLOYEE BENEFITS AND EMPLOYMENT MATTERS.
8.18.1 Plans and Arrangements. The Aero Disclosure Letter sets forth a true,
complete and correct list of all Employee Benefit Plans and all Benefit
Arrangements to which Aero or any ERISA Affiliate of Aero is a party or to which
Aero or any ERISA Affiliate of Aero is obligated to contribute. None of the
Employee Benefit Plans to which Aero or any ERISA Affiliate of Aero is a party,
which Aero or any ERISA Affiliate of Aero sponsors or maintains or to which Aero
or any ERISA Affiliate of Aero contributes is subject to the requirements of
Section 302 of ERISA or Section 412 of the Code.
8.18.2 Compliance with Laws and Terms of Plans. Each Employee Benefit Plan and
Benefit Arrangement to which Aero or any ERISA Affiliate of Aero is a party or
to which Aero or any ERISA Affiliate of Aero is obligated to contribute has been
operated or maintained in compliance in all material respects with all
Applicable Laws, including, without limitation, ERISA and the Code, and has been
maintained in material compliance with its terms and in material compliance with
the terms of any applicable collective bargaining agreement. With respect to any
Employee Benefit Plan that is intended to qualify under Section 401 of the Code,
a favorable determination letter as to qualification under Section 401 of the
Code that considered the Tax Reform Act of 1986 has been issued and any
amendments required for continued qualification under Section 401 of the Code
have been timely adopted and nothing has occurred subsequent to the date of such
determination letter that could adversely affect the qualified status of any
such Plan.
8.18.3 Contributions. All contributions required to be made to or benefit
liabilities arising under the terms of each Employee Benefit Plan or Benefit
Arrangement to which Aero or any ERISA Affiliate of Aero is a party or to which
Aero or any ERISA Affiliate of Aero is obligated to contribute, under ERISA or
the Code, for all periods of time prior to the date hereof and that are
attributable to Employees of Aero or any ERISA Affiliate of Aero have been paid
or otherwise adequately accrued for or reserved against in the Aero Financial
Statements.
8.18.4 Arrearages and Employment Disputes. Aero is not liable for any
arrearage of wages, any accrued or vested vacation pay or any tax or penalty for
failure to comply with any Applicable Law relating to employment or labor above
the level accrued for or reserved against on the Aero Balance Sheet and there is
no controversy pending, threatened or in prospect between Aero and any of its
respective Employees nor is the management of Aero aware of any basis for any
such controversy. There is no unfair labor practice charge or complaint
currently pending against Aero with respect to or relating to any of its
respective Employees before the National Labor Relations Board or any other
agency having jurisdiction over such matters and no charges or complaints are
currently pending against Aero before the Equal Employment Opportunity
Commission or any state or local agency having responsibility for the prevention
of unlawful employment practices. There are no actions, suits or claims pending,
including proceedings before the IRS, the DOL or the PBGC, with respect to any
Employee Benefit Plan, Benefit Arrangement or any administrator or fiduciary
thereof, other than benefit claims arising in the normal course of operation of
such Employee Benefit Plans or Benefit Arrangements, and, to the knowledge of
the management of Aero, no Employee Benefit Plan or Benefit Arrangement is under
audit or investigation by any Governmental Authority.
8.18.5 Severance Obligations. All current employees of Aero may be terminated
at will, without notice and without incurring any severance or other liability
or obligation to the employee in connection with the termination. Except to the
extent provided by the terms of the Employee Benefit Plans and Benefit
Arrangements disclosed in the Aero Disclosure Letter, neither the execution,
delivery or performance of this Agreement nor the consummation of the Closing
will (a) increase any benefits otherwise payable under any Employee Benefit Plan
or Benefit Arrangement, (b) result in the acceleration of the time of payment or
vesting of any such benefits, or (c) give rise to an obligation with respect to
the payment of any severance pay. No "parachute payment" (within the meaning of
Section 280G of the Code), "change in control" or severance payment has been
made or will be required to be made by Aero or any ERISA Affiliate of Aero to
any Employee in connection with the execution, delivery or performance of this
Agreement or as a result of the consummation of the Closing.
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8.18.6 Compliance with Laws on Employment Practices. Aero has complied in all
material respects with all Applicable Laws relating to employment and employment
practices, terms and conditions of employment, wages and hours, and to the
knowledge of the management of Aero, is not engaged in any unfair labor practice
with respect to any of the current employees of Aero; and to the knowledge of
Aero, none of the persons performing services for Aero or any ERISA Affiliate of
Aero has been improperly classified as independent contractors or as being
exempt from payment of wages or overtime.
8.18.7 Collective Bargaining Agreements. None of the employees of Aero are
subject to any collective bargaining agreement nor is Aero required under any
agreement to recognize or bargain with any labor organization or union on behalf
of its employees.
8.18.8 No Multi-Employer Plans. Neither Aero nor any ERISA Affiliate of Aero
has contributed to, or had the obligation to contribute to, any Multiemployer
Plan within the five-year period ending on the date of this Agreement.
8.18.9 No Amendments to Plans. There has been no amendment to, written
interpretation or announcement (whether or not written) by Aero or any ERISA
Affiliate of Aero relating to, or change in employee participation or coverage
under, any Employee Benefit Plan or Benefit Arrangement that would increase
materially the expense of maintaining such Employee Benefit Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof for the
fiscal year of Aero ended December 31, 1997.
8.18.10 No Unfunded Liabilities. Neither Aero nor any ERISA Affiliate of Aero
has any current or projected liability for any unfunded post-retirement medical
or life insurance benefits in connection with any Employee of Aero or any ERISA
Affiliate of Aero.
8.18.11 No Prohibited Transactions. No event has occurred with respect to any
Employee Benefit Plan or any Employee Benefit Plan previously sponsored,
maintained or contributed to by Aero or any ERISA Affiliate of Aero, which could
subject any such Employee Benefit Plan, Aero, or any ERISA Affiliate of Aero
directly or indirectly (through an indemnification agreement or otherwise), to
any liability for or as a result of a breach of fiduciary duty, a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code, or a civil penalty under Section 502 of ERISA or a Tax under Section 4971
of the Code. Neither Aero nor any ERISA Affiliate of Aero have incurred a
"withdrawal" or "partial withdrawal," as defined in Sections 4203 and 4205 of
ERISA, from, or failed to timely make contributions to any Multiemployer Plan
which has resulted in any unpaid liability of Aero or any ERISA Affiliate of
Aero.
8.18.12 Welfare Benefit Plans. (a) None of the Employee Benefit Plans that are
"employee welfare benefit plans" as defined in ERISA Section 3(1) provides for
continuing benefits or coverage for any participant or beneficiary of a
participant after such participant's termination of employment, except to the
extent required by law; provided that any disclosure regarding this clause (a)
shall set forth (i) the number of individuals currently receiving such
continuing benefits or coverage, (ii) the limit on liability with respect to
such coverage, (iii) the terms and conditions of such coverage, and (iv) the
maximum number of current employees or independent contractors who could become
eligible for such continuing benefits or coverage; (b) to the knowledge of the
management of Aero, there has been no violation of Code Section 4980B or ERISA
Sections 601-609 with respect to any such plan that could result in any material
liability; (c) no such plans are "multiple employer welfare arrangements" within
the meaning of ERISA Section 3(40); (d) with respect to any such plans that are
self-insured, no claims have been made pursuant to any such plan that have not
yet been paid (other than claims which have not yet been paid but are in the
normal course of processing) and no individual has incurred injury, sickness or
other medical condition with respect to which claims may be made pursuant to any
such plan where the liability to the employer could in the aggregate with
respect to each such individual exceed $50,000 per year; (e) neither Aero nor
Aero International or ERISA Affiliates maintains or has any obligation to
contribute to any "voluntary employees' beneficiary association" within the
meaning of Code Section 501(c)(9) or other welfare benefit fund as defined at
Section 419(e) of the Code (such disclosure to include the amount of any such
funding); (f) no such plan is intended to satisfy Code Section 125; (g) no
amounts are required in connection with any such plan to be included in income
under Code Section 105(h) (under official regulations thereof to date); and (h)
neither Aero nor any ERISA Affiliate of Aero maintains a nonconforming group
health plan as defined at Section 5000(c) of the Code.
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Section 8.19 TAX MATTERS.
8.19.1 Tax Returns and Payment of Taxes. Aero has timely filed or will timely
file all federal, state, local, and other Tax Returns required to be filed by it
under Applicable Laws, including estimated Tax returns and reports and
consolidated federal Income Tax Returns and state, local or foreign Income Tax
Returns filed on a consolidated, unitary or combined basis, and Aero has paid
all required Income Taxes and other Taxes (including any additions to Taxes,
penalties and interest related thereto) due and payable on or before the date
hereof (and will duly and timely pay all such amounts required to be paid
between the date hereof and the Closing Date). Aero has paid, withheld, or
accrued, or will accrue, on the Aero Financial Statements in accordance with an
accrual method of accounting, consistently applied, any and all Taxes in respect
of the conduct of its business or the ownership of its property and in respect
of any transactions for all periods (or portions thereof) through the close of
business on the Closing Date. Aero has withheld and paid over all Taxes required
to have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including the maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party. Aero has
collected all sales, use and value added Taxes and other withholding Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions.
8.19.2 Tax Reserves. The amount of the liability of Aero for unpaid Taxes for
all periods ending on or before the date of this Agreement does not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as of the date of this Agreement, and
the amount of the liability of Aero for unpaid Taxes for all periods ending on
or before the Closing Date will not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes) as
such accruals shall be reflected on the consolidated balance sheet of Aero as of
the Closing Date.
8.19.3 Audits; No Deficiencies Asserted. None of the Tax Returns of Aero have
ever been audited by any Tax Authority, nor is any such audit in process,
pending or threatened (either in writing or verbally, formally or informally),
and all deficiencies asserted against Aero as a result of Tax Authority
examinations have been paid or finally settled and no issue has been raised by
any Tax Authority examination that, by application of the same principles, is
likely to result in a proposed deficiency for any other period not so examined.
No material deficiencies with respect to Taxes, additions to Tax, interest, or
penalties have been proposed or asserted against and communicated to Aero,
except those that have been paid in full and for those matters that would not
result in liability being imposed against Aero.
8.19.4 No Waivers of Limitations. There are no agreements, waivers of statutes
of limitations, or other arrangements providing for extensions of time in
respect of the assessment or collection of any unpaid Tax against Aero. Aero has
disclosed on its United States federal Income Tax Returns all positions taken
therein that could, if not so disclosed, give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
8.19.5 No Tax Liens. There are no Encumbrances on any of the assets, rights or
properties of Aero with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that Aero is contesting in good faith through
appropriate proceedings and for which appropriate reserves have been established
on the Aero Financial Statements.
8.19.6 Special Tax Elections or Benefits. Aero is not a party to any safe
harbor lease within the meaning of Section 168(f)(8) of the Code. Except with
respect to the State of Texas, where Aero is a "corporation" for purposes of
state income taxation, Aero is a "partnership" for purposes of United States
federal income taxation and state income taxation in all states in which its
income is subject to taxation and has had the status of a "partnership" for
purposes of federal income taxation and state income taxation in all states in
which its income is subject to taxation or has been subject to taxation at all
times since its formation. No election or consent under Section 341(f) of the
Code has been made or shall be made on or prior to the Closing Date by or on
behalf of any of Aero.
8.19.7 Disqualified Leasebacks. Aero is not a party to a "disqualified
leaseback or long-term agreement" described in Section 467(b)(4) of the Code.
8.19.8 Deferrals of Income. No income or gain of Aero has been deferred
pursuant to Treasury Regulation (S) 1.1502-13 or 1.1502-14, or Temporary
Treasury Regulation (S) 1.1502-13T or 1.1502-14T.
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8.19.9 Tax Sharing and Similar Agreements. Aero is not a party to or bound by
any Tax sharing, Tax indemnity or Tax allocation agreement or other similar
arrangement.
8.19.10 No Non-Deductible Compensation Payments. Aero has not made any
payments, and are not obligated to make any payments, that would not be
deductible under Section 280G of the Code or is a party to any agreement that
under certain circumstances could obligate it to make any such payments.
Section 8.20 ENVIRONMENTAL MATTERS.
8.20.1 Compliance with Environmental Laws. The facilities presently or
formerly occupied or used by Aero and any other real property presently or
formerly owned by, used by or leased to or by Aero (collectively, the "Aero
Property"), the existing and prior uses of such Aero Property and all operations
of the businesses of Aero comply and have at all times complied with all
Environmental Laws and neither Aero nor Aero International is in violation or
has violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
8.20.2 Permits, Registrations, Approvals and Licenses. Aero has all necessary
permits, registrations, approvals and licenses required by any Governmental
Authority or Environmental Law.
8.20.3 Spills, Discharges, Etc. of Hazardous Materials. There has been no
spill, discharge, leak, emission, injection, disposal, escape, dumping or
release of any kind on, beneath or above such Aero Property or into the
environment surrounding such Aero Property of any Hazardous Materials.
8.20.4 Generation, Manufacture, Etc. of Hazardous Materials. There has been no
past, and there is no current or anticipated storage, disposal, generation,
manufacture, refinement, transportation, production or treatment of any
Hazardous Materials at, upon or from Aero Property which have not been and are
not stored and/or discharged in compliance with all Environmental Laws. No
asbestos-containing materials, underground improvements (including, but not
limited to the treatment or storage tanks, sumps, or water, gas or oil wells) or
polychlorinated biphenyls (PCBs) transformers, capacitors, ballasts, or other
equipment which contain dielectric fluid containing PCBs at levels in excess of
fifty parts per million (50 PPM) are or have ever been located on such Aero
Property.
8.20.5 Claims, Notices, Etc. There are no claims, notices of violations,
notice letters, investigations, inquiries or other proceedings now pending or,
to the knowledge of the management of Aero, threatened by any Governmental
Authority or third party with respect to the business or any property of Aero
(or any Constituent in interest) in connection with (a) any actual or alleged
failure to comply with any requirement of any Environmental Law; (b) the
ownership, use, maintenance or operation of the Property by any person; (c).the
alleged violation of any Environmental Law; or (d) the suspected presence of any
Hazardous Material thereon.
Section 8.21 COMPLIANCE WITH LAWS.
Aero has at all times conducted its business in material compliance with all
(and has not received any notice of any claimed violation of any) Applicable
Laws.
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Section 8.22 LICENSES AND PERMITS.
Aero possesses all Permits necessary for the operation of its business. Aero
has complied with the terms and conditions of all Permits in all material
respects and all such Permits are in full force and effect, and there has
occurred no event nor is any event, action, investigation or proceeding pending
or, to the knowledge of the management of Aero, threatened, which could cause or
permit revocation or suspension of or otherwise adversely affect the maintenance
of any Permits. The transactions contemplated by this Agreement will not lead
to the revocation, cancellation, termination or suspension of any Permits.
Section 8.23 INSURANCE.
Aero has regularly maintained all policies of commercial liability, products
liability, fire, casualty, worker's compensation, life and other forms of
insurance on an "occurrence" rather than a "claims made" basis in amounts and
types required by law and generally carried by reasonably prudent, similarly
situated businesses. Aero is not in default with respect to any provision
contained in any insurance policy, nor has Aero failed to give any notice or
present any claim thereunder in due and timely fashion and no cancellation, non-
renewal, reduction of coverage or arrearage in premiums has been threatened or
occurred with respect to any policy, nor is the management of Aero aware of any
grounds therefor.
Section 8.24 EXTRAORDINARY TRANSACTIONS.
Except as otherwise permitted by this Agreement, since December 31, 1997, Aero
has not (a) mortgaged, pledged or subjected to any Encumbrance any of its
assets; (b) canceled or compromised any claim of or debts owed to it; (c) sold,
licensed, leased, exchanged or transferred any of its assets except in the
ordinary course of business; (d) entered into any material transaction other
than in the ordinary course of business; (e) experienced any material change in
the relationship or course of dealing with any supplier, franchisee, customer or
creditor; (f) suffered any material destruction, loss or damage to any of its
assets; (g) made any management decisions involving any material change in its
policies with regard to pricing, sales, purchasing or other business, financial,
accounting (including reserves and the amounts thereof) or tax policies or
practices; (h) declared, set aside or paid any dividends on or made any
distributions in respect of any membership interests or made any other
distributions or payments to any of the members of Aero; (i) submitted any bid,
proposal, quote or commitment to any party in response to a request for proposal
or otherwise; (j) engaged in any merger or consolidation with, or agreed to
merge or consolidate with, or purchased or agreed to purchase, all or
substantially all of the assets of, or otherwise acquire, any other party; (k)
entered into any strategic alliance, partnership, joint venture or similar
arrangement with any other party; (l) incurred or agreed to incur any Debt or
prepaid or made any prepayments in respect of Debt; (m) issued or agreed to
issue to any party, any shares of stock or other securities; (n) redeemed,
purchased or agreed to redeem or purchase any of its outstanding shares of
capital stock or other securities; (o) increased the rate of compensation
payable or to become payable to any of its officers, directors, employees or
agents over the rate being paid to them as of December 31, 1997, or agreed to do
so otherwise than in accordance with contractual agreements with such parties;
(p) made or agreed to make any charitable contributions or incurred or agreed to
incur any non-business expenses; or (q) charged off any bad debts or increased
its bad debt reserve except in the manner consistent with its past practices.
Section 8.25 BOOKS AND RECORDS.
The books of account, minute books, records of membership interests and other
records of Aero are complete and correct and have been maintained in accordance
with sound business practices, including the maintenance of an adequate system
of internal controls. The minute books of Aero accurately reflect all minutes
of proceedings of and actions taken by the managers of Aero and all records of
meetings of and actions taken by the members of Aero that are required by
applicable laws to be recorded in or reflected in the records thereof. At
Closing, all such books and records will be in the possession of Aero.
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Section 8.26 BROKER AND FINDER FEES.
Except as set forth in Section 9.9, Aero has not engaged any broker or finder
in connection with the transactions contemplated by this Agreement, and no
action by any of the foregoing will cause or support any claim to be asserted
against Aero, any Aero Holder, the Holding Company, ITS PLC or any ITS
Subsidiary by any broker, finder or intermediary in connection with such
transaction.
Section 8.27 ADEQUATE DISCLOSURE.
No representation or warranty made by Aero pursuant to this Agreement, or any
statement concerning Aero contained in any Exhibit or Schedule to this
Agreement, or any certificate or document furnished or to be furnished by Aero
pursuant to the terms of this Agreement in connection with the transactions
contemplated hereby, contains any untrue or misleading statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein not misleading.
Section 8.28 NO ADVERSE CHANGE OR CONDITIONS.
Except as expressly contemplated or permitted by this Agreement, since
December 31, 1997, Aero each has conducted its business in the ordinary course
and consistent with past practice, and Aero has not suffered any change that has
had a Material Adverse Effect on Aero. There are no conditions, facts,
developments or circumstances of an unusual or special nature that reasonably
could be expected to have a Material Adverse Effect upon Aero.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY
To induce each of the other parties to enter into this Agreement and to
consummate the transactions contemplated hereby, and subject to the exceptions
set forth in the Holding Company Disclosure Letter, the Holding Company
represents and warrants to ITS PLC, Aero and the Aero Holders that all of the
following representations and warranties are as of the date of this Agreement
and will be as of the Closing Date and immediately before the Effective Time
true and correct:
Section 9.1 ORGANIZATION AND GOOD STANDING.
The Holding Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Holding Company has
the requisite corporate power to own and hold its properties, to conduct its
business as it is now being conducted, to enter into, execute and deliver this
Agreement, to issue, sell and deliver the shares of Common Stock of the Holding
Company to be issued pursuant to the transactions contemplated by Article IV of
this Agreement.
Section 9.2 AUTHORIZED CAPITAL STOCK.
The authorized capital stock of the Holding Company consists of 105,000,000
shares, of which (a) 100,000,000 are classified as shares of Common Stock, $.01
par value per share, and (b) 5,000,000 are classified as shares of Preferred
Stock, $1.00 par value per share. As of the date hereof, none of the shares of
the Common Stock of the Holding Company have been issued by the Holding Company
other than organizational shares subject to cancellation. Except as
contemplated by this Agreement and (a) the obligation of the Holding Company to
issue up to 7,750,000 shares of Common Stock pursuant to the exercise of the
Series A Increasing Warrants, and to issue up to 3,000,000 shares of Common
Stock pursuant to the exercise of the Series B Warrants, (collectively, the
"Warrant Shares") (b) the obligation of the Company to issue up to 2,614,379
shares of Common Stock pursuant to the exercise
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of conversion rights by holders of the Series B Junior Subordinated Notes
(assuming conversion of the entire principal amount) (the "Conversion Shares"),
and (c) the reservation by the Company of 5,000,000 shares of Common Stock for
issuance pursuant to the exercise of options that may be granted under the Stock
Incentive Plan (the "Incentive Shares"), as of the Closing Date the Holding
Company will be under no obligation to issue any of its shares of Common Stock
or other equity securities pursuant to subscriptions, warrants, options,
convertible securities or other rights (contingent or otherwise) to purchase or
otherwise acquire equity securities of the Holding Company, and as of the
Closing Date, except for the Warrant Shares, the Conversion Shares and the
Incentive Shares, no shares of Common Stock or other capital stock of the
Holding Company will be reserved for possible future issuance. The Holding
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. There are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Holding Company (whether or not the Holding Company is a
party thereto), except as set forth in this Agreement. The shares of Common
Stock of the Holding Company to be issued pursuant to the transactions
contemplated by Article IV of this Agreement, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and will be free and clear of all Encumbrances imposed by or through the Holding
Company (other than restrictions imposed by federal and state securities laws).
The issuance of the shares of Common Stock pursuant to the transactions
contemplated by Article IV of this Agreement will not be subject to any
preemptive or similar right of the stockholders of the Holding Company. The
holders of shares of the Common Stock of the Holding Company following the
issuance thereof pursuant to the transactions contemplated by Article IV of this
Agreement will not be subject to personal liability for the debts and
obligations of the Holding Company solely by reason of being the holders
thereof.
Section 9.3 SUBSIDIARIES; INVESTMENTS.
As of the date hereof, the Holding Company has no Subsidiaries, and does not
own of record or beneficially, directly or indirectly, (i) any shares of capital
stock or securities convertible into capital stock of any other corporation or
(ii) any interest in any partnership, joint venture, limited liability company
or other non-corporate business enterprise, and does not control, directly or
indirectly, any other Person or entity.
Section 9.4 EXECUTION AND EFFECT OF AGREEMENT.
The Holding Company has the power to enter into this Agreement and the
Ancillary Agreements to which it is a party and to perform its obligations
hereunder and thereunder. This Agreement has been duly executed and delivered
by the Holding Company and constitutes, and when executed and delivered
hereunder by the Holding Company the Ancillary Agreements to which the Holding
Company is a party will constitute the legal, valid and binding obligation of
the Holding Company, enforceable against the Holding Company in accordance with
its terms; except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights including fraudulent conveyance laws and the exercise of
judicial discretion in accordance with general principles of equity.
Section 9.5 RESTRICTIONS.
The execution and delivery by the Holding Company of this Agreement and the
Ancillary Agreements to which it is a party, the consummation by the Holding
Company of the transactions contemplated hereby and the performance of the
obligations of the Holding Company hereunder do not and will not (a) violate any
of the provisions of the Certificate of Incorporation or Bylaws of the Holding
Company, (b) violate or conflict with the provisions of any Applicable Laws, (c)
result in the creation of any Encumbrance upon any of the assets, properties or
rights of the Holding Company, or (d) conflict with, violate the provisions of,
result in a breach of, give rise to a right of termination, modification or
cancellation of, constitute a default under, or accelerate the performance
required by, with or without the passage of time or the giving of notice or
both, the terms of any agreement, indenture, mortgage, deed of trust, lease,
agreement, note, bond, license, permit, authorization or other instrument to
which the Holding Company is a party or to which the Holding Company is bound or
subject.
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Section 9.6 CONSENTS.
No registration or filing with, notice to, consent or approval of, or other
action by, any Governmental Authority or any third party is required to be made
or obtained by the Holding Company in connection with the execution and delivery
of this Agreement, any Ancillary Agreement to which the Holding Company is a
party or any other document or instrument contemplated hereby to which the
Holding Company is a party, the consummation of any of the transactions
contemplated herein or the performance of any of the Holding Company's
obligations hereunder or thereunder.
Section 9.7 LITIGATION.
There is no action, suit, claim, proceeding, investigation or audit pending
or, to the best of the Holding Company's knowledge, threatened against or
affecting the Holding Company, at law or in equity, before or by any
Governmental Authority.
Section 9.8 LOANS.
The Holding Company has no outstanding loans or advances to any Person and is
not obligated to make any such loans or advances. Except as set forth in this
Agreement, the Holding Company has not incurred any obligation or liability to
any Person for borrowed money.
Section 9.9 BROKER AND FINDER FEES.
Except as set forth in this Section 9.9, the Holding Company has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company, ITS PLC, any ITS Subsidiary, Aero or
any Aero Holder by any broker, finder or intermediary in connection with such
transaction. ITS PLC, Aero and the Holding Company have collectively engaged
the Advisor to render services to the parties in connection with the
transactions contemplated by this Agreement, and have agreed with the Advisor as
compensation for such services that the Holding Company shall issue and deliver
to the Advisor at the Closing the Series B Warrants. Such delivery of the
Series B Warrants shall constitute a Closing Delivery for the purposes of
Section 4.4.
Section 9.10 ADEQUATE DISCLOSURE.
No representation or warranty made by the Holding Company in this Agreement,
or any statement concerning the Holding Company contained in any Exhibit or
Schedule to this Agreement, or any certificate or document furnished or to be
furnished by the Holding Company pursuant to the terms of this Agreement in
connection with the transactions contemplated hereby, contains any untrue or
misleading statement of a material fact or omits to state a material fact
necessary to make the statements contained therein not misleading.
Section 9.11 BUSINESS OF THE HOLDING COMPANY.
The Holding Company was incorporated under the laws of the State of Delaware
on August 20, 1998. Except for the rights, obligations and liabilities of the
Holding Company arising under this Agreement and its initial capitalization, and
except for the rights and obligations of the Holding Company arising out of the
engagements of legal counsel and the certified public accountants referred to in
Article III of this Agreement, as of the date of this Agreement, the Holding
Company has no assets or liabilities or obligations, whether mature or
unmatured, due or to become due, fixed or contingent.
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ARTICLE X
REPRESENTATIONS AND WARRANTIES
OF EACH AERO HOLDER
In order to induce each of the other parties to enter into this Agreement and
to consummate the transactions contemplated hereby, each Aero Holder, severally,
represents and warrants to ITS PLC and the Holding Company that the following
representations and warranties are as of the date of this Agreement and will be
as of the Closing Date and immediately before the Effective Time true and
correct:
Section 10.1 OWNERSHIP AND STATUS OF MEMBER INTERESTS.
The Aero Holder is record and beneficial owner of the number of Aero Common
Membership Units and/or the number of Aero Class B Preferred Membership Units
set forth opposite the Aero Holder's name in Schedule 10.1, free and clear of
all Encumbrances.
Section 10.2 EXECUTION AND EFFECT OF AGREEMENT.
The Aero Holder has the power to enter into this Agreement and the Ancillary
Agreement to which the Aero Holder is a party and to perform such Aero Holder's
obligations hereunder and thereunder. This Agreement has been duly executed and
delivered by the Aero Holder and constitutes and when executed and delivered
hereunder by the Aero Holder and each of the Ancillary Agreements to which the
Aero Holder is a party will constitute the legal, valid and binding obligation
of the Aero Holder, enforceable in accordance with its terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
Section 10.3 RESTRICTIONS.
The execution and delivery by the Aero Holder of this Agreement and the
Ancillary Agreements to which the Aero Holder is a party, the consummation of
the transactions contemplated hereby by the Aero Holder and the performance of
the obligations of the Aero Holder hereunder will not (a) violate or conflict
with any Applicable Laws, (b) result in the creation of any Encumbrance on the
Aero Common Membership Units or the Aero Class B Preferred Membership Units
owned by the Aero Holder and listed opposite the Aero Holder's name in Schedule
10.1 or (c) conflict with, violate any provisions of, result in a breach of or
give rise to a right of termination, modification or cancellation of, constitute
a default of, or accelerate the performance required by, with or without the
passage of time or the giving of notice or both, the terms of any material
agreement, indenture, mortgage, deed of trust, security or pledge agreement,
lease, contract, note, bond, license, permit, authorization or other instrument
to which the Aero Holder is a party or to which any of the Aero Common
Membership Units or the Aero Class B Preferred Membership Units owned by the
Aero Holder and listed opposite the Aero Holder's name in Schedule 10.1 are
subject.
Section 10.4 CONSENTS.
No filing with, or consent, waiver, approval or authorization of, or notice
to, any governmental authority or any third party is required to be made or
obtained by the Aero Holder in connection with the execution and delivery of
this Agreement, any Ancillary Agreement to which the Aero Holder is a party or
any other document or instrument contemplated hereby to which the Aero Holder is
a party, the consummation of any of the transactions contemplated hereby to
which the Aero Holder is a party or the performance of the Aero Holder's
obligations hereunder or thereunder.
Section 10.5 LITIGATION.
There is no suit, claim, action or law or in equity, proceeding or
governmental investigation or audit pending, or, to the knowledge of the Aero
Holder, threatened, by or before any court, any Governmental Authority or
arbitrator,
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against the Aero Holder that reasonably could be expected to prevent the
consummation of any of the transactions contemplated hereby.
Section 10.6 BROKER AND FINDER FEES.
The Aero Holder has not engaged any broker or finder in connection with the
transactions contemplated by this Agreement, and no action by the Aero Holder
will cause or support any claim to be asserted against any Aero Holder, Aero,
the Holding Company, ITS PLC or any ITS Subsidiary by any broker, finder or
intermediary in connection with such transaction.
Section 10.7 ADEQUATE DISCLOSURE.
No representation or warranty made by the Aero Holder pursuant to this
Agreement, or any statement contained in any Exhibit or Schedule to this
Agreement concerning the Aero Holder, or any certificate or document furnished
or to be furnished by the Aero Holder pursuant to the terms of this Agreement in
connection with the transactions contemplated hereby, contains any untrue or
misleading statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein not misleading.
Section 10.8 INVESTMENT INTENT.
The Aero Holder is acquiring, as the case may be, the Common Stock, the Series
A Subordinated Debentures, the Series A Increasing Warrants and the Series B
Junior Subordinated Notes for investment and without a view toward the
distribution or resale of such securities.
Section 10.9 ACCREDITED INVESTOR.
The Aero Holder is an Accredited Investor. The Aero Holder acknowledges that
the Common Stock, the Series A Subordinated Debentures, the Series A Increasing
Warrants and the Series B Junior Subordinated Notes have not been registered
under the Securities Act. The Aero Holder acknowledges further that such
securities will be "restricted securities" as that term is defined in Rule 144
of the Commission under the Securities Act; that they may not be resold or
otherwise transferred except pursuant to an effective registration statement
under the Act or an available exemption from registration; and that the
certificates for such securities will bear the restrictive legend set forth in
Section 4.2.3(c).
ARTICLE XI
TERMINATION OF AGREEMENT
Section 11.1 TERMINATION.
(a) This Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing Date solely:
(i) by the unanimous written consent of ITS PLC, Aero and the
Holding Company;
(ii) by any party if a material Breach has been committed by
another party and such Breach has not been waived by the terminating
party;
(iii) (A) by ITS PLC if any of the conditions in Sections 5.1 or
5.2 has not been satisfied as of the Closing Date or if satisfaction
of such condition is or becomes impossible (other than through the
failure of ITS PLC to comply with its obligations in this Agreement)
and ITS PLC has not waived such condition prior to the Closing Date;
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(B) by Aero if any of the conditions in Sections 5.1 or 5.4
has not been satisfied as of the Closing Date or if satisfaction of
such condition is or becomes impossible (other than through the
failure of Aero to comply with its obligations in this Agreement)
and Aero has not waived such condition prior to the Closing Date;
(C) by the Holding Company if any of the conditions in
Sections 5.1 or 5.3 has not been satisfied as of the Closing Date or
if satisfaction of such condition is or becomes impossible (other
than through the failure of the Holding Company to comply with its
obligations in this Agreement) and the Holding Company has not
waived such condition prior to the Closing Date;
(D) by any Aero Holder, if any of the conditions in Section
5.1 or 5.5 has not been satisfied as of the Closing Date, or if
satisfaction of such condition is or becomes impossible (other than
through the failure of any Aero Holder to comply with its or his
obligations in this Agreement) and the Aero Holder has not waived
such condition prior to the Closing;
(iv) by any of ITS PLC, Aero, the Holding Company or any Aero
Holder if the Closing shall not have been consummated by the
Termination Date, unless the failure of the Closing to be
consummated results from the failure of the party seeking to
terminate this Agreement to perform or adhere to any agreement
required hereby to be performed or adhered to by it prior to on the
Closing Date; or
(b) by any of ITS PLC, Aero, the Holding Company or any Aero Holder at
any time after the Closing if the Closing shall be rescinded under Section
4.5.
Section 11.2 EFFECTS OF TERMINATION OF AGREEMENT.
In the event that this Agreement shall terminate pursuant to the foregoing
provisions of this Article, this Agreement shall become null and void and of no
further force or effect, and thereafter, none of the parties hereto shall have
any further obligation or liability hereunder, except (a) to the extent that
such liability if based on the breach by a party of any of its representations,
warranties, or covenants set forth in this Agreement, (b) as provided in Section
3.3 in regard to Transaction Expenses, and (c) the provision of Section 12.1
hereof relating to confidentiality shall remain binding upon the parties hereto
for a period of five years following the date of the termination of this
Agreement.
Section 11.3. LIABILITY OF ITS PLC FOLLOWING TRANSFER OF ASSETS.
The parties hereto agree that following completion of the transfer of the
assets of ITS PLC by the Liquidators as contemplated by the Section 110
Agreement, ITS PLC shall be under no further obligations and shall incur no
further liabilities under this Agreement and the parties hereto further agree to
irrevocably and unconditionally release and/or waive ITS PLC from any and all
claims, demands, actions and any other liabilities, howsoever arising, incurred
by ITS PLC under this Agreement prior to or following such date of transfer.
ARTICLE XII
OTHER COVENANTS AND AGREEMENTS OF THE PARTIES
Section 12.1 CONFIDENTIALITY.
Each of the parties hereto for themselves and their respective officers,
directors, employees, stockholders and representatives, shall hold in confidence
all information, books, records and documents acquired from any other party
hereto prior to, on, or after the date hereof in the course of negotiation of
the transactions contemplated hereby or pursuant to the provisions hereof and
will not disclose the same to any third party except as required by law or the
rules and regulations or any regulatory authority, and except to the extent
necessary to (a) respond to a subpoena, court order
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or other legal process, (b) comply with Applicable Laws, (c) establish a lawful
claim or defense, or (d) obtain reasonably necessary advice of counsel. Should
the transactions contemplated hereby not be consummated for any reason, each
party shall promptly return to the other all originals and copies of such
documents and other written information obtained from the other in the course of
such negotiations or pursuant hereto and shall promptly destroy all evaluations
and studies prepared by it or by any of its representatives on the basis of such
information, books, records or documents.
Section 12.2 MAINTENANCE OF INDEMNITY PROVISIONS IN CHARTERS AND OPERATING
AGREEMENTS.
From and after the Closing, the Holding Company shall maintain in effect the
indemnification provisions contained in the charters and operating agreements of
each of the Constituent Companies as of the date hereof for a period of three
years following the Closing, and will not seek to amend or modify such
provisions without first obtaining the written consent of a majority of the
Persons who were the directors or common members of such Constituent Companies
immediately prior to the Closing, it being understood and agreed, however, that,
prior to the expiration of such three year period, the Holding Company may merge
or dissolve all or any of the Constituent Companies in any such manner as the
Board of Directors of the Holding Company shall determine to be advisable, but,
if it should do so, the Holding Company shall ensure that the charter or other
organizational documentation pertaining to any successor to any Constituent
Company shall contain provisions providing for the indemnification of the
officers and directors of such Constituent Company substantially equivalent to
the indemnification provisions contained in the charters and operating
agreements of each of the Constituent Companies as of the date hereof.
Section 12.3 LIMITED LIABILITY COMPANY TAX MATTERS.
12.3.1 Returns. All Tax Returns with respect to Taxes of Aero (or its
income) shall be prepared and filed, and all such Taxes shall be paid, by the
Person that is legally responsible therefor under the Applicable Law. Aero and
the Holding Company, on one hand, and the Aero Common Holders, on the other
hand, shall cooperate with each other and shall make available to the other all
necessary books and records and timely take all action necessary to allow the
other to prepare and file the Returns which they are responsible for preparing
and filing under this Section 13.4.1. Aero, the Holding Company and Aero Common
Holders shall take any action necessary to (a) cause Aero to be treated as a
partnership under the Code and applicable state law at all times before the
Closing Date and (b) cause the items of income, gain, loss, deduction and credit
recognized by Aero to be allocated for income tax purposes between the portion
of 1998 prior to the Closing and the portion of 1998 following the Closing based
on the actual taxable events occurring during each such period.
12.3.2 Interim Tax Distributions for 1998. On or before the Closing Date,
the Aero Common Holders may cause Aero to distribute to the Aero Common Holders
cash that, when combined with prior cash distributions made by Aero to the Aero
Holders for the purpose of funding estimated tax payments by the Aero Common
holders with respect to the 1998 fiscal year taxable income of Aero (all such
distributions, the "Interim Tax Distributions"), shall not exceed the "Interim
Tax Amount." The Interim Tax Amount shall be equal to 45% of the reasonable
estimate of the Aero Common Holders of the taxable income of Aero for federal
and state income tax purposes for the year beginning on January 1, 1998 and
ending the day before the Closing Date (the "Stub Year").
12.3.3 Final Tax Amount. On or before March 15, 1999, Aero shall deliver to
each of the Aero Common Holders a Form K-1 for Aero's 1998 fiscal year, which
shall in each case set forth the Aero Common Holder's distributive share of the
income of Aero for the Stub Year. The "Final Tax Amount" with respect to each
Aero Holder shall be equal to 45% of such distributive share reflected on the
Form K-1. Within 10 days after delivery of the Schedule K-1, Aero shall pay to
each Aero Common Holder in cash the amount, if any, by which the Final Tax
Amount for such Aero Holder exceeds the Interim Tax Distributions received by
such Aero Common Holder.
12.3.4 Refunds. The Aero Common Holders shall pay to Aero any refund
received (whether by payment, credit, offset or otherwise) after the Closing
Date by the Aero Common Holders of any Taxes attributable to the Stub Year. The
parties shall cooperate in order to take all necessary steps to claim any such
refund.
12.3.5 Interim Tax Distribution for 1997. On or before the Closing Date the
Aero Common Holders may cause Aero to distribute to the Aero Common Holders cash
that, when combined with prior cash distributions made by
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Aero to the Aero Common Holders for the purpose of funding estimated tax
payments by the Aero Common Holders with respect to the 1997 fiscal year taxable
income of Aero, shall not exceed the aggregate amount of taxes due by the Aero
Common Holders with respect to such Aero income.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 ENTIRE AGREEMENT.
This Agreement, together with the Collateral Agreements, constitutes the
entire agreement and understanding between the parties hereto in respect of the
matters set forth herein, and are merged herein and are superseded and canceled
by this Agreement.
Section 13.2 AMENDMENT AND WAIVER.
This Agreement may be amended, modified, supplemented or changed in whole or
in part only by an agreement in writing making specific reference to this
Agreement and executed by each of the parties hereto. Any of the terms and
conditions of this Agreement may be waived in whole or in part, but only by an
agreement in writing making specific reference to this Agreement and executed by
the party that is entitled to the benefit thereof. The failure of any party
hereto to insist upon strict performance of or compliance with the provisions of
this Agreement shall not constitute a waiver of any right of any such party
hereunder or prohibit or limit the right of such party to insist upon strict
performance or compliance at any other time.
Section 13.3 BINDING AGREEMENT AND SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Section 13.4 ASSIGNMENT.
This Agreement and the rights of the parties hereunder may not be assigned,
and the obligations of the parties hereunder may not be delegated, in whole or
in part, by any party without the prior written consent of the other parties
hereto.
Section 13.5 NO THIRD PARTY BENEFICIARIES.
Nothing in this Agreement is intended to confer any rights or remedies upon
any Person.
Section 13.6 CLOSING COMMITTEE.
Aero and ITS irrevocably make, constitute and appoint as their exclusive agent
and attorney-in-fact to act on their behalf with respect to any and all matters,
claims, controversies or disputes arising out of the terms of this Agreement,
the individuals named below as the Representative (each a "Representative") of
the indicated party.
PARTY REPRESENTATIVE
----- --------------
Aero McGowin I. Patrick, Jr.
ITS PLC Hon. Robert A. Rayne
The Representatives shall constitute the Closing Committee. In the event of the
death, resignation or incapacity of any Representative, the majority of the
individuals who comprised the board of directors of ITS PLC immediately prior to
the Closing and the members who held a majority of the membership interest in
Aero immediately prior to the execution of this Agreement shall appoint a
successor Representative of ITS PLC and Aero, respectively, and provide notice
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of such appointment to the Holding Company, provided that, if a successor
Representative is not so appointed within 15 days of the death, resignation or
incapacity of any Representative, the Board of Directors of the Holding Company
may appoint as such successor Representative any individual who is a member of
the Board of Directors of ITS PLC or was a member of Aero immediately prior to
the execution of this Agreement by providing notice of such appointment to ITS
PLC and Aero. The Holding Company shall have the right to rely upon any actions
taken or omitted to be taken by the Representative as being the act or omission
of each applicable party, without the need for any inquiry and any such actions
or omissions of the Representative shall be binding upon the applicable party.
The Representatives shall not be liable to the parties hereto for any action
taken or omitted by the Representatives in good faith and in no even shall the
Representatives be liable or responsible except for their own gross negligence
or willful misconduct. In no event shall the Representatives be responsible or
liable for special, indirect or consequential loss or damages of any kind,
regardless of the form of action.
Section 13.7 AERO HOLDERS REPRESENTATIVE.
McGowin I. Patrick, Jr. shall serve as the Aero Holders Representative (the
"Aero Holders Representative"). Each Aero Holder by the execution of this
Agreement, hereby irrevocably appoints the Aero Holders Representative as his or
its agent, proxy and attorney-in-fact for all purposes of this Agreement,
including, without limitation, full power and authority (a) to receive payment
of the Aero Exchange Consideration on behalf of such Aero Holder; (b) to execute
and deliver all certificates required of the Aero Holders hereunder; (c) to
receive all communications to the Aero Holders required or permitted hereunder;
(d) to give all notices, consents and approvals required or permitted to be
given by the Aero Holders hereunder; (e) to take all other actions to be taken
by or on behalf of the Aero Holders in connection with the transactions
contemplated hereby; and (f) to do each and every act and exercise any and all
rights which the Aero Holders (individually or collectively) are permitted or
required to do or exercise under this Agreement. Each Aero Holder agrees that
such agency and proxy are coupled with an interest, and are therefore
irrevocable without the consent of the Aero Holders Representative. In
performing his or her duties as such, the Aero Holders Representative shall not
incur any liability to any Aero Holder except for his or her gross negligence or
willful misconduct.
Section 13.8 SURVIVAL.
The representations and warranties made by the parties to this Agreement shall
terminate and expire effective as of the Closing, provided that each of the
covenants of the parties contained in or made by the parties pursuant to the
terms of this Agreement which are to be performed by the parties at and after
the Closing, shall survive the Closing until the same shall have been performed
or discharged in full.
Section 13.9 EFFECT OF DUE DILIGENCE.
Notwithstanding any investigation or audit conducted by any of the parties to
this Agreement prior to the Closing, each of the parties to this Agreement shall
be entitled to rely upon the representations and warranties made by the other
parties pursuant to this Agreement, and such representations and warranties
shall not be deemed to have been waived or otherwise affected by any such
investigation or audit or any knowledge attributable to any party.
Section 13.10 NOTICES.
Any notice, request, instruction or other document or communication required
or permitted to be given under this Agreement shall be in writing and shall be
deemed given (i) three days after being deposited in the mail, postage prepaid,
certified or registered mail, (ii) on the next business day after delivery to a
reputable overnight delivery service such as Federal Express, or (iii) upon
personal delivery if delivered or addressed to the addresses set forth below or
to such other address as any party may hereafter specify by written notice to
the other parties hereto:
(a) If to INTERNATIONAL TOOL AND SUPPLY PLC prior to the Closing,
delivered or mailed to 61 Woodside Road, New Malden, Surrey KT3 3AW,
Attention: Board of Directors, with a copy delivered or mailed to Phillip
M. Renfro, Fulbright & Jaworski L.L.P., 300 Convent Street, Suite 2200, San
Antonio, TX 78205;
55
<PAGE>
(b) If to AERO INTERNATIONAL, L.L.C., delivered or mailed to 300 St.
Francis Street, Mobile, AL 36602, Attention: McGowin I. Patrick, Jr., with
a copy delivered or mailed to Harry M. Zimmerman, Jr., Adams and Reese,
LLP, 4500 One Shell Square, New Orleans, Louisiana 70139;
(c) If to OFFSHORE TOOL & ENERGY CORPORATION, delivered or mailed to 300
St. Francis Street, Mobile, AL 36602, Attention: McGowin I. Patrick, Jr.,
with a copy delivered or mailed to Harry M. Zimmerman, Jr., Adams and
Reese, LLP, 4500 One Shell Square, New Orleans, Louisiana 70139.
(d) If to the AERO HOLDERS or any AERO HOLDER, delivered or mailed to
300 St. Francis Street, Mobile, AL 36602, Attention: McGowin I. Patrick,
Jr., with a copy delivered or mailed to Harry M. Zimmerman, Jr., Adams and
Reese, LLP, 4500 One Shell Square, New Orleans, Louisiana 70139
Section 13.11 FURTHER ASSURANCES.
The parties hereto each agree to execute, make, acknowledge, and deliver such
instruments, agreements and other documents as may be reasonably required to
effectuate the purposes of this Agreement and to consummate the transactions
contemplated hereby.
Section 13.12 ARTICLES AND SECTION HEADINGS.
The Article and Section headings contained in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning or interpretation of this Agreement or any of its terms and conditions.
Section 13.13 GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with and shall be
governed by the laws of the State of Texas, without regard to its principles of
conflict of laws.
Section 13.14 CONSTRUCTION.
As used in this Agreement, any reference to the masculine, feminine or neuter
gender shall include all genders, the plural shall include the singular, and the
singular shall include the plural. With regard to each and every term and
condition of this Agreement and any and all agreements and instruments
contemplated hereby, the parties hereto understand and agree that the same have
or has been mutually negotiated, prepared and drafted, and that if at any time
the parties hereto desire or are required to interpret or construe any such term
or condition or any agreement or instrument subject hereto, no consideration
shall be given to the issue of which party hereto actually prepared, drafted or
requested any term or condition of this Agreement or any agreement or instrument
subject hereto. The Exhibits and Schedules to this Agreement constitute a
substantive part of this Agreement and are hereby incorporated into this
Agreement by this reference.
Section 13.15 COUNTERPARTS.
This Agreement may be executed in counterparts and multiple originals, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
Section 13.16 TIME OF THE ESSENCE.
Time is of the essence with respect to each and every term and provision of
this Agreement.
Section 13.17 ENFORCEMENT OF THE AGREEMENT.
The parties hereto agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to any injunction or injunctions to prevent
breaches of this Agreement and to
56
<PAGE>
enforce specifically the terms and provisions hereof, this being in addition to
any other remedies to which they are entitled at law or in equity. In addition,
each of the parties hereto consents to submit itself to the personal
jurisdiction of any federal or state court sitting in the State of Texas in the
event any dispute arises out of this Agreement and agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court.
Section 13.18 SEVERABILITY.
If any term or other provisions of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any material manner to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year set forth in the preamble to this Agreement.
OFFSHORE TOOL & ENERGY CORPORATION
By: /s/ McGowin I. Patrick, Jr.
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
INTERNATIONAL TOOL AND SUPPLY PLC
By: /s/ Greg E. O'Brien
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
AERO INTERNATIONAL, L.L.C.
By: /s/ McGowin I. Patrick, Jr.
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
57
<PAGE>
AERO HOLDERS:
IPC INDUSTRIES, INC.
By: /s/ McGowin I. Patrick, Jr.
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
MOBILE PULLEY MARINE SERVICES, INC.
By: /s/ Clifton C. Inge, Jr.
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
/s/ Byron A. Adams, Jr.
--------------------------------
Byron A. Adams, Jr.
/s/ Thomas W. Pritchard
--------------------------------
Thomas W. Pritchard
/s/ W. Steven McKenzie
--------------------------------
W. Steven McKenzie
58
<PAGE>
EXHIBIT 10(a)(ii)
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF SHARE EXCHANGES
FIRST AMENDMENT dated as of November 6, 1998, to the AGREEMENT AND PLAN OF
SHARE EXCHANGES (together with the Schedules and Exhibits thereto, the
"Agreement") dated as of October 1, 1998, by and among OFFSHORE TOOL & ENERGY
CORPORATION, a Delaware corporation, INTERNATIONAL TOOL AND SUPPLY PLC, an
English corporation, AERO INTERNATIONAL, L.L.C., a Louisiana limited liability
company, and the persons and entities listed on the signature page hereof under
the caption "AERO HOLDERS".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties to the Agreement have agreed to amend the Agreement in
the manner set forth in this First Amendment;
NOW THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties agree as follows:
1. Amendments to Section 1.1.
a. The definition of the term "Agreement" is added to Section 1.1, to read
as follows:
"Agreement" shall mean this Agreement, as it may be amended from time to
time.
b. The definition of the term "Rescission Date" is deleted.
c. The definition of the term "Series A Subordinated Debentures" is
amended to read as follows:
"Series A Subordinated Debentures" shall mean the $15,000,000 principal
amount of Series A Subordinated Debentures of the Holding Company in
substantially the form included in Article II of the Series A Subordinated
Debenture Indenture, and which shall be issued with the Series A Increasing
Warrants to the Aero Preferred Holders and the Closing Investors at the Closing.
d. The definition of the term "Series A Increasing Warrants" is amended to
read as follows:
"Series A Increasing Warrants" shall mean the 6,250,000 initial issuance
Series A Increasing Warrants of the Holding Company in substantially the form of
Exhibit E, and which shall be issued at the Closing with the Series A
Subordinated Debentures.
e. The definition of "Termination Date" is amended to read as follows:
"Termination Date" shall mean 5:00 p.m., London, England time on the 14th
day after the date of the Second EGM, unless such Termination Date is extended
by the written consent of all the parties to this Agreement.
<PAGE>
2. Amendment to Section 4.1. Section 4.1 is amended to read as follows:
Section 4.1 CLOSING.
The Closing of the transactions contemplated by this Agreement shall take
place concurrently at the offices of Lovell White Durrant, 65 Holborn Viaduct,
London, England, and the offices of Adams and Reese LLP, 4400 One Houston
Center, 1221 McKinney Street, Houston, Texas, beginning at 3:30 p.m., London
time, on the ITS Securities Holders Approval Date, or at such other time or
place as all the parties may agree in writing (the "Closing Date").
3. Amendment to Sections 4.2.3(a) and 4.2.3(c). Sections 4.2.3(a) and
4.2.3(c) are amended to read as follows:
4.2.3 Delivery of Certificates for ITS Exchange Shares by the Liquidators.
* * * *
(a) Delivery to U.S. Persons. The Liquidators shall not deliver any ITS
Exchange Shares to a U.S. Person without the prior written consent of the
Holding Company, which consent shall not be withheld unless (i) such U.S. Person
shall not have given to the Holding Company a completed and signed U.S. Person
Certificate or (ii) the Holding Company shall have reasonable grounds for belief
that such delivery may violate the Securities Act.
* * * * *
(c) Delivery to Non-U.S. Persons. The Liquidator shall not deliver any ITS
Exchange Shares to a Non-U.S. Person without the prior written consent of the
Holding Company, which consent shall not be withheld unless (i) such Non-U.S.
Person shall not have given to the Holding Company a completed and signed Non-
U.S. Person Certificate or (ii) the Holding Company shall have reasonable
grounds for belief that such delivery may violate the Securities Act.
4. Amendment to Section 4.5. Section 4.5 is amended to read as follows:
Section 4.5 EFFECTIVE TIME; RESCISSION.
All Closing Deliveries shall be held in trust and escrow for the benefit of
the parties by Adams and Reese LLP and Lovell White Durrant until the first to
occur of the Effective Time and the Termination Date. If the Effective Time
shall occur before the Termination Date, Adams and Reese LLP and Lovell White
Durrant shall distribute the Closing Deliveries to the respective parties to
which such Closing Deliveries were made at the Closing. If the Termination Date
shall occur before the Effective Time (unless the Termination Date shall be
extended by the written consent of all parties), the Closing and the Closing
Deliveries shall be rescinded and Adams and Reese LLP and Lovell White Durrant
shall return the Closing Deliveries to the respective parties which made such
Closing Deliveries. All parties by virtue of their acceptance and execution of
this Agreement hereby agree to hold Adams and Reese LLP and Lovell White Durrant
harmless and to indemnify it against all costs, expenses and liabilities arising
out of or under this Section 4.5, without any limitation whatever.
5. Amendment to Section 5.1.11. Section 5.1.11 is amended to read as
follows:
5.1.11 Additional Investments. At the Closing, $9,500,000 principal
amount of Series A Subordinated Debentures (including 3,958,333 Series A
Increasing Warrants) shall have been purchased by the Closing Investors.
2
<PAGE>
6. Amendment to Section 5.4. Section 5.4 is amended to read as follows:
Section 5.4 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE HOLDING COMPANY.
In addition to the conditions set forth in Section 5.1 above, the
obligations of the Holding Company to consummate the transactions contemplated
by Article IV at the Closing and to perform the other obligations of the Holding
Company under this Agreement subject to the satisfaction of each of the
conditions set forth in this Section 5.4 (any of which may be waived by written
instrument executed by the Holding Company, subject to the provisions of Section
2.1.7):
7. Amendment to Section 9.2. Section 9.2 is amended to read as follows:
Section 9.2 AUTHORIZED CAPITAL STOCK.
The authorized capital stock of the Holding Company consists of 105,000,000
shares, of which (a) 100,000,000 are classified as shares of Common Stock, $.01
par value per share, and (b) 5,000,000 are classified as shares of Preferred
Stock, $1.00 par value per share. As of the date hereof, none of the shares of
the Common Stock of the Holding Company have been issued by the Holding Company
other than organizational shares subject to cancellation. Except as
contemplated by this Agreement and (a) the obligation of the Holding Company to
issue up to 9,686,968 shares of Common Stock pursuant to the exercise of the
Series A Increasing Warrants, and to issue up to 3,000,000 shares of Common
Stock pursuant to the exercise of the Series B Warrants, (collectively, the
"Warrant Shares") (b) the obligation of the Company to issue up to 5,333,333
shares of Common Stock pursuant to the exercise of conversion rights by holders
of the Series B Junior Subordinated Notes (assuming conversion of the entire
principal amount) (the "Conversion Shares"), and (c) the reservation by the
Company of 5,000,000 shares of Common Stock for issuance pursuant to the
exercise of options that may be granted under the Stock Incentive Plan (the
"Incentive Shares"), as of the Closing Date the Holding Company will be under no
obligation to issue any of its shares of Common Stock or other equity securities
pursuant to subscriptions, warrants, options, convertible securities or other
rights (contingent or otherwise) to purchase or otherwise acquire equity
securities of the Holding Company, and as of the Closing Date, except for the
Warrant Shares, the Conversion Shares and the Incentive Shares, no shares of
Common Stock or other capital stock of the Holding Company will be reserved for
possible future issuance. The Holding Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its equity securities or
any interest therein or to pay any dividend or make any other distribution in
respect thereof. There are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Holding Company
(whether or not the Holding Company is a party thereto), except as set forth in
this Agreement. The shares of Common Stock of the Holding Company to be issued
pursuant to the transactions contemplated by Article IV of this Agreement, when
issued in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable and will be free and clear of all Encumbrances
imposed by or through the Holding Company (other than restrictions imposed by
federal and state securities laws). The issuance of the shares of Common Stock
pursuant to the transactions contemplated by Article IV of this Agreement will
not be subject to any preemptive or similar right of the stockholders of the
Holding Company. The holders of shares of the Common Stock of the Holding
Company following the issuance thereof pursuant to the transactions contemplated
by Article IV of this Agreement will not be subject to personal liability for
the debts and obligations of the Holding Company solely by reason of being the
holders thereof.
8. Amendment to Sections 11.1(a)(iii)(B) and 11.1(a)(iii)(C). Sections
11.1(a)(iii)(B) and 11.1(a)(iii)(C) are amended to read as follows:
3
<PAGE>
Section 11.1 TERMINATION.
(a) This Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing Date solely:
* * * * *
(iii) * * * *
(A) * * * *
(B) by Aero if any of the conditions in Sections 5.1 or 5.3 has
not been satisfied as of the Closing Date or if satisfaction of such condition
is or becomes impossible (other than through the failure of Aero to comply with
its obligations in this Agreement) and Aero has not waived such condition prior
to the Closing Date;
(C) by the Holding Company if any of the conditions in Sections
5.1 or 5.4 has not been satisfied as of the Closing Date or if satisfaction of
such condition is or becomes impossible (other than through the failure of the
Holding Company to comply with its obligations in this Agreement) and the
Holding Company has not waived such condition prior to the Closing Date;
* * * *
9. Amendments to Exhibits to Agreement. The Exhibits to the Agreement are
amended as follows:
a. Exhibit C: The form of Subordinated Debenture Indenture is amended
to reflect the authorization and issuance of $15,000,000 of Series A
Subordinated Debentures.
b. Exhibit D: The Series B Junior Subordinated Note Agreement is
amended to reflect the change in the Conversion Price from $1.53 per share of
Common Stock to $0.75 per share of Common Stock.
c. Exhibit E: The form of Series A Increasing Warrants is amended to
reflect (i) the increase in the number of initial issuance Series A Increasing
Warrants from 5,000,000 to 6,250,000 and (ii) the decrease in the exercise price
of the Series A Increasing Warrants from $1.26 per share to $0.63 per share.
d. Exhibit S: The Series A Subordinated Debenture Subscription
Agreements are expanded to include the Series A Subordinated Debenture
Subscription Agreement of Bernard Duroc-Danner.
e. Exhibit T: The Forms of Closing Legal Opinions are amended to
reflect that they shall be applicable with respect to the Agreement, as amended.
10. Defined Terms. Terms defined in the Agreement shall have their
defined meanings when used herein.
11. Limited Effect. Except as expressly amended by this First Amendment,
the Agreement shall continue to be, and shall remain, in full force and effect
in accordance with its terms.
4
<PAGE>
12. Counterparts. This First Amendment may be signed in any number of
counterparts, each of which shall be an original, and all of which taken
together shall constitute a single agreement with the same effect as if the
signature thereto and hereto were upon the same instrument.
13. Governing Law. This First Amendment shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date and year set forth in the preamble to this First Amendment.
OFFSHORE TOOL & ENERGY
CORPORATION
By: /s/ McGowin I. Patrick, Jr.
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
INTERNATIONAL TOOL AND SUPPLY PLC
By: /s/ Robert A. Rayne
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
AERO INTERNATIONAL, L.L.C.
By: /s/ McGowin I. Patrick, Jr.
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
5
<PAGE>
AERO HOLDERS:
IPC INDUSTRIES, INC.
By: /s/ McGowin I. Patrick, Jr.
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
MOBILE PULLEY MARINE SERVICES, INC.
By: /s/ McGowin I. Patrick, Jr.
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
/s/ Byron A. Adams, Jr.
--------------------------------------
Byron A. Adams, Jr.
/s/ Thomas W. Pritchard
--------------------------------------
Thomas W. Pritchard
/s/ W. Steven McKenzie
--------------------------------------
W. Steven McKenzie
6
<PAGE>
EXHIBIT 10(b)(i)
$40,000,000
________________________________________________________________________________
LOAN AGREEMENT
DATED AS OF JUNE ___, 1998
BETWEEN
AERO INTERNATIONAL, L.L.C.
AND
AMERICAN AERO CRANES, L.L.C.
(THE BORROWERS)
AND
NATIONAL CANADA FINANCE CORP.
(THE AGENT)
AND
THE LENDERS
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE I DEFINITIONS......................................................... 1
1.1 Definitions........................................................... 1
1.1.1 "Account Debtor"....................................... 1
1.1.2 "Acquire or Acquisition"............................... 1
1.1.3 "Acquisition Consideration"............................ 1
1.1.4 "Acquisition Debt"..................................... 1
1.1.5 "Additional Borrower".................................. 1
1.1.6 "Additional Borrower Certificate....................... 1
1.1.7 "Advance".............................................. 2
1.1.8 "Aero"................................................. 2
1.1.9 "Agent"................................................ 2
1.1.10 "Agent's Office"....................................... 2
1.1.11 "Affiliate"............................................ 2
1.1.12 "Agreement"............................................ 2
1.1.13 "Agreement Date"....................................... 2
1.1.14 "American Aero"........................................ 2
1.1.15 "Applicable Margin".................................... 2
1.1.16 "ASI Accounts"......................................... 3
1.1.17 "Benefit Plan"......................................... 3
1.1.18 "Borrower"............................................. 3
1.1.19 "Borrowing Base"....................................... 3
1.1.20 "Borrowing Base Certificate"........................... 3
1.1.21 "Borrowing Date"....................................... 3
1.1.22 "Business Day"......................................... 3
1.1.23 "Business Unit"........................................ 3
1.1.24 "CAPEX Borrowing Base"................................. 3
1.1.25 "CAPEX Credit Availability"............................ 3
1.1.26 "CAPEX Credit Advances"................................ 4
1.1.27 "CAPEX Hard Cost"...................................... 4
1.1.28 "Capital Expenditures"................................. 4
1.1.29 "Capitalized Lease".................................... 4
1.1.30 "Capitalized Lease Obligation"......................... 4
1.1.31 "Code"................................................. 4
1.1.32 "Collateral"........................................... 4
1.1.33 "Commitment"........................................... 4
1.1.34 "Consolidated.......................................... 5
1.1.35 "Consolidated Net Worth of Aero"....................... 5
1.1.36 "Consolidated Subsidiaries"............................ 5
1.1.37 "Controlled Disbursement Account"...................... 5
1.1.38 "Debt"................................................. 5
1.1.39 "Deed of Trust"........................................ 5
1.1.40 "Defaulting Lender".................................... 5
1.1.41 "Default Margin"....................................... 5
1.1.42 "Deposit Accounts"..................................... 5
1.1.43 "Dollar"............................................... 6
1.1.44 "Drawing".............................................. 6
1.1.45 "EBITDA"............................................... 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
1.1.46 "ERISA"................................................ 6
1.1.47 "Effective Date"....................................... 6
1.1.48 "Effective Interest Rate".............................. 6
1.1.49 "Eligible Equipment"................................... 6
1.1.50 "Eligible Inventory"................................... 6
1.1.51 "Eligible Receivable".................................. 7
1.1.52 "Eligible Real Estate"................................. 7
1.1.53 "Environmental Laws"................................... 8
1.1.54 ''Equipment"........................................... 8
1.1.55 "Equipment Appraisal".................................. 8
1.1.56 "Event of Default"..................................... 8
1.1.57 "Excluded Collateral".................................. 8
1.1.58 "Facilities"........................................... 8
1.1.59 "Financing Statements"................................. 8
1.1.60 "Fixed Asset Availability"............................. 8
1.1.61 "Fixed Asset Advances"................................. 9
1.1.62 "Fixed Asset Borrowing Base"........................... 9
1.1.63 "GAAP"................................................. 9
1.1.64 "General Intangibles".................................. 9
1.1.65 "Governmental Approvals"............................... 9
1.1.66 "Governmental Authority"............................... 10
1.1.67 "Guaranteed Obligations"............................... 10
1.1.68 "Guaranty", "Guaranteed" or to "Guarantee,"............ 10
1.1.69 "Indebtedness"......................................... 10
1.1.70 "Initial Advances"..................................... 10
1.1.71 "Intellectual Property"................................ 10
1.1.72 "Interest Expense"..................................... 11
1.1.73 "Interest Rate Agreements"............................. 11
1.1.74 "Inventory"............................................ 11
1.1.75 "Investment"........................................... 11
1.1.76 "ITS".................................................. 11
1.1.77 "Lender"............................................... 11
1.1.78 "Lender Default"shall mean (i)......................... 11
1.1.79 "Letter of Credit Bank"................................ 11
1.1.80 "Letter of Credit Fee"................................. 11
1.1.81 "Letter of Credit Request"............................. 11
1.1.82 "Letters of Credit".................................... 11
1.1.83 "Letter of Credit Limit"............................... 12
1.1.84 "Letter of Credit Obligations"......................... 12
1.1.85 "LIBOR"................................................ 12
1.1.86 "LIBOR Applicable Margin".............................. 12
1.1.87 "LIBOR Interest Period"................................ 12
1.1.88 "LIBOR Interest Rate".................................. 12
1.1.89 "LIBOR Term"........................................... 12
1.1.90 "Liabilities".......................................... 13
1.1.91 "Lien"................................................. 13
1.1.92 "Loan Documents"....................................... 13
1.1.93 "Majority Lenders"..................................... 13
1.1.94 "Materially Adverse Effect"............................ 13
1.1.95 "Merger"............................................... 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
1.1.96 "Merger Letter Agreement".............................. 13
1.1.97 "Mortgage"............................................. 14
1.1.98 "Multiemployer Plan"................................... 14
1.1.99 "Net Income" or "Net Loss"............................. 14
1.1.100 "Net Worth"............................................ 14
1.1.101 "Non-Defaulting Lender"................................ 14
1.1.102 "Note"................................................. 14
1.1.103 "Notice of Borrowing".................................. 14
1.1.104 "Operating Lease"...................................... 14
1.1.105 "Overadvance Availability"............................. 14
1.1.106 "Overadvance Facility"................................. 15
1.1.107 "Overadvance Advances"................................. 15
1.1.108 "Participant".......................................... 15
1.1.109 "PBGC"................................................. 15
1.1.110 "Percentage"........................................... 15
1.1.111 "Permitted Investments................................. 15
1.1.112 "Permitted Liens"...................................... 15
1.1.113 "Permitted Purchase Money Debt"........................ 16
1.1.114 "Person"............................................... 16
1.1.115 "Pledge Agreement"..................................... 16
1.1.116 "Potential Borrower"................................... 16
1.1.117 "Prime Rate"........................................... 16
1.1.118 "Purchase Money Debt".................................. 16
1.1.119 "Purchase Money Lien".................................. 16
1.1.120 "Real Estate".......................................... 16
1.1.121 "Real Estate Appraisal"................................ 17
1.1.122 "Receivables".......................................... 17
1.1.123 "Reference Bank"....................................... 17
1.1.124 "Reimbursement Obligations"............................ 17
1.1.125 "Related Company....................................... 17
1.1.126 "Required Lenders"..................................... 17
1.1.127 "Restricted Distribution".............................. 17
1.1.128 "Restricted Payment"................................... 18
1.1.129 "Revolving Credit Availability''....................... 18
1.1.130 "Revolving Credit Advances"............................ 18
1.1.131 "Revolving Facility"................................... 18
1.1.132 "Revolving Loans"...................................... 14
1.1.133 "Schedule of Equipment"................................ 18
1.1.134 "Schedule of Inventory"................................ 18
1.1.135 "Schedule of Receivables".............................. 19
1.1.136 "Secured Obligations".................................. 19
1.1.137 "Security Agreement"................................... 19
1.1.138 "Security Documents"................................... 19
1.1.139 "Security Interest".................................... 19
1.1.140 "Senior Secured Debt".................................. 19
1.1.141 "Subordinated Debt".................................... 19
1.1.142 "Subsidiary"........................................... 19
1.1.143 "Taxes"................................................ 20
1.1.144 "Termination Date"..................................... 20
1.1.145 "Termination Event".................................... 20
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
1.1.146 "Title Company"................................................ 20
1.1.147 "Title Policy"................................................. 20
1.1.148 "Total Credit Facility"........................................ 20
1.1.149 "UCC".......................................................... 20
1.1.150 "Unfunded Vested Accrued Benefits"............................. 20
1.1.151 "Wholly-Owned Subsidiary"...................................... 20
1.1.152 "WIP".......................................................... 21
1.2 Other Referential Provisions............................................. 21
1.3 Exhibits and Schedules................................................... 22
ARTICLE II FACILITIES................................................................. 22
2.1 CREDIT FACILITY NOTE........................................................... 22
2.2 REVOLVING FACILITY....................................................... 22
2.2.1 Revolving Credit Advances........................................ 22
2.2.2 Fixed Asset Advances............................................. 22
2.2.3 CAPEX Credit Advances............................................ 23
2.2.4 Revolving Loan Commitments....................................... 23
2.2.5 Manner of Borrowing Revolving Loans.............................. 23
2.2.5.1 Requests for Borrowing................................. 23
2.2.5.2 Disbursement of Revolving Loans........................ 24
2.2.6 Repayment of Revolving Loans..................................... 24
2.2.7 Reductions and Increases in Availability......................... 25
2.2.7.1 Increase and Reduction of Fixed Asset Availability..... 25
2.2.7.2 Reduction of CAPEX Facility............................ 25
2.2.8 Maximum Availability of the Revolving Facility................... 25
2.3 Overadvance Facility..................................................... 25
2.3.1 Overadvance Advances............................................. 25
2.3.2 Manner of Borrowing Overadvance Advances......................... 26
2.3.2.1 Requests for Borrowing................................. 26
2.3.2.2 Disbursement of Advances............................... 26
2.3.3 Repayment of Overadvance Credit Advances......................... 26
2.3.4 Reduction Facility............................................... 27
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2.4 LETTER OF CREDIT FACILITY.................................................... 27
2.4.1 Amounts, Terms and Issuance of Letters of Credit...................... 27
2.4.2 Reimbursement Obligations............................................. 27
2.4.3 Increased Cost........................................................ 28
2.4.4 Legal Restrictions on Letters of Credit............................... 29
2.4.5 Indemnification....................................................... 29
2.4.6 Letter of Credit Participants......................................... 30
2.5 Extension of Facilities...................................................... 31
GENERAL LOAN PROVISIONS.................................................................. 32
3.1 Interest..................................................................... 32
3.2 Fees......................................................................... 34
3.2.1 Unused Line Fee...................................................... 34
3.2.2 Facility Fee......................................................... 34
3.2.3 Quarterly Audit Fee.................................................. 34
3.2.4 Letter of Credit Fee................................................. 34
3.2.5 General.............................................................. 34
3.3 Manner of Payment............................................................ 34
3.4 Statements of Account........................................................ 35
3.5 Reduction of Revolving Facility and Termination of Agreement................. 35
3.5.1 Reduction of Revolving Facility....................................... 35
3.5.2 Termination of Agreement.............................................. 35
3.6 Prepayments of Advances with the LIBOR Interest Rate......................... 36
3.7 Funding Losses............................................................... 36
3.8 Increased Costs and Reduced Returns.......................................... 36
3.9 Unconditional and Absolute Guaranty.......................................... 37
3.9.1 Guaranty............................................................... 37
3.9.2 No Release............................................................. 37
3.9.3 Guarantee Absolute..................................................... 37
3.9.4 Waivers................................................................ 38
3.9.5 Survival............................................................... 38
3.10 Authorized Borrowed Representative........................................... 39
3.11 Pro-Rata Borrowings.......................................................... 39
ARTICLE IV CONDITIONS PRECEDENT......................................................... 39
4.1 Conditions Precedent to Initial Advances..................................... 39
4.1.1 Closing Documents..................................................... 39
4.1.2 Acquisitions.......................................................... 41
4.1.3 Preferred Interests................................................... 41
4.1.4 Appraisals............................................................ 41
4.1.5 Environmental Report.................................................. 41
4.1.6 Title Policies........................................................ 41
4.1.7 Survey................................................................ 41
4.1.8 Insurance............................................................. 41
4.1.9 Audit................................................................. 41
4.1.10 No Injunctions, Etc................................................... 41
4.1.11 Material Adverse Change............................................... 41
4.1.12 Solvency.............................................................. 42
4.2 All Advances................................................................. 42
4.3 Additional Borrower.......................................................... 42
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER. ................................ 43
5.1 Representations and Warranties............................................... 43
5.1.1 Organization; Power; Qualification.................................... 43
5.1.2 Subsidiaries; Ownership of the Borrower; Shareholder Agreements....... 43
5.1.3 Authorization of Agreement, Notes, Loan Documents and Borrowing....... 44
5.1.4 Compliance of Agreement, Notes, Loan Documents and Borrowing with
Laws, Etc............................................................ 44
5.1.5 Business.............................................................. 44
5.1.6 Compliance with Law; Governmental Approvals........................... 44
5.1.7 Titles to Properties.................................................. 45
5.1.8 Liens................................................................. 45
5.1.9 Indebtedness and Guaranties........................................... 45
5.1.10 Litigation............................................................ 45
5.1.11 Tax Returns and Payments.............................................. 45
5.1.12 Burdensome Provisions................................................. 46
5.1.13 Financial Statements.................................................. 46
5.1.14 Adverse Change........................................................ 46
5.1.15 ERISA................................................................. 46
5.1.16 Absence of Defaults................................................... 46
5.1.17 Accuracy and Completeness of Information.............................. 47
5.1.18 Solvency.............................................................. 47
5.1.19 Status of Receivables................................................. 47
5.1.20 Chief Executive Office................................................ 47
5.1.21 Equipment............................................................. 47
5.1.22 Real Property......................................................... 47
5.1.23 Corporate and Fictitious Names: Trade Names........................... 47
5.1.24 Federal Regulations................................................... 47
5.1.25 Investment Company Act................................................ 48
5.1.26 Employee Relations.................................................... 48
5.1.27 Intellectual Property................................................. 48
5.1.28 Bank Accounts, Lockboxes, Etc......................................... 48
5.2 Survival of Representations and Warranties, Etc.............................. 48
ARTICLE VI COLLATERAL COVENANTS......................................................... 48
6.1 Verification and Notification................................................ 48
6.2 Disputes, Returns and Adjustments............................................ 49
6.3 Invoices..................................................................... 49
6.4 Delivery of Instruments...................................................... 49
6.5 Ownership and Defense of Title............................................... 49
6.6 Insurance.................................................................... 50
6.7 Location of Offices and Collateral........................................... 50
6.8 Records Relating to Collateral............................................... 50
6.9 Inspection................................................................... 50
6.10 Maintenance of Equipment..................................................... 50
6.11 Information and Reports...................................................... 51
6.11.1 Schedule of Receivables............................................. 51
6.11.2 Schedule of Inventory............................................... 51
6.11.3 Schedule of Equipment............................................... 51
6.11.4 Borrowing Base Certificate.......................................... 51
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6.11.5 Notice of Diminution of Value....................................... 51
6.11.6 Certification....................................................... 51
6.11.7 Other Information................................................... 51
6.12 Power of Attorney............................................................ 52
ARTICLE VII AFFIRMATIVE COVENANTS........................................................ 52
7.1 Preservation of Entity Existence and Similar Matters......................... 52
7.2 Compliance with Applicable Law............................................... 52
7.3 Conduct of Business.......................................................... 52
7.4 Payment of Taxes and Claims.................................................. 52
7.5 Accounting Methods and Financial Records..................................... 52
7.6 Use of Proceeds. N.......................................................... 52
7.7 Subordinated Debt............................................................ 53
7.8 Accuracy of Information...................................................... 53
ARTICLE VIII INFORMATION................................................................. 53
8.1 Financial Statements......................................................... 53
8.1.1 Audited Year-End Statements......................................... 53
8.1.2 Monthly Financial Statements........................................ 53
8.1.3 Annual Budget....................................................... 54
8.1.4 Acquisitions........................................................ 54
8.2 Accountants' Certificate..................................................... 54
8.3 Officer's Certificate........................................................ 54
8.4 Copies of Other Reports...................................................... 54
8.5 Notice of Litigation and Other Matters....................................... 55
8.6 ERISA........................................................................ 56
ARTICLE IX NEGATIVE COVENANTS........................................................... 56
9.1 Financial Ratios............................................................. 56
9.1.1 Minimum Interest Charge Coverage.................................... 56
9.1.2 Minimum Capital..................................................... 56
9.1.3 Quarterly Net Loss.................................................. 56
9.2 Debt......................................................................... 57
9.3 Guaranties................................................................... 57
9.4 Investments.................................................................. 57
9.5 Acquisitions................................................................. 57
9.6 Restricted Distributions and Payments........................................ 57
9.7 Merger, Consolidation and Sale of Assets..................................... 57
9.8 Transactions with Affiliates................................................. 57
9.9 Liens........................................................................ 57
9.10 Operating Leases............................................................. 57
9.11 Benefit Plans................................................................ 57
9.12 Sales and Leasebacks......................................................... 57
9.13 Amendments of Other Agreements............................................... 57
ARTICLE X DEFAULT...................................................................... 58
10.1 Events of Default............................................................ 58
10.1.1 Default in Payment of Advances....................................... 58
10.1.2 Other Payment Default................................................ 58
10.1.3 Misrepresentation.................................................... 58
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10.1.4 Defaulting Performance............................................... 58
10.1.5 Debt Cross-Default................................................... 58
10.1.6 Other Cross-Defaults................................................. 58
10.1.7 Voluntary Bankruptcy Proceeding...................................... 58
10.1.8 Involuntary Bankruptcy Proceeding.................................... 59
10.1.9 Loan Documents....................................................... 59
10.1.10 Failure of Agreements................................................ 59
10.1.11 Judgment............................................................. 59
10.1.12 Attachment........................................................... 60
10.1.13 ERISA................................................................ 60
10.1.14 Qualified Audits..................................................... 60
10.1.15 Material Adverse Effect.............................................. 60
10.1.16 Change of Control.................................................... 60
10.1.17 Change of Management................................................. 60
10.2 Remedies..................................................................... 61
10.2.1 Automatic Acceleration and Termination of Facilities................. 61
10.2.2 Other Remedies....................................................... 61
10.3 Application of Proceeds...................................................... 63
10.3.1 First: .............................................................. 63
10.3.2 Second: ............................................................. 63
10.3.3 Third: ............................................................. 63
10.4 Power of Attorney............................................................ 63
10.5 Miscellaneous Provisions Concerning Remedies................................. 63
10.5.1 Rights Cumulative.................................................... 63
10.5.2 Waiver of Marshaling................................................. 63
10.5.3 Limitation of Liability.............................................. 63
10.5.4 Appointment of Receiver.............................................. 64
10.6 Dividends; Redemption........................................................ 64
10.7 Performance in Lenders....................................................... 64
10.8 Trademark License............................................................ 64
ARTICLE XI MERGER WITH INTERNATIONAL TOOL & SUPPLY, PLC................................. 64
11.1 Merger with ITS.............................................................. 64
11.1.1 Formation of Aero International, Inc................................. 64
11.1.2 ITS Subsidiaries..................................................... 65
11.1.3 Definitive Agreement................................................. 65
11.1.4 Updated Borrowing Base Certificate................................... 65
11.2 Obligations.................................................................. 65
11.2.1 Obligations of Borrowers............................................. 65
11.2.2 Obligations of Lenders............................................... 66
11.3 Termination of Certain Availability.......................................... 66
11.4 Debt and Equity Offerings.................................................... 66
ARTICLE XII AGENT........................................................................ 66
12.1 Appointment.................................................................. 66
12.2 Consultation with Counsel.................................................... 66
12.3 Delegation of Duties......................................................... 67
12.4 Exculpatory Provisions....................................................... 67
12.5 Reliance by Agent............................................................ 67
12.6 Notice of Default............................................................ 67
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12.7 Non-Reliance on Agent, and other Lenders.............................. 68
12.8 Indemnification....................................................... 68
12.9 Agent in its Individual Capacity...................................... 68
12.10 Resignation of the Agent; Successor Agent............................. 69
12.11 Certain Action Requiring Consent of Majority Banks.................... 69
12.12 Benefit of Article XII................................................ 69
MISCELLANEOUS..................................................................... 69
13.1 Notices............................................................... 69
13.1.1 Method of Communication....................................... 69
13.1.2 Addresses for Notices......................................... 69
13.1.3 Agent's Office................................................ 70
13.2 Expenses.............................................................. 70
13.3 Stamp and Other Taxes................................................. 71
13.4 Setoff................................................................ 71
13.5 Litigation............................................................ 72
13.6 Waiver of Rights...................................................... 72
13.7 Reversal of Payments.................................................. 73
13.8 Injunctive Relief..................................................... 73
13.9 Accounting Matters.................................................... 73
13.10 Assignment; Participation............................................. 73
13.11 Amendments............................................................ 73
13.12 Performance of Borrowers' Duties...................................... 74
13.13 Indemnification....................................................... 74
13.14 All Powers Coupled with Interest...................................... 74
13.15 Survival.............................................................. 74
13.16 Severability of Provisions............................................ 74
13.17 Governing Law......................................................... 74
13.18 Counterparts.......................................................... 75
13.19 Reproduction of Documents............................................. 75
ARTICLE XIV NAME CHANGE........................................................... 75
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LOAN AGREEMENT
Dated as of June ___, 1998
THIS LOAN AGREEMENT is entered into by and among AERO INTERNATIONAL,
L.L.C., a Louisiana limited liability company, AMERICAN AERO CRANES, L.L.C., a
Louisiana limited liability company, and the financial institutions listed on
the signature pages of this Agreement under the heading "Lenders", and NATIONAL
CANADA FINANCE CORP., a Delaware corporation, as Agent for the Lenders, to the
extent and in the manner provided in ARTICLE XII below.
PRELIMINARY STATEMENT:
Aero International, L.L.C. has requested the Lenders (as hereinafter
defined) provide financing to it and certain of its subsidiaries and the Lenders
(as hereinafter defined) have agreed to provide such financing on the terms and
conditions hereinafter set forth. Aero International, L.L.C. and the other
"Borrowers" now or hereafter party hereto acknowledge that the Borrowers have
sought such financing based on a credit of the consolidated group, the
businesses of which are interrelated, and that each member of such consolidated
group will derive substantial benefit from such extension of credit.
ARTICLE I
DEFINITIONS
1.1 Definitions. For the purpose of this Agreement:
1.1.1 "Account Debtor" means a Person who is obligated on a Receivable.
1.1.2 "Acquire or Acquisition" as applied to any Business Unit or
Investment means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of securities, or by merger, reorganization or any
other method.
1.1.3 "Acquisition Consideration" means, with respect to any Acquisition by
Aero of any Business Unit, the sum of the total amount of cash paid to or for
the account of the seller of such Business Unit, PLUS the principal amount of
Indebtedness issued to such seller, PLUS the principal amount of any
Indebtedness and other Liabilities of such seller assumed by Aero, PLUS the fair
value of any shares of capital stock or other non-cash consideration transferred
to such seller in payment of any part of the purchase price of such Business
Unit.
1.1.4 "Acquisition Debt" means Acquisition Consideration consisting of
unsecured Indebtedness for Money Borrowed (other than Loans hereunder) incurred
or assumed by Aero in connection with any Acquisition permitted pursuant to this
Agreement.
1.1.5 "Additional Borrower" means a Person that becomes a party to this
Agreement as a "Borrower" pursuant to SECTION 4.3.
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1.1.6 "Additional Borrower Certificate" means a certificate of a Potential
Borrower and the Borrowers in the form of EXHIBIT 1.1.6.
1.1.7 "Advance" means the disbursement by Lenders of a sum or sums loaned
to a Borrower, including any of the Revolving Credit Advances, the Fixed Asset
Advances, the Overadvance Advances and the CAPEX Advances, as well as all such
advances collectively, together with the Letter of Credit Obligations.
1.1.8 "Aero" means Aero International, L.L.C., a Louisiana limited
liability company and its successors and assigns. Upon completion of the merger
contemplated by ARTICLE XI, Aero shall thereafter mean Aero International, Inc.,
a Delaware corporation.
1.1.9 "Agent" shall mean National Canada Finance Corp., as Agent, and any
successor to the Agent pursuant to SECTION 12.2.9.
1.1.10 "Agent's Office" shall mean the office of Agent specified or
determined in accordance with the provisions of SECTION 13.1.3.
1.1.11 "Affiliate" means, with respect to a Person, (a) any officer,
director, member, employee or managing agent of such Person, (b) any spouse,
parents, brothers, sisters, children and grandchildren of such Person, (c) any
association, partnership, trust, entity or enterprise in which such Person is a
director, officer, member or general partner, (d) any other Person that, (i)
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such given Person, (ii) directly
or indirectly beneficially owns or holds 10% or more of any class of voting
stock or partnership or other interest of such Person or any Subsidiary of such
Person, or (iii) 10% or more of the voting stock or partnership or other
interest of which is directly or indirectly beneficially owned or held by such
Person or a Subsidiary of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities or partnership or other interests, by contract or otherwise.
1.1.12 "Agreement" means this Loan Agreement, including the Exhibits and
Schedules hereto, and all amendments, modifications and supplements hereto and
thereto and restatements hereof and thereof.
1.1.13 "Agreement Date" means the date as of which this Agreement is dated.
1.1.14 "American Aero" means American Aero Cranes, L.L.C., a Louisiana
limited liability company.
1.1.15 "Applicable Margin" prior to the consummation of the Merger, the
Applicable Margin is in accordance with the table below:
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Margin is in accordance with the table below:
Senior Secured Debt/EBITDA Applicable Margin
- -------------------------- -----------------
greater than 3.0 0.75%
3.0 or less 0.05%
Upon the consummation of the Merger, the applicable margin shall be in
accordance with the table below:
Senior Secured Debt/EBITDA Applicable Margin
- -------------------------- -----------------
greater than 3.00 0.25%
3.00 or less 0.00%
1.1.16 "ASI Accounts" means Receivables due to a Borrower with respect to
which the Account Debtor has agreed in writing that such Borrower will invoice
goods giving rise to such Receivable upon completion and hold such goods
rendering receipt of shipping instructions, such agreement to be substantially
in the form attached as EXHIBIT 1.1.16 and a copy thereof delivered to Agent
prior to being considered an ASI Account.
1.1.17 "Benefit Plan" means an employee benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which a Person or
any Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
1.1.18 "Borrower" means Aero and American Aero, and any Additional
Borrower, and "Borrowers" means all of the foregoing.
1.1.19 "Borrowing Base" means at any time an amount equal to the sum of (a)
85% (or such lesser percentage as the Required Lenders may in their sole and
absolute discretion determine from time to time) of the face value of Eligible
Receivables due and owing at such time, (b) 50% (or such lesser percentage as
the Required Lenders may in their sole and absolute discretion determine from
time to time) of the value of Eligible Inventory, (c) except as provided in the
following CLAUSE (D) 25% (or such lesser percentage as the Required Lenders may
in its sole and absolute discretion determine from time to time) of non parts
WIP, (d) 85% (or such lesser percentage as Required Lenders may in their sole
and absolute discretion determine from time to time) of WIP subject to a United
States government guaranty, in a form and amount acceptable to Required Lenders
in their sole and absolute discretion, or (e) such other matters acceptable to
Lenders in their sole and absolute discretion.
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1.1.20 "Borrowing Base Certificate" means a certificate in the form of
EXHIBIT 1.1.20 attached hereto, showing the Borrowing Base, the Fixed Asset
Borrowing Base and the CAPEX Borrowing Base or such other form as may be
acceptable to the Lender in its discretion.
1.1.21 "Borrowing Date" shall have the meaning set forth in SECTION
2.2.4.1.
1.1.22 "Business Day" means any day other than a Saturday, Sunday or other
day on which banks in the city in which the Agent's Office is located are
authorized to close.
1.1.23 "Business Unit" means the assets constituting the business, or a
division or operating unit thereof, of any Person.
1.1.24 "CAPEX Borrowing Base" means at any time a sum equal to 90% (or such
lesser percentage as Required Lenders may in their sole and absolute discretion
determine) of the CAPEX Hard Costs.
1.1.25 "CAPEX Credit Availability" means as of the date of determination,
the aggregate principal amount of the CAPEX Credit Advances available to be
borrowed by the Borrowers hereunder at the time of determination in accordance
with SECTION 2.2.3, which shall be equal to the remainder derived by subtracting
the aggregate principal amount of the CAPEX Credit Advances outstanding on such
date from an amount equal to the lesser of: (i) the Total Credit Facility,
MINUS, the total principal amount outstanding, at the date of determination,
under the Revolving Credit Advances, the Fixed Asset Advances, the Overadvance
Advances and the Letter of Credit Obligations; or (ii) the CAPEX Borrowing Base.
1.1.26 "CAPEX Credit Advances" means advances made to the Borrowers
pursuant to SECTION 2.2.3. Each advance made pursuant to a request under SECTION
2.2.5 shall be a "CAPEX Credit Advance" and all such advances shall be the
"CAPEX Credit Advances".
1.1.27 "CAPEX Hard Cost" means, as to each Capital Expenditure, mean the
total actual cost as shown on the depreciation schedule attached to the
Borrowing Base Certificate, MINUS, any administrative, overhead and any other
soft costs contained the depreciation schedule.
1.1.28 "Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than assets which constitute a Business Unit) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
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1.1.29 "Capitalized Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
1.1.30 "Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
1.1.31 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.1.32 "Collateral" means and includes all of the Borrowers' right, title
and interest in and to all its property; whether incorporeal, corporeal,
tangible or intangible, movable or immovable, real or personal whenever located
and whether now or hereinafter existing or now owned or hereinafter acquired,
including without limitation, Receivables, Equipment, Inventory, Deposit
Accounts, General Intangibles and Real Estate other than Equipment and Inventory
located outside of the U.S. or Receivables not included in the Borrowing Base;
provided, however, that Inventory, Equipment and Receivables located or deemed
to be located outside of the United States may be included as "Collateral" if
Borrowers provide a legal opinion in a form reasonably acceptable to Agent, by
counsel, reasonably acceptable to Agent, qualified to practice law in the
jurisdiction where such "Collateral" is located or deemed to be located.
1.1.33 "Commitment" shall mean with respect to a Lender, the amount set
forth by such Lender's name in SCHEDULE 1 directly below the column entitled
"Commitment" as the same may be reduced from time to time pursuant to SECTION
3.5.5.1.
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1.1.34 "Consolidated" means, when used with reference to any financial
account, the sum of such accounts of Aero and its Consolidated Subsidiaries, as
consolidated after elimination of intercompany items and, if used with reference
to Net Income or Net Worth, after appropriate deductions for any minority
interests in any Subsidiaries, all in accordance with GAAP.
1.1.35 "Consolidated Net Worth of Aero" means the Net Worth of Aero and its
Consolidated Subsidiaries after appropriate reductions for any minority
interests in any Subsidiaries in accordance with GAAP, adjusted on a quarterly
basis.
1.1.36 "Consolidated Subsidiaries" means, as to Aero, American Aero and any
other Subsidiary of Aero whose accounts are, at the time in question,
consolidated in accordance with GAAP with those of Aero, PROVIDED, THAT, as to
any Subsidiary other than American Aero, such consolidation shall be subject to
the prior consent of the Required Lenders, which consent shall be conditioned
upon the execution and delivery of guaranties, security agreements, amendments
to this Agreement or such other agreements or documents as the Required Lenders
may specify.
1.1.37 "Controlled Disbursement Account" means the account maintained by
and in the name of the Borrowers with the Agent for the purpose of disbursing
Revolving Loan proceeds and amounts credited thereto pursuant to SECTIONS
2.2.4.2.
1.1.38 "Debt" means (a) Indebtedness for money borrowed, (b) Indebtedness,
whether or not in any such case the same was for money borrowed, (i) represented
by notes payable, drafts accepted and payment made on behalf of such Person
under letters of credit and similar instruments, that represent extensions of
credit, (ii) constituting obligations evidenced by bonds, debentures, notes or
similar instruments, or (iii) upon which interest charges are customarily paid
or that was issued or assumed as full or partial payment for property (other
than trade credit that is incurred in the ordinary course of business), (c)
Indebtedness that constitutes a Capitalized Lease Obligation, (d) Indebtedness
under Interest Rate Agreements, and (e) Indebtedness that is such by virtue of
CLAUSE (G) of the definition thereof, but only to the extent that the
obligations Guaranteed are obligations that would constitute Debt.
1.1.39 "Deed of Trust" means deeds of trust executed by a Borrower covering
Real Estate located in Texas securing the Secured Obligations in favor of Agent,
as Agent for the Lenders, acceptable to Lenders in their sole discretion
substantially in the form attached as EXHIBIT 1.1.39 with all blanks
appropriately filled.
1.1.40 "Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
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1.1.41 "Default Margin" means 3.0%.
1.1.42 "Deposit Accounts" means any demand, time passbook, money market or
like depository account, and all certificates of deposit, maintained with a
bank, savings and loan association, credit union or like organization other than
an account evidenced by a certificate of deposit that is an instrument under the
UCC.
1.1.43 "Dollar" and "$" means freely transferable United States dollars.
1.1.44 "Drawing" means with respect to any Letter of Credit, a drawing made
by the beneficiary of such Letter of Credit.
1.1.45 "EBITDA" means for any period (i) the income (or deficit) of Aero
and its Consolidated Subsidiaries before provision for Taxes for such period
(excluding to the extent not already deducted income attributable to minority
interests in Subsidiaries for such period), PLUS (ii) Interest Expense for such
period, PLUS (iii) all amounts in respect of depreciation and amortization for
such period.
1.1.46 "ERISA" means the Employee Retirement Income Security Act of 1974,
as in effect from time to time, and any successor statute.
1.1.47 "Effective Date" means the later of (a) the Agreement Date, and (b)
the first date on which all of the conditions set forth in SECTION 4.1 shall
have been fulfilled or waived by the Agent.
1.1.48 "Effective Interest Rate" means the rate of interest per annum on
the Advances in effect from time to time pursuant to the provisions of SECTION
3.1.1, 3.1.2, 3.1.3 AND 3.1.4.
1.1.49 "Eligible Equipment" means Equipment which meets the following
requirements: (a) it is in good and workable condition, ordinary wear and tear
excepted; (b) no portion of the purchase price thereof remains unpaid, as
established by documentation satisfactory to Agent; (c) it is not subject to any
Lien other than Permitted Liens, except Purchase Money Liens shall not be
permitted; (d) it complies with Borrowers' specifications and has been delivered
to and accepted by Borrowers; (e) there exists no dispute with respect thereto
between Borrowers and the manufacturers or supplier thereof, including but not
limited to warranty or other claims; (f) it is not Equipment which in any way
fails to meet or violates any warranty representation or covenant contained in
this Agreement or the other Loan Documents relating directly or indirectly to
Borrowers' Equipment; (g) Agent has not determined in its sole and absolute
discretion that it is not acceptable due to age, type, condition or quality; and
(h) it is included in an Equipment Appraisal. Equipment which at any time is
Eligible Equipment, but which subsequently fails to meet any of the foregoing
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requirements shall cease forthwith to be Eligible Equipment. Inclusion of any
Equipment that does not meet the requirements of (a) through (h) shall require
the consent of the Required Lenders.
1.1.50 "Eligible Inventory" means Inventory of a Borrower except: (a)
Inventory which is not owned by Borrower free and clear of all security
interests, liens, encumbrances and claims of third parties; (b) Inventory which
Agent, in its sole discretion deems obsolete, unsalable, damaged, defective, or
unfit for further processing; (c) WIP, components which are not finished goods,
spare parts, packaging and shipping materials, or supplies used and consumed in
Borrowers' business; (d) Inventory not insured pursuant to the terms hereof or
the Security Documents; (d) Inventory which was not produced in accordance with
the Fair Labor Standards Act of 1938, as amended; (f) Inventory purchased or
held on consignment with a value in excess of $250,000 in the aggregate; and (g)
any Inventory located outside the United States of America unless otherwise
approved in writing by the Required Lenders. No inventory in the possession of
any Borrower which constitutes an ASI Account shall be deemed Eligible
Inventory, regardless of whether title to such Inventory has passed.
1.1.51 "Eligible Receivable" means a Receivable of a Borrower that consists
of the unpaid portion of the obligation stated on the invoice issued to an
Account Debtor with respect to services performed for such Account Debtor in the
ordinary course of business, net of any credits or rebates owed by such Borrower
to the Account Debtor and that the Required Lenders, in their absolute
discretion, determines to be eligible for inclusion in the Borrowing Base.
Unless otherwise approved in writing by the Required Lenders, no Receivable
shall be deemed an Eligible Receivable unless it meets all of the following
requirements or is secured by a Letter of Credit in a form and amount acceptable
to Agent, in its sole absolute discretion: (a) such Receivable is owed by a
Borrower and represents a complete BONA FIDE transaction which requires no
further act under any circumstances on the part of such Borrower to make such
Receivable payable by the Account Debtor; (b) such Receivable is not unpaid more
than 120 days after the date of the original invoice; (c) such Receivable does
not arise out of any transaction with any Subsidiary, creditor, lessor or
supplier of such Borrower; (d) such Receivable is not owing by an Account Debtor
more than 25% of whose then-existing accounts owing to the Borrowers do not meet
the requirements set forth in clause (b) above; (e) the Account Debtor with
respect to such Receivable is not located in a state which imposes conditions on
the enforceability of Receivables with which such Borrower has not complied; (f)
such Receivable is not subject to the Assignment of Claims Act of 1940, as
amended from time to time, or any applicable law now or hereafter existing
similar in effect thereto, as determined in the sole discretion of the Agent, or
to any provision prohibiting its assignment or requiring notice of or consent to
such assignment; (g) the Account Debtor with respect to such Receivable is not
insolvent or the subject of any bankruptcy or insolvency proceedings of any kind
or of any other proceeding or action, threatened or pending, which might, in the
Agent's sole judgment, have a Materially Adverse Effect on such Account Debtor;
(h) such Receivable is not owing by
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an Account Debtor or a group of affiliated Account Debtors whose then-existing
accounts owing to such Borrower exceed in face amount 40% of such Borrower's
total Eligible Receivables; (i) such Receivable is evidenced by an invoice or
other documentation in form acceptable to the Agent containing only terms
normally offered by such Borrower; (j) such Receivable is a valid, legally
enforceable obligation of the Account Debtor with respect thereto and is not
subject to any present, or contingent (and no facts exist which are the basis
for any future), offset, deduction or counterclaim, dispute or other defense on
the part of such Account Debtor; (k) such Receivable is not evidenced by chattel
paper or an instrument of any kind; (l) such Receivable does not arise out of
service charges by such Borrower or other fees for the time value of money; (m)
such Receivable is subject to the Security Interest, which is perfected as to
such Receivable, and is subject to no other Lien whatsoever other than a
Permitted Lien; (n) such Receivable does not arise out of a transaction with an
Affiliate; (o) the goods giving rise to such Receivable have not been delivered
or accepted by the Account Debtor or the Receivable does not represent a final
sale (other than the ASI Accounts); and (p) for receivables that are located or
deemed to be located outside the United States such Receivable is owed an
Account Debtor which is a publicly traded foreign oil company with a principal
business office in the United States or the Account Debtor is Handal Engineering
or Timro. Inclusion of any Receivable that does not meet the requirements of (a)
through (p) above shall require the consent of the Required Lenders.
1.1.52 "Eligible Real Estate" means Real Estate in which a Borrower has
good, indefeasible and merchantable fee title free and clear of all Liens
without any violation or potential violation of Environmental Laws, all in a
manner acceptable to Agent in its sole and absolute discretion and, for Real
Estate with a value in excess of $500,000, for which Borrowers have provided
Agent with a Real Estate Appraisal acceptable to Agent in its sole and absolute
discretion. PROVIDED, THAT, for any Real Estate meeting the foregoing
requirements, Agent shall have the right to include Real Estate as Eligible Real
Estate. Inclusion of any Real Estate that does not meet the foregoing
requirements shall require the consent of the Required Lenders.
1.1.53 "Environmental Laws" means all federal, state, local and foreign
laws now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder.
1.1.54 "Equipment" means (i) all machinery, apparatus, equipment, motor
vehicles, tractors, trailers, rolling stock, fittings, fixtures and other
tangible personal property (other
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than inventory) of every kind and description, including, without limitation,
any and all poles, posts, cross-arms, conduits, ducts, lines (whether
underground or overhead or otherwise), wires, cables, exchanges, switches
(including, without limitation, host switches and remote switches), testboards
and paystations, (ii) all tangible personal property (other than inventory) and
fixtures used in the Borrowers' business operations or owned by the Borrowers or
in which the Borrowers have an interest, (iii) all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor, and (iv) all other Equipment as defined in the UCC.
1.1.55 "Equipment Appraisal" shall mean an appraisal of the Equipment
obtained by the Agent, at Borrower's expense, indicating the orderly liquidation
value of the Equipment acceptable to the Agent, in its sole discretion.
1.1.56 "Event of Default" means any of the events specified in
SECTION 10.1.
1.1.57 "Excluded Collateral" means any Collateral located or deemed to be
located outside the United States of America.
1.1.58 "Facilities" means collectively and interchangeably, the Revolving
Facility, the Overadvance Facility and the Letter of Credit Facility.
1.1.59 "Financing Statements" means the Uniform Commercial Code financing
statements executed and delivered by each Borrower to the Agent, naming the
Agent as secured party and such Borrower as debtor, in connection with this
Agreement and the Security Documents.
1.1.60 "Fixed Asset Availability" means as the date of determination the
aggregate principal amount of the Fixed Asset Advances available to be borrowed
by the Borrowers hereunder at the time of determination in accordance with
SECTION 2.2.2, which shall be equal to the remainder derived by subtracting the
aggregate principal amount of the Fixed Asset Advances outstanding on such date
from an amount equal to the lesser of: (i) the Total Credit Facility, MINUS, the
total principal amount outstanding as of the date of determination under the
Revolving Credit Advances, the CAPEX Credit Advances, the Overadvance Advances,
and the Letter of Credit Obligations; or (ii) the Fixed Asset Borrowing Base.
1.1.61 "Fixed Asset Advances" means advances made to the Borrowers pursuant
to SECTION 2.2.2. Each advance made pursuant to request under SECTION 2.2.5
based on the Fixed Asset Borrowing Base shall be a "Fixed Asset Advance" and all
such advances shall be the "Fixed Asset Advances."
1.1.62 "Fixed Asset Borrowing Base" means at any time an amount equal to
80% (or such lesser percentage as the Required Lenders may in their sole and
absolute discretion
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determine from time to time) of the sum of (i) the appraised orderly liquidation
value of the Eligible Equipment according to the Equipment Appraisal, and (ii)
the appraised value of the Eligible Real Estate according to the Real Estate
Appraisals.
1.1.63 "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through the appropriate committees
thereof and which are consistently applied for all periods after the date hereof
so as to properly reflect the financial condition, and the results of operations
and changes in financial position, of Aero and its Consolidated Subsidiaries,
except that any accounting principle or practice required to be changed by the
Accounting Principles Board or Financial Accounting Standards Board (or other
appropriate board or committee of such Boards) in order to continue as a
generally accepted accounting principle or practice may so be changed. In the
event of a change in GAAP, Lenders and Borrowers will thereafter negotiate in
good faith to revise the covenants of this Agreement affected thereby in order
to make such covenants consistent with GAAP then in effect.
1.1.64 "General Intangibles" all general intangibles, chooses in action and
causes of action and all other intangible personal property of every kind and
nature (other than Receivables), including, without limitation, Intellectual
Property, corporate or other business records, inventions, designs, blueprints,
plans, specifications, trade secrets, goodwill, computer software, customer
lists, registrations, licenses, permits, franchises, privileges, permissions and
grants (other than any such registrations, licenses, permits, franchises,
privileges, permissions or grants which would by their terms or pursuant to
applicable law become void or voidable if a security interest therein were
granted, or the granting of a security interest in which would constitute a
default under the terms thereof or in which a security interest cannot be
granted without the consent of other parties whose consent has not been
obtained), tax refund claims, reversions or any rights thereto and any other
amounts payable to such Person from any Benefit Plan, Multiemployer Plan or
other employee benefit plan, rights and claims against carriers and shippers,
rights to indemnification, business interruption insurance and proceeds thereof,
property, casualty or any similar type of insurance and any proceeds thereof,
the beneficiary's interest in proceeds of insurance covering the lives of key
employees and any letter of credit, guarantee, claims, security interest or
other security for the payment by an Account Debtor of any of the Receivables.
1.1.65 "Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all governmental bodies, whether federal, state, local, foreign
national or provincial, and all agencies thereof.
1.1.66 "Governmental Authority" means any government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
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1.1.67 "Guaranteed Obligations" shall have the meaning set forth in
SECTION 3.9.1.
1.1.68 "Guaranty", "Guaranteed" or to "Guarantee," as applied to any
obligation of another Person, shall mean and include (a) a guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), directly or indirectly, in any manner, of any part or all of such
obligation of such other Person, and, (b) an agreement, direct or indirect,
contingent or otherwise, and whether or not constituting a guaranty, the
practical effect of which is to assure the payment or performance (or payment of
damages in the event of nonperformance) of any part or all of such obligation of
such other Person whether by (i) the purchase of securities or obligations, (ii)
the purchase, sale or lease (as lessee or lessor) of property or the purchase or
sale of services primarily for the purpose of enabling the obligor with respect
to such obligation to make any payment or performance (or payment of damages in
the event of nonperformance) of or on account of any part or all of such
obligation or to assure the owner of such obligation against loss, (iii) the
supplying of funds to, or in any other manner investing in, the obligor with
respect to such obligation, (iv) repayment of amounts drawn down by
beneficiaries of letters of credit, or (v) the supplying of funds to or
investing in a Person on account of all or any part of such Person's obligation
under a guaranty of any obligation or indemnifying or holding harmless (outside
the ordinary course of business), in any way, such Person against any part or
all of such obligation.
1.1.69 "Indebtedness" of any Person means, without duplication, (a)
Liabilities, (b) all obligations for money borrowed or for the deferred purchase
price of property or services or in respect of drafts accepted or reimbursement
obligations under letters of credit, (c) all obligations represented by bonds,
debentures, notes and accepted drafts and similar instruments that represent
extensions of credit, (d) Capitalized Lease Obligations, (e) all obligations
(including, during the noncancellable term of any lease in the nature of a title
retention agreement, all future payment obligations under such lease discounted
to their present value in accordance with GAAP) secured by any Lien to which any
property or asset owned or held by such Person is subject, whether or not the
obligation secured thereby shall have been assumed by such Person, (f) all
obligations under Interest Rate Agreements, (g) all obligations of other Persons
which such Person has Guaranteed, including, but not limited to, all obligations
of such Person consisting of recourse liability with respect to accounts
receivable sold or otherwise disposed of by such Person (other than indemnities
granted in the ordinary course of business), and (h) in the case of the Borrower
(without duplication) the Loans.
1.1.70 "Initial Advances" means the Advances to the Borrowers on the
Effective Date pursuant to the letter referred to in SECTION 4.1.1.12.
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1.1.71 "Intellectual Property" means, as to any Person, all of such
Person's then owned existing and future acquired or arising patents, patent
rights, copyrights, works which are the subject of copyrights, trademarks,
service marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations and continuations-in-part of any of the foregoing and
all rights to sue for past, present and future infringements of any of the
foregoing.
1.1.72 "Interest Expense" means any interest in any Debt paid or accrued as
on financial statements provided under SECTIONS 5.1.13 AND 8.1 prepared in
accordance with GAAP.
1.1.73 "Interest Rate Agreements" means an interest rate swap, cap or
collar agreement or similar arrangement between any Person and a financial
institution providing for the transfer or mitigation of interest rate risks
either generally or under specific contingencies.
1.1.74 "Inventory" means all of Borrowers' raw materials, WIP, finished
goods, merchandise, parts and supplies, of every kind and description, and goods
held for sale or lease or furnished under contracts of service in which
Borrowers now has or hereafter acquires a right, whether held by Borrowers or
others, and all documents of title, merchandise receipts, bills of lading, and
all other documents of every type covering all or any part of the foregoing.
Inventory includes inventory temporarily out of Borrowers' custody or possession
and all returns on Receivables.
1.1.75 "Investment" means, with respect to any Person: (a) the direct or
indirect purchase or acquisition of any beneficial interest in, any share of
capital stock of, evidence of Indebtedness of or other security issued by any
other Person, (b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, excluding advances to employees in the
ordinary course of business for business expenses, (c) any Guaranty of the
obligations of any other Person, (d) any other investment in any other Person,
or (e) any commitment or option to take any of the actions described in CLAUSES
(A) THROUGH (D) above.
1.1.76 "ITS" shall mean International Tool & Supply PLC, an English
company.
1.1.77 "Lender" means any one of National Canada Finance Corp. or the
Persons listed on the signature pages under the heading Lenders and listed on
SCHEDULE 1 hereto, and "Lenders" shall mean all such Persons.
1.1.78 "Lender Default"shall mean (i) the refusal (which has not been
retracted) of a Lender to make available its portion of any Loan or to fund its
portion of any unreimubursed payment under SECTION 2.4.6, or (ii) a Lender
having notified the Agent
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and/or the Borrowers that it does not intend to comply with its obligations to
fund its designated percentage of any Advance under SECTIONS 2.2.5.2 OR 2.4.6.3.
1.1.79 "Letter of Credit Bank" shall mean National Bank of Canada.
1.1.80 "Letter of Credit Fee" shall have the meaning set forth in
SECTION 3.2.5.
1.1.81 "Letter of Credit Request" shall have the meaning set forth in
SECTION 2.4.1.2.
1.1.82 "Letters of Credit" mean any and all standing or commercial letters
of credit issued by the Letter of Credit Bank for the account of Borrowers (or
any of them pursuant to SECTION 2.4.1 hereof, and any extension, renewals,
modifications or substitutions thereof or therefor which may be in effect from
time to time.
1.1.83 "Letter of Credit Limit" means as of the date of determination the
Total Credit Facility, MINUS the greater of (i) the principal amount outstanding
as of the date of determination under the Revolving Credit Advances, the Fixed
Asset Advances, the CAPEX Credit Advances and the Overadvance Advances or (ii)
the sum of the Borrowing Base, the Fixed Asset Borrowing Base and the CAPEX
Borrowing Base.
1.1.84 "Letter of Credit Obligations" means in respect to any Letter of
Credit and as of any date, the maximum amount then available to be drawn under
such Letter of Credit, PLUS the aggregate principal amount of all Reimbursement
Obligations then outstanding in respect thereof.
1.1.85 "LIBOR" means Reference Bank's established per annum rates based on
London Interbank Offered Rates as publically announced by Reference Bank in its
principal office for any given Business Day. This rate shall be decreased, as
the case may be, by an amount equal to any increase or decrease in LIBOR, with
such adjustments to be effective as of the opening of business on the next
Business day that any such change in LIBOR becomes effective. LIBOR in effect on
the Effective Date shall be LIBOR in effect as of the opening of business on the
Effective Date; PROVIDED, THAT, if the Effective Date is a date which is not a
Business Day, LIBOR in effect on the Effective Date shall be LIBOR as of the
opening of business on the last Business Day immediately preceding the Effective
Date. LIBOR is a reference used by the Reference Bank in determining interest
rates on certain loans and is not intended to be the lowest rate of interest
charges on any extension of credit to any debtor.
1.1.86 "LIBOR Applicable Margin" prior to the consummation of the Merger,
means a determination based on the following:
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Senior Secured Debt/EBITDA LIBOR Applicable Margin
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greater than 3.00 2.50%
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between 3.00 to 2.50 2.25%
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between 2.50 to 1.50 2.00%
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less than 1.50 1.75%
- ------------------------------------------------------------------------------
After the consummation of the Merger, LIBOR Applicable Margin means a
determination in accordance with the table below:
- ------------------------------------------------------------------------------
Senior Secured Debt/EBITDA LIBOR Applicable Margin
- ------------------------------------------------------------------------------
greater than 3.00 2.00%
- ------------------------------------------------------------------------------
between 3.00 to 2.50 1.75%
- ------------------------------------------------------------------------------
between 2.50 to 1.50 1.50%
- ------------------------------------------------------------------------------
less than 1.50 1.25%
- ------------------------------------------------------------------------------
1.1.87 "LIBOR Interest Period" means a period of time commencing on the
date specified in the Notice of Borrowing selecting the LIBOR Interest Rate
pursuant to SECTION 3.1.2 and ending on the opening of business at the
expiration of the LIBOR Term elected by Borrowers in the Notice of Borrowing
pursuant to SECTION 3.1.2.
1.1.88 "LIBOR Interest Rate" shall have the meaning set forth in
SECTION 3.1.1.
1.1.89 "LIBOR Term" means the term allowed by Reference Bank to be used in
for loans with LIBOR Interest Rates. Currently, Reference Bank allows one (1)
month, two (2) month, three (3) month, six (6) month, nine (9) month or twelve
(12) month LIBOR Terms.
1.1.90 "Liabilities" means all liabilities of a Person determined in
accordance with GAAP and includable on a balance sheet of such Person prepared
in accordance with GAAP.
1.1.91 "Lien" as applied to the property of any Person means: (a) any
mortgage, deed to secure debt, deed of trust, lien, pledge, charge, assignment,
collateral assignments, lease constituting a Capitalized Lease Obligation,
conditional sale or other title retention agreement, or other security interest,
security title or encumbrance of any kind in respect of
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any property of such Person or upon the income or profits therefrom, (b) any
arrangement, express or implied, under which any property of such Person is
transferred, sequestered or otherwise identified for the purpose of subjecting
the same to the payment of Indebtedness or performance of any other obligation
in priority to the payment of the general, unsecured creditors of such Person,
(c) any Indebtedness which is unpaid more than 30 days after the same shall have
become due and payable and which if unpaid might by law (including, but not
limited to, bankruptcy and insolvency laws) or otherwise be given any priority
whatsoever over general unsecured creditors of such Person, (d) the filing of,
or any agreement to give, any financing statement under the UCC or its
equivalent in any jurisdiction, and (e) in the case of Real Estate,
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances.
1.1.92 "Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents and each other instrument, agreement and document executed
and delivered by a Borrower in connection with this Agreement and each other
instrument, agreement or document referred to herein or contemplated hereby.
1.1.93 "Majority Lenders" means Non-Defaulting Lenders whose Commitment (or
if the Total Credit Facility is terminated, outstanding Advances and the
percentage of the Overadvance Advances and the Letter of Credit Obligations
constitute greater than 80% of the Total Credit Facility (or if the Total Credit
Facility has terminated, the Total Outstanding Advances and the aggregate
Percentage of the Total Outstanding Overadvance Advances and the Letter of
Credit Obligations at such time).
1.1.94 "Materially Adverse Effect" means any act, omission, situation,
circumstance, event or undertaking which would, singly or in any combination
with one or more other acts, omissions, situations, circumstances, events or
undertakings, have, or reasonably be expected by the Lender to have, a
materially adverse effect upon (a) the business, assets, properties,
liabilities, condition (financial or otherwise), results of operations or
business prospects of a Borrower, (b) the value of the whole or any part of the
Collateral, the Security Interest or the priority of the Security Interest, (c)
the respective ability of a Borrower to perform any obligations under this
Agreement or any other Loan Document to which it is a party, or (d) the
legality, validity, binding effect, enforceability or admissibility into
evidence of any Loan Document or the ability of the Agent and Lenders to enforce
any rights or remedies under or in connection with any Loan Document.
1.1.95 "Merger" shall have the meaning set forth in SECTION 11.1.
1.1.96 "Merger Letter Agreement" shall mean that certain letter agreement
by and between Aero and ITS attached as EXHIBIT 1.1.96 as amended and revised as
shown in EXHIBIT 1.1.96.
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1.1.97 "Mortgage" means (i) as to Real Estate located in Louisiana a
mortgage granted under article 3298 of the Louisiana Civil Code covering all
Real Estate located in Louisiana in favor of Agent, as Agent for the Lenders,
securing the Secured Obligations, acceptable to Agent in its sole discretion
substantially in the form attached as EXHIBIT 1.1.97 with all blanks
appropriately filled, and (ii) as to Real Estate located in Alabama means a
mortgage or mortgages covering all Real Estate of Borrowers located in Alabama
in favor of Agent, as Agent for the Lenders securing the Secured Obligations,
acceptable to Agent in its sole discretion substantially in the form attached as
EXHIBIT 1.1.97 with all blanks appropriately filled.
1.1.98 "Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Borrower or a Related Company is
required to contribute or has contributed within the immediately preceding 6
years.
1.1.99 "Net Income" or "Net Loss" means, as applied to any Person for any
accounting period, the net income or net loss, as the case may be, of such
Person for the period in question after giving effect to deduction of or
provision for all operating expenses, all taxes and reserves (including reserves
for deferred taxes) and all other proper deductions, all determined in
accordance with GAAP.
1.1.100 "Net Worth" of any Person means the total shareholders' or members'
equity (including capital stock or membership interest, additional paid-in
capital and retained earnings, after deducting treasury stock) which would
appear as such on a balance sheet of such Person prepared in accordance with
GAAP.
1.1.101 "Non-Defaulting Lender" shall mean any Lender other than a
Defaulting Lender.
1.1.102 "Note" shall mean the promissory note executed pursuant to
SECTION 2.1 in the form attached as EXHIBIT 1.1.102.
1.1.103 "Notice of Borrowing" shall have the meaning set forth in
SECTION 2.2.4.1.
1.1.104 "Operating Lease" means any lease (other than a lease constituting
a Capitalized Lease Obligation) of real or personal property as defined under
GAAP.
1.1.105 "Overadvance Advances" means loans or advances made to the
Borrowers pursuant to SECTION 2.3. Each advance made pursuant to a request under
SECTION 2.3 shall be an "Overadvance Advance" and all such advances shall be the
"Overadvance Advances."
1.1.106 "Overadvance Availability" shall mean as of the date of
determination, the
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aggregate principal amount of the Overadvance Advances available to be borrowed
by the Borrowers hereunder at the time of determination in accordance with
SECTION 2.3 which shall be equal to the remainder derived by subtracting the
aggregate principal amount of the Overadvance Advances outstanding on such date
from an amount equal to the lesser of (i) the Total Credit Facility, MINUS, the
total principal amount outstanding as of the date of determination under the
Revolving Credit Advances, the CAPEX Credit Advances, the Fixed Asset Advances,
and the Letter of Credit Obligations and (ii) $2,000,000.
1.1.107 "Overadvance Facility" means the credit facility for Overadvance
Advances described in SECTION 2.3 up to an aggregate principal amount of any one
time outstanding not to exceed the principal sum of $2,000,000.
1.1.108 "Participant" shall have the meaning set forth in SECTION 2.4.6.1.
1.1.109 "PBGC" means the Pension Benefit Guaranty Corporation or any
successor agency.
1.1.110 "Percentage" shall mean at any time for each Lender, the percentage
obtained by dividing such Lender's Commitment by the Total Credit Facility;
PROVIDED, THAT, if the Total Credit Facility has been terminated, the Percentage
of each Lender shall be determined by dividing such Lender's Commitment
immediately prior to such termination by the Total Credit Facility immediately
prior to such termination.
1.1.111 "Permitted Investments" means: (a) Investments of a Borrower in:
(i) negotiable certificates of deposit, time deposits and banker's acceptances
issued by any Lender or any Affiliate of any Lender or by any United States bank
or trust company having capital, surplus and undivided profits in excess of
$250,000,000, (ii) any direct obligation of the United States of America or any
agency or instrumentality thereof which has a remaining maturity at the time of
purchase of not more than one year and repurchase agreements relating to the
same, (iii) sales on credit in the ordinary course of business on terms
customary in the industry, and (iv) notes, accepted in the ordinary course of
business, evidencing overdue accounts receivable arising in the ordinary course
of business, and (b) other Investments of the Borrower, the net aggregate amount
of which does not at any time exceed $1,000,000.
1.1.112 "Permitted Liens" means: (a) Liens securing taxes, assessments and
other governmental charges or levies (excluding any Lien imposed pursuant to any
of the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, but in all cases, only if payment shall not at
the time be required to be made in accordance with SECTION 7.4; (b) Liens
consisting of deposits or pledges made in the ordinary course of business in
connection with, or to secure payment of, obligations under workers'
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compensation, unemployment insurance or similar legislation or under surety or
performance bonds, in each case arising in the ordinary course of business; (c)
Liens constituting encumbrances in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of the Real Estate; (d) Purchase
Money Liens securing Permitted Purchase Money Indebtedness; (e) Liens of the
Agent, for the benefit of the Lenders, arising under this Agreement and the
other Loan Documents; (f) Liens arising out of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the applicable Borrower is fully protected by
Insurance or in respect of which such Borrower shall at any time in good faith
be prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review shall have been
secured, and as to which appropriate reserves have been established on the books
of such Borrower; and (g) Liens in existence immediately prior to the Effective
Date that are satisfied in full and released on the Effective Date or promptly
thereafter as a result of the application of the proceeds of the Loans or cash
on hand.
1.1.113 "Permitted Purchase Money Debt" means Purchase Money Debt (other
than Acquisition Debt) secured only by Purchase Money Liens and Capitalized
Lease Obligations, incurred by the Borrowers after the Agreement Date, up to an
aggregate amount outstanding at any time equal to $250,000.
1.1.114 "Person" means an individual, corporation, partnership,
association, entity, trust or unincorporated organization or a government or any
agency or political subdivision thereof.
1.1.115 "Pledge Agreement" shall mean an agreement in which Aero pledges to
Agent, as Agent for the Lenders, all of its rights in and to 100% of the
membership interests in American Aero and the equity interests, whether in
membership interest or stock or otherwise, in any Additional Borrower
substantially in the form attached as EXHIBIT 1.1.115.
1.1.116 "Potential Borrower" shall have the meaning set forth in
SECTION 4.3.
1.1.117 "Prime Rate" means the per annum rate of interest publicly
announced by the Reference Bank at its principal office as its "prime rate" for
any Business Day. The Prime Rate shall be increased or decreased, as the case
may be, by an amount equal to any increase or decrease in the Prime Rate, with
such adjustments to be effective as of the opening of business on the next
Business Day that any such change in the Prime Rate became effective. The Prime
Rate in effect on the Effective Date shall be the Prime Rate effective as of the
opening of business on the Effective Date; PROVIDED, THAT, if the Effective Date
is a date which is not a Business Day, the Prime Rate in effect on the Effective
Date shall be the Prime Rate in effect as of the opening of business on the last
Business Day immediately preceding the Effective Date. The Prime Rate is a
reference used by the Reference Bank in determining interest rates on certain
loans and is not intended to be the lowest rate of interest
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charged on any extension of credit to any debtor.
1.1.118 "Purchase Money Debt" means Debt created to finance the payment of
all or any part of the purchase price (not in excess of the fair market value
thereof) of any tangible personal property (other than inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
1.1.119 "Purchase Money Lien" means any Lien securing Purchase Money Debt,
but only if such Lien shall at all times be confined solely to the tangible
personal property (other than inventory) the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness secured by
such Lien.
1.1.120 "Real Estate" means all of the Borrowers now owned or hereafter
acquired estates or ownership interests in real property (immovable), including,
without limitation, all fees, leaseholds, future interests and easements
(servitudes), together with all of the Borrowers now owned or hereafter acquired
interests in the improvements and emblements thereon, the fixtures attached
thereto and the easements appurtenant thereto.
1.1.121 "Real Estate Appraisal" means an appraisal of the Real Estate
obtained by the Agent, at Borrowers' expense, acceptable to the Agent in its
sole discretion.
1.1.122 "Receivables" means (i) all rights to the payment of money or other
forms of consideration of any kind (whether classified under the UCC as
accounts, contract rights, chattel paper, general intangibles or otherwise)
including, but not limited to, accounts receivable, letters of credit and the
right to receive payment thereunder, chattel paper, tax refunds, insurance
proceeds, any rights under contracts not yet earned by performance and not
evidenced by an instrument or chattel paper, notes, drafts, instruments,
documents, acceptances and all other debts, obligations and liabilities in
whatever form from any Person, (ii) all guaranties, security and Liens securing
payment thereof, (iii) all goods, whether now owned or hereafter acquired, and
whether sold, delivered, undelivered, in transit or returned, which may be
represented by, or the sale or lease of which may have given rise to, any such
right to payment or other debt, obligation or liability, and (iv) all proceeds
of any of the foregoing.
1.1.123 "Reference Bank" means National Bank of Canada.
1.1.124 "Reimbursement Obligations" the Borrowers' joint or several, and
solidary obligations under SECTION 2.4.2 hereof to reimburse Lenders for any and
all Drawings honored on or by the Letter of Credit Bank under any and all of the
Letters of Credit, including without limitation, any and all interest which may
accrue thereon which have not yet converted into Revolving Credit Advances.
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1.1.125 "Related Company" means, as to any Person, any (a) corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as such Person, (b) partnership or other
trade or business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Code) with such Person, (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in CLAUSE (A) above or any partnership,
trade or business described in clause (b) above, or (d) any other entity
required to be aggregated with a Borrower pursuant to Section 414(o) of the
Code.
1.1.126 "Required Lenders" shall mean Non-Defaulting Lenders whose
Commitment (or if the Total Credit Facility is terminated, outstanding Advances
and the percentage of the Overadvance Advances and the Letter of Credit
Obligations) constitute greater than 66 2/3% of the Total Credit Facility (or if
the Total Credit Facility has been terminated, the total outstanding Advances
and the aggregate Percentage of the total outstanding Overadvance Advances and
the Letter of Credit Obligations at such time).
1.1.127 "Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests or membership interests issued
by such Person, (b) the declaration or payment of any dividend or distribution
in cash or property on or with respect to any such securities or partnership
interests or membership interests, (c) any loan or advance by such Person to, or
other investment by such Person in, the holder of any of such securities or
partnership interests or membership interests, (d) any other payment by such
Person in respect of such securities or partnership interests or membership
interests, and (e) as to Aero, any issuance of convertible notes or other equity
interest of Aero which, upon conversion into membership interests or shares of
Aero, would give the holders thereof control (within the meaning set forth in
the definition "Affiliate") of Aero.
1.1.128 "Restricted Payment" means (a) any redemption, repurchase or
prepayment, defeasement or other retirement, prior to the stated maturity
thereof or prior to the due date of any regularly scheduled installment or
amortization payment with respect thereto, of any Indebtedness of a Person
(other than the Secured Obligations and trade debt), (b) any payment on or with
respect to any Subordinated Debt other than in accordance with the subordination
provisions thereof, (c) the payment by any Person of the principal amount of or
interest on any Indebtedness (other than trade debt or Acquisition Debt repaid
in accordance with its terms) owing to an Affiliate or to an Affiliate of an
Affiliate of such Person, and (d) the payment of any management, consulting or
similar fee by any Person to any Affiliate of such Person.
1.1.129 "Revolving Credit Availability" means, as of the date of
determination, the aggregate principal amount Revolving Credit Advances
available to be borrowed by the Borrowers hereunder at the time of determination
in accordance with SECTION 2.2, which
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shall be equal to the remainder derived by subtracting the aggregate principal
amount of Revolving Credit Advances outstanding on such date from an amount
equal to the lesser of (i) the Total Credit Facility; MINUS the total principal
amount outstanding as of the date of determination under the CAPEX Advances, the
Fixed Asset Advances, the Overadvance Advances and the Letter of Credit
Obligations; or (ii) the Borrowing Base on such date.
1.1.130 "Revolving Credit Advances" means loans or advances made to the
Borrowers pursuant to SECTION 2.2. Each advance made pursuant to a request under
SECTION 2.4 based on the Borrowing Base shall be a "Revolving Credit Advances"
and all such advances shall be the "Revolving Credit Advances."
1.1.131 "Revolving Facility" means the credit facility providing for
Revolving Credit Advances, the Fixed Asset Advances, and the CAPEX Advances
based upon the Borrowing Base, the Fixed Asset Borrowing Base and the CAPEX
Borrowing Base, respectively described in SECTION 2.2 up to an aggregate
principal amount at any one time outstanding not to exceed the principal sum of
$ 40,000,000.
1.1.132 "Revolving Loans" means the Revolving Credit Advances, the Fixed
Asset Advances and the CAPEX Credit Advances.
1.1.133 "Schedule of Equipment" means a schedule delivered by Borrower to
Agent pursuant to the provisions of SECTION 6.11.3.
1.1.134 "Schedule of Inventory" means a schedule delivered by Borrower to
Agent pursuant to the provisions of SECTION 6.11.3.
1.1.135 "Schedule of Receivables" means a schedule delivered by the
Borrowers to the Agent pursuant to the provisions of SECTION 6.11.3.
1.1.136 "Secured Obligations" means, in each case whether now in existence
or hereafter arising, (a) the principal of and interest and premium, if any, on
the Advances, (b) all obligations of the Borrowers to Agent, the Lenders or any
Affiliate of the Lenders under any Interest Rate Agreement, (c) the Letter of
Credit Obligations, and (d) all indebtedness, liabilities, obligations,
overdrafts, covenants and duties of the Borrowers to the Agent or Lenders or any
Affiliate of the Lenders of every kind, nature and description, direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated and whether or not evidenced by any note and whether
or not for the payment of money arising under or in respect of this Agreement,
any Note or any of the other Loan Documents or arising in connection with any
other transaction or agreement.
1.1.137 "Security Agreement" means a security agreement by Borrower
granting Agent, for the benefit of Lenders, a continuing security interest in
the Collateral constituting
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personal property under the UCC in a form acceptable to Lender in its sole
discretion, securing the Secured Obligations substantially in the form attached
as EXHIBIT 1.1.137 with all blanks appropriately filled.
1.1.138 "Security Documents" means any agreements, promises, covenants,
arrangements, understandings or other agreements created by law, contract or
otherwise, evidencing, governing, representing or creating a Security Interest
including without limitation the Pledge Agreement, the Security Agreement, the
Mortgage, the Deed of Trust and the Financing Statements.
1.1.139 "Security Interest" means the Liens of the Agent on and in the
Collateral effected hereby or by any of the Security Documents or pursuant to
the terms hereof or thereof
1.1.140 "Senior Secured Debt" means any interest bearing Debt other than
the Subordinated Debt.
1.1.141 "Subordinated Debt" means any Debt of a Borrower which is
subordinated to the Secured Obligations on terms and conditions acceptable to
the Required Lenders in their sole and absolute discretion.
1.1.142 "Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the stock
of any class or classes or 50% or more of other ownership interests is owned of
record or beneficially by such other Person or by one or more Subsidiaries of
such other Person or by such other Person and one or more Subsidiaries of such
Person, (i) if the holders of such stock or other ownership interests (A) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or other individuals performing similar
functions) of such Person, even though the right so to vote has been suspended
by the happening of such a contingency, or (B) are entitled, as such holders, to
vote for the election of a majority of the directors (or individuals performing
similar functions) of such Person, whether or not the right so to vote exists by
reason of the happening of a contingency, or (ii) in the case of such other
ownership interests, if such ownership interests constitute a majority voting
interest.
1.1.143 "Taxes". The term Taxes shall mean all taxes, withholdings, fees,
levies or other assessments, including, without limitation, all net income,
gross income, gross receipts, real or personal property, tollgate, capital, net
worth, sales, use, ad valorem, transfer, franchise, profits, license, leasing,
withholding, payroll, employment, social security, unemployment, excise,
estimated, severance, stamp, occupation, services, property or other taxes,
custom duties, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any federal, state, local or other taxing authority, domestic or
foreign.
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1.1.144 "Termination Date" means the earlier of (a) the third anniversary
of the Effective Date Agreement or such later date to which the termination of
the Facilities shall be extended pursuant to SECTION 2.5, (b) March 31, 2001, or
(c) the date on which all Secured Obligations shall have been irrevocably paid
in full and the Facilities are terminated.
1.1.145 "Termination Event" means (a) a "Reportable Event" as defined in
Section 4043(b) of ERISA, but excluding any such event as to which the provision
for 30 days' notice to the PBGC is waived under applicable regulations, (b) the
filing of a notice of intent to terminate a Benefit Plan or the treatment of a
Benefit Plan amendment as a termination under Section 4041 of ERISA, or (c) the
institution of proceedings to terminate a Benefit Plan by the PBGC under Section
4042 of ERISA or the appointment of a trustee to administer any Benefit Plan.
1.1.146 "Title Company" means First American Title Insurance Corporation or
any other title insurance company acceptable to Agent in its sole discretion.
1.1.147 "Title Policy" means a Lender's policy of Title Insurance issued by
the Title Company in a form and amount acceptable to Agent in its sole
discretion, insuring that Agent's Liens on the Real Estate constitute first
priority Liens on the Real Estate effective as of the Effective Date.
1.1.148 "Total Credit Facility" means $40,000,000.
1.1.149 "UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Louisiana, La. R.S. (S)(S) 10:1-101 et seq.
1.1.150 "Unfunded Vested Accrued Benefits" means, with respect to any
Benefit Plan at any time, the amount (if any) by which (a) the present value of
all vested nonforfeitable benefits under such Benefit Plan exceeds (b) the fair
market value of all Benefit Plan assets allocable to such benefits, as
determined using such reasonable actuarial assumptions and methods as are
specified in the Schedule B (Actuarial Information) to the most recent Annual
Report (Form 5500) filed with respect to such Benefit Plan.
1.1.151 "Wholly-Owned Subsidiary" when used to determine the relationship
of a Subsidiary to a Person means a Subsidiary all of the issued and outstanding
shares (other than directors qualifying shares) of capital stock, membership
interests or other equity interests of which shall at the time be owned by such
Person or one or more of such Persons Wholly-Owned Subsidiaries of by such
Persons and one or more of such Persons Wholly-Owned Subsidiaries.
1.1.152 "WIP" means work in progress.
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1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto shall
have the same defined meanings when used in any other Loan Documents, unless the
context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting terms not
specifically defined or specified herein shall have the meanings generally
attributed to such terms under GAAP including, without limitation, applicable
statements and interpretations issued by the Financial Accounting Standards
Board and bulletins, opinions, interpretations and statements issued by the
American Institute of Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for convenience
only, do not constitute part of this Agreement and neither limit nor amplify the
provisions of this Agreement, and all references in this Agreement to Articles,
Sections, subsections, paragraphs, clauses, subclauses, Schedules or Exhibits
shall refer to the corresponding Article, Section, subsection, paragraph, clause
or subclause of, or Schedule or Exhibit attached to, this Agreement, unless
specific reference is made to the articles, sections or other subdivisions or
divisions of, or to schedules or exhibits to, another document or instrument.
(f) Each definition of a document in this Agreement shall include such
document as amended, modified, supplemented or restated from time to time in
accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a Loan
Document includes that party and its successors and assigns permitted hereunder
or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is referred to in
this Agreement or in any other Loan Document, such time shall be the local time
in the city in which the Agent's Office is located.
(i) Whenever the phrase "to the knowledge of the Borrower" or words of
similar import relating to the knowledge of a Borrower (or any of its officers
or members) are used herein, such
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phrase shall mean and refer to the actual knowledge of such Borrowers or its
officers or members; provided that such Persons are acting in conformance with
the duty of and in accordance with the diligence of an officer in a similar
position in other entities similar to Borrowers.
(j) The terms accounts, chattel paper, documents, equipment, instruments,
general intangibles and inventory, as and when used (without being capitalized)
in this Agreement or the Security Documents, shall have the meanings given those
terms in the UCC.
(k) The terms "payment", "prepayment", "distribution" and similar terms
used in the definitions of "Restricted Distribution" and "Restricted Payment"
and in SECTION 9.6, shall include payment by means of the transfer of funds or
of property and, in the event of a transfer of property, the payment shall be
deemed to be in an amount equal to the greater of the fair market value and the
book value of the property at the time of the transfer.
1.3 Exhibits and Schedules. All Exhibits and Schedules attached hereto
are by reference made a part hereof.
ARTICLE II
FACILITIES
1.4 CREDIT FACILITY NOTE. The Advances and the obligation of the
Borrowers to repay the Advances shall also be evidenced by a single Note payable
to the order of Agent, as Agent for the Lenders.
1.5 REVOLVING FACILITY
II.0.1 Revolving Credit Advances. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement and the Security Documents, the Lenders severally
(not jointly) shall make Revolving Credit Advances to the Borrowers from
time to time from the Effective Date to the Termination Date, as requested
by the Borrowers in accordance with the terms of SECTION 2.2.5, in an
aggregate principal amount outstanding not to exceed at any time the
Revolving Credit Availability. It is expressly understood and agreed that
the Lenders may and at present intend to use the amount referred to in the
preceding sentence as a maximum ceiling on Revolving Credit Advances;
PROVIDED, HOWEVER, that it is agreed that should Revolving Credit Advances
exceed the ceiling so determined or any other limitation set forth in this
Agreement, such Revolving Credit Advances shall nevertheless constitute
Secured Obligations and, as such, shall be entitled to all benefits thereof
and security therefor. The principal amount of any Revolving Credit
Advances which is repaid may be reborrowed by the Borrowers in accordance
with the terms of this SECTION 2.2.1. Agent is hereby authorized to record
each repayment of principal of the Revolving Credit Advances in its books
and records, such books and records constituting prima facie evidence of
the accuracy of the information contained therein.
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1.5.1 Fixed Asset Advances. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement and the Security Documents, the Lenders severally
(not jointly) shall make Fixed Asset Advances to the Borrowers from time to
time from the Effective Date to the Termination Date, as requested by the
Borrowers in accordance with the terms of SECTION 2.2.5, in an aggregate
principal amount outstanding not to exceed at any time Fixed Asset
Availability. It is expressly understood and agreed that the Lenders may
and at present intend to use the amount referred to in the preceding
sentence as a maximum ceiling on Fixed Asset Advances; PROVIDED, HOWEVER,
that it is agreed that should Fixed Asset Advances exceed the ceiling so
determined or any other limitation set forth in this Agreement, such Fixed
Asset Advances shall nevertheless constitute Secured Obligations and, as
such, shall be entitled to all benefits thereof and security therefor. The
principal amount of any Fixed Asset Advances which is repaid may be
reborrowed by the Borrowers in accordance with the terms of this SECTION
2.2.2. Agent is hereby authorized to record each repayment of principal of
the Fixed Asset Advances in its books and records, such books and records
constituting prima facie evidence of the accuracy of the information
contained therein.
1.5.2 CAPEX Credit Advances. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement and the Security Documents, the Lenders severally
(not jointly) shall make CAPEX Credit Advances to the Borrowers from time
to time from the Effective Date to the Termination Date, as requested by
the Borrowers in accordance with the terms of SECTION 2.2.5, in an
aggregate principal amount outstanding not to exceed at any time the CAPEX
Credit Availability. It is expressly understood and agreed that the Lenders
may and at present intend to use the amount referred to in the preceding
sentence; PROVIDED, HOWEVER, that it is agreed that should CAPEX Credit
Advances exceed the ceiling so determined or any other limitation set forth
in this Agreement, such CAPEX Credit Advances shall nevertheless constitute
Secured Obligations and, as such, shall be entitled to all benefits thereof
and security therefor. The principal amount of any CAPEX Credit Advances
which is repaid may be reborrowed by the Borrowers in accordance with the
terms of this SECTION 2.2.3. Agent is hereby authorized to record each
repayment of principal of the CAPEX Credit Advances in its books and
records, such books and records constituting prima facie evidence of the
accuracy of the information contained therein.
1.5.3 Revolving Loan Commitments. The following are applicable to
the Advances made under the Revolving Facility: (i) no Lender shall be
obligated to make advances in excess of such Lender's Commitment; and (ii)
each borrowing shall be made ratably by all
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the Lenders in accordance with their respective Percentages.
1.5.4 Manner of Borrowing Revolving Loans. Borrowings of the
Revolving Loans shall be made as follows:
1.5.4.1 Requests for Borrowing. A request for a borrowing
shall be made, or shall be deemed to be made, in the following
manner, and each such request shall be irrevocable: (i) the Borrower
shall give the Agent written notice (each a "Notice of Borrowing"),
including the interest rate selection, prior to 12:00 noon Eastern
Time (together with the written Depreciation Schedule for Capital
Expenditures) of the proposed borrowing date of their intention to
borrow specifying the amount of the proposed borrowing and the
proposed borrowing date substantially in the form attached as EXHIBIT
2.2.5.1.; PROVIDED, HOWEVER, that if any notice referred to in this
CLAUSE (I) is received after 12:00 noon Eastern Time, as applicable,
the proposed borrowing date will be postponed automatically to the
next Business Day (the "Borrowing Date"); (ii) whenever a check is
presented to the Agent for payment against the Controlled
Disbursement Account in an amount greater than the then available
balance in such account, such presentation shall be deemed to be a
request for a borrowing on the date of such notice in an amount equal
to the excess of such check over such available balance; and (iii)
unless payment is otherwise made by the Borrowers, the maturity of
any Secured Obligation required to be paid shall be deemed to be a
request for a borrowing, the interest rate selection on the due date
in the amount required to pay such Secured Obligations. For Advances
requested pursuant to CLAUSE (I) above, Agent shall give prompt
notice to each Lender (or telephonic notice promptly confirmed in
writing) of the proposed borrowing, of such Lender's proportionate
share thereof, if any, and of the other matters covered by the
Borrowers' request.
1.5.4.2 Disbursement of Revolving Loans. Each Lender no
later than 1:00pm on the Borrowing Date shall make available its pro-
rata share, if any, of each Revolving Loan in the manner provided
below. All amounts shall be made available to the Agent in Dollars
and immediately available funds at Agent's Office. Borrowers hereby
irrevocably authorize the Agent to disburse the proceeds of each
borrowing requested, or deemed to be requested, pursuant to this
SECTION 2.2.5 as follows: (i) the proceeds of each borrowing
requested under SECTION 2.2.5.1(I) OR (II) shall be disbursed by the
Agent, upon receipt of the funds, in lawful money of the United
States of America in immediately available funds, or in the case of
the initial borrowing, in accordance with the terms of the letter
from the Borrowers to the Agent referred to in SECTION 4.1.1.13, or
to such other account as may be agreed upon by and the Lender from
time to time; (ii) the proceeds of each borrowing requested under
SECTION 2.2.5.1(III) shall be disbursed by the Agent by way of direct
payment of the relevant principal, interest or other Secured
Obligation, as the case may be.
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Unless the Agent shall have been notified by any Lender prior to the
Borrowing Date that such Lender does not intend to make available to
the Agent its portion of the borrowing to be made on such date, the
Agent may assume that such Lender has made such amount available to
the Agent on such Borrowing Date, and the Agent, in reliance upon
such assumption, may (it its sole and absolute discretion and without
any obligation to do so) make available to the Borrowers, a
corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Lender and the Agent has made
available same to the Borrowers, the Agent shall be entitled to
recover such corresponding amount from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Agent's
demand therefor, the Agent shall promptly notify the Borrowers, and
Agent shall credit the account of Borrowers with a sum equal to such
Defaulting Lenders' Percentage of the Borrowing. Each Non-Defaulting
Lender shall immediately pay to Agent its Percentage of the amount
required to be paid by Agent on behalf of the Defaulting Lender.
Notwithstanding the foregoing, no Lender shall be required to fund
any borrowings which would exceed its applicable Commitment. The
Agent, on behalf of the Non-Defaulting Lenders, shall be entitled to
recover from the Defaulting Lender interest on such corresponding
amount in respect of each day from the date such corresponding amount
was made available by the Agent to the Borrowers to the date such
corresponding amount is recovered by the Agent, at a rate per annum
equal to the overnight Federal Funds rate.
1.5.5 Repayment of Revolving Loans. The Revolving Loans will be
repaid as follows: (a) the outstanding principal amount of all the
Revolving Loans is due and payable, and the Borrowers hereby agree, to
repay the same in full, together with accrued and unpaid interest on the
amount repaid to the date of repayment, on the Termination Date; (b) if at
any time the aggregate unpaid principal amount of the Revolving Loans then
outstanding exceeds the lesser of the amounts referred to in CLAUSES (A)
AND (B) OF SECTION 2.2.8, the Borrowers, jointly and severally, and
solidarialy shall repay the Revolving Loans in an amount sufficient to
reduce the aggregate unpaid principal amount of such Revolving Loans by an
amount equal to such excess, together with accrued and unpaid interest on
the amount repaid to the date of repayment; and (c) all interest due on the
outstanding Revolving Loans shall be paid on the first day of each month,
beginning after the Effective Date with all accrued but unpaid interest
being due on the Termination Date.
1.5.6 Reductions and Increases in Availability
1.5.6.1 Increase and Reduction of Fixed Asset Availability. The Fixed
Asset Availability shall be reduced or increased as follows:
1.5.6.1.1 Reductions. The Fixed Asset Availability shall be
reduced monthly based on a seven (7) year amortization beginning on
July 1, 1998.
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1.5.6.1.2 Increase. The Fixed Asset Availability may be
increased by Borrowers by obtaining an updated Equipment Appraisal
(acceptable to Required Lenders in their sole and absolute
discretion) and/or updated Real Estate Appraisal (acceptable to
Required Lenders in their sole and absolute discretion) showing a
change in value of the Eligible Equipment and/or the Eligible Real
Estate. Then, the Fixed Asset Availability may be increased by the
difference between the Fixed Asset Borrowing Base immediately after
to the updated appraisals and the Fixed Asset Borrowing Base
immediately prior to the updated appraisal. The new Fixed Asset
Availability created by the updated appraisal shall be reduced based
on a seven (7) year amortization beginning on the date of the
appraisal.
1.5.6.2 Reduction of CAPEX Facility. CAPEX Credit Availability shall
be reduced monthly based on a seven (7) year amortization beginning on July
1, 1998.
1.5.7 Maximum Availability of the Revolving Facility. Notwithstanding
anything to the contrary, the aggregate principal amount outstanding of the
Revolving Facility shall not exceed the lesser of (a) the Total Credit Facility,
MINUS, the sum of (i) the outstanding principal amount as of the date of
determination of the Overadvance Advances, and (ii) the Letter of Credit
Obligations, or (b) the sum of the Borrowing Base, the Fixed Asset Borrowing
Base and CAPEX Borrowing Base. It is expressly understood that the Lenders may
and at present intend to use the lesser of the amounts referred to in the
foregoing SUBCLAUSES (A) AND (B) as the maximum ceiling on the Revolving Loans;
PROVIDED, HOWEVER, that it is agreed that should Revolving Loans exceed the
ceiling so determined or any other limitation set forth in this Agreement, such
Revolving Loans shall nevertheless constitute Secured Obligations and, as such,
shall be entitled to all benefits thereof and security therefor. The principal
amount of any Revolving Loan which is repaid may be reborrowed by the Borrowers
in accordance with the terms of this SECTION 2.2.8 Agent is hereby authorized to
record each repayment of principal of the Revolving Credit Loans in its books
and records, such books and records constituting prima facie evidence of the
accuracy of the information contained therein.
1.6 Overadvance Facility
1.6.1 Overadvance Advances. Upon the terms and subject to the conditions
of, and in reliance upon the representations and warranties made under, this
Agreement and the Security Documents, the Agent shall make Overadvance Advances
to the Borrowers from time to time from the Effective Date to the Termination
Date, as requested by the Borrowers in accordance with the terms of SECTION
2.3.2.1, in an aggregate principal amount outstanding not to exceed at any time
the Overadvance Advances; PROVIDED, HOWEVER, that
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no borrowing of a Overadvance Advances shall exceed the Overadvance Availability
at the time of such borrowing. It is expressly understood and agreed that the
Agent may and at present intends to use the amount referred to in the foregoing
sentence as a maximum ceiling on Overadvance Advances; PROVIDED, HOWEVER, that
it is agreed that should Overadvance Advances exceed the ceiling so determined
or any other limitation set forth in this Agreement, such Overadvance Advances
shall nevertheless constitute Secured Obligations and, as such, shall be
entitled to all benefits thereof and security therefor. The principal amount of
any Overadvance Advances which is repaid may not be reborrowed by the Borrowers.
The Agent is hereby authorized to record each repayment of principal of the
Overadvance Advances in its books and records, such books and records
constituting prima facie evidence of the accuracy of the information contained
therein.
1.6.2 Manner of Borrowing Overadvance Advances. Borrowing of the
Overadvance Credit Advances shall be made as follows:
1.6.2.1 Requests for Borrowing. A request for a borrowing for an
Overadvance Advances shall be made in the following manner, and each such
request shall be irrevocable: whenever the total outstanding principal
amount of the sum of the Revolving Loans, the Overadvance Advances, and the
Letter of Credit Obligations exceed, the lesser of (i) the Total Credit
Facility, or (ii) the sum of the Borrowing Base, the Fixed Asset Borrowing
Base and the CAPEX Borrowing Base, such excess shall be deemed a request
for a borrowing on the date of such excess in an amount to reduce the
outstanding principal amount of the sum of the Revolving Loans, the
Overadvance Advances and the Letter of Credit Obligations to an amount less
than the lesser amount of CLAUSE (I) AND (II), above.
II.0.1.1 Disbursement of Advances. Borrowers hereby irrevocably
authorize the Agent to disburse the proceeds of each borrowing requested,
or deemed to be requested, pursuant to this SECTION 2.3.2 as follows: the
proceeds of each borrowing requested under SECTION 2.3.2.1 shall be
disbursed by the Agent by way of direct payment of the relevant principal,
interest or other Secured Obligation, as the case may be for the account of
the Revolving Facility where the overadvance necessitating the Overadvance
Advance occurred.
II.0.2 Repayment of Overadvance Credit Advances. The Overadvance
Credit Advances will be repaid as follows: (a) the outstanding principal
amount of all the Overadvance Credit Advances is due and payable, and the
Borrowers hereby agree, to repay the same in full, together with accrued
and unpaid interest on the amount repaid to the date of repayment, on the
Termination Date; (b) if at any time the aggregate unpaid principal amount
of the Overadvance Credit Advances then outstanding exceeds the lesser of
the amounts referred to in CLAUSES (I) AND (II) OF SECTION 2.3.2.1, the
Borrowers, jointly and severally, and solidarialy shall repay the
Overadvance Credit Advances in an amount sufficient to reduce the aggregate
unpaid principal amount of such Loans by an amount equal
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to such excess, together with accrued and unpaid interest on the amount
repaid to the date of repayment; and (c) all accrued but unpaid interest
due on the outstanding Overadvance Advances shall be due and payable on the
first of each month beginning after the Effective Date with all accrued but
unpaid interest being finally due on the Termination Date.
1.6.3 Reduction Facility. Overadvance Credit Availability shall be reduced
monthly based on an eighteen (18) month amortization beginning on the date the
Overadvance Facility is first used; PROVIDED, THAT if there are no Overadvance
Advances prior to January 1, 2000, then the amortization shall begin on that
date.
1.7 LETTER OF CREDIT FACILITY
1.7.1 Amounts, Terms and Issuance of Letters of Credit
1.7.1.1 The Agent shall, on the terms and subject to the conditions
herein set forth, from time to time but in no event later than the 30th day
prior to the Termination Date, cause the Letter of Credit Bank to issue for
the account of any one or more of the Borrowers, one or more Letters of
Credit; provided, however, that (i) the Agent's obligation hereunder to
cause the Letter of Credit Bank to issue for the account of any one or more
of the Borrowers, one or more Letters of Credit may be terminated by the
Agent upon the occurrence and during the continuation of an Event of
Default in accordance with the terms of SECTION 10.1 (but any such
termination shall be automatic upon the occurrence of any Event of Default
specified in SECTIONS 10.1.7 AND 10.1.8, (ii) each Letter of Credit must be
in form and substance satisfactory to Agent and the Letter of Credit Bank
and must expire no later than thirty (30) days prior to the Termination
Date, (iii) the proceeds of each Letter of Credit may be used only for a
purpose for which Borrowers could obtain a Revolving Loan hereunder, (iv)
no Letter of Credit shall be issued if, after giving effect to such
issuance, the then outstanding Letter of Credit Obligations exceed the
Letter of Credit Limit.
1.7.1.2 Whenever any Borrower desires to request a Letter of Credit,
it shall give the Agent prior written notice (or telephone notices if
promptly confirmed in writing) of such request (a "Letter of Credit
Request"), such Letter of Credit Request to be given prior to 11:00 a.m.
(Eastern Time) not less than five (5) Business Days prior to the requested
Date of Issuance of such Letter of Credit. Each Letter of Credit Request
shall be irrevocable and shall include (i) the form of the Letter of Credit
which a Borrower requests to be so issued and (ii) such other information
and documents regarding such Letter of Credit and any underlying
transactions as Agent or the Letter of Credit Bank may reasonably request.
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1.7.1.3 On or before the Date of Issuance of each Letter of Credit
and on each anniversary thereof, the Borrowers shall pay to the Agent, for
the benefit of the Letter of Credit Bank, the Letter of Credit Fee for such
Letter of Credit required under SECTION 3.2.5 below.
1.7.2 Reimbursement Obligations
1.7.2.1 Upon receipt by the Letter of Credit Bank of a Drawing under
any Letter of Credit, Agent shall promptly notify the Borrowers of the
amount of such Drawing and the date on which the payment thereof is to be
made by the Letter of Credit Bank to the beneficiary of such Letter of
Credit (but Agent's failure to give any such notice shall not affect the
Borrowers' Reimbursement Obligations hereunder). The Borrowers agree to
reimburse the Agent for the amount of each Drawing under or purported to be
made under any Letter of Credit which is paid or reimbursed by Agent, which
reimbursement by Borrowers shall be made in full at or prior to the time
Agent pays or reimburses the Letter of Credit Bank for such Drawing (but,
in the event Agent fails to give the Borrowers the aforesaid notice of its
intended payment or reimbursement of any Drawing, such reimbursement by the
Borrowers shall not be due until Agent gives the Borrowers notice of each
payment of such Drawing). PROVIDED, THAT, no Event of Default therein
exists under this Agreement or the other Loan Documents, any Drawing under
a Letter of Credit shall be deemed a request for a borrowing of a Revolving
Credit Advance with such funds being disbursed by Agent directly to the
Letter of Credit Bank. Should such a deemed request for borrowing exceed
the Revolving Credit Availability, such Advance shall nevertheless
constitute Secured Obligations and, as such, shall be entitled to all the
benefits and security therefor.
1.7.2.2 The Borrowers' Reimbursement Obligations hereunder with
respect to any particular Letter of Credit shall be absolute, unconditional
and irrevocable, and such reimbursement shall be made strictly in
accordance with the terms and conditions of this Agreement under all
circumstances whatsoever, including, without limitation, the following
circumstances: (i) any lack of validity or enforceability of the
transactions contemplated by or related to such Letter of Credit or any
other Letter of Credit; (ii) any amendment or waiver of or consent to
depart from all or any of the terms of the transactions contemplated by or
related to such Letter of Credit or any other Letter of Credit; (iii) the
existence of any claim, set-off, defense or other right which any Borrower
may have at any time against Lenders, Agent, the Letter of Credit Bank, any
Letter of Credit beneficiary, or any other Person, whether in connection
with this Agreement or the transactions contemplated herein, any Letter of
Credit or the transactions contemplated thereby or any unrelated
transactions; or (vi) the fact that any draft, affidavit, letter,
certificate, invoice, bill of lading or other documents presented under or
delivered in connection with such Letter of Credit or any
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other Letter of Credit proves to have been forged, fraudulent, invalid or
insufficient in any respect or any statement therein proves to have been
untrue or incorrect in any respect.
1.7.3 Increased Cost. If the introduction after the date of this
Agreement of any law or regulations, or any changes after the date of this
Agreement in a law or regulation or any interpretation thereof by any court or
administrative, banking or governmental authority charged or claiming to be
charged with the administration thereof, applicable to Agent or the Letter of
Credit Bank, shall (i) impose, modify or make applicable any reserve, special
deposit, deposit insurance premium, or other similar requirement against any of
the Letters of Credit, (ii) impose on Agent, Lenders or the Letter of Credit
Bank any other condition regarding this Agreement or any Letter of Credit, or
(iii) subject Agent, Lenders or the Letter of Credit Bank to any Taxes (other
than taxes based on gross revenues or income) of any kind whatsoever, and the
result of any event referred to in CLAUSE (I), (II) OR (III) above shall be to
increase the cost to Lenders or the Letter of Credit Bank of issuing or
maintaining any Letter of Credit hereunder (which increased cost shall be the
result of a reasonable allocation of the aggregate of such cost increases
resulting from such events), or to reduce the amount of principal, interest or
any fee or other compensation to be paid to Agent or Lenders, the Borrowers
shall pay Agent, from time to time as specified by Agent, additional amounts
which shall be sufficient to compensate Agent, Lenders or the Letter of Credit
Bank for such increased cost or such reduction. A certificate of Agent setting
forth in reasonable detail such increased costs or such reduction incurred by
Agent, Lenders or the Letter of Credit Bank as a result of any event referred to
in CLAUSE (I), (II) OR (III) above which may be submitted by Agent to the
Borrowers shall be conclusive, in the absence of manifest error, as to the
amount thereof, and each such certificate shall set forth the nature of the
occurrence giving rise to such compensation, the additional amount to be paid
hereunder on account thereof, and the method by which such amount was
determined. In determining such amount, Agent shall use reasonable averaging and
attribution methods. The obligations of the Borrowers under this SECTION 2.4.3
shall survive any termination of this Agreement.
1.7.4 Legal Restrictions on Letters of Credit. If any restrictions or
limitations are imposed upon or determined or held to be applicable to Agent,
Lenders, the Letter of Credit Bank or any Borrower by, under or pursuant to any
law or regulation, whether federal, state, local or foreign and whether now or
hereafter in effect, or by reason of any interpretation thereof by any
Governmental Authority, which in the judgment of Agent, Lenders or the Letter of
Credit Bank would prevent Agent, Lenders or the Letter of Credit Bank from
legally incurring liability under any Letter of Credit, then Agent shall notify
the Borrowers as soon as reasonably practical thereafter, whereupon the
Borrowers' rights to request and obtain additional Letters of Credit thereafter
shall cease; PROVIDED, HOWEVER, that no such cessation shall affect the
Borrowers' or Lenders' obligations hereunder with respect to any and all Letters
of Credit then issued and outstanding.
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1.7.5 Indemnification. In addition to any other amounts payable by the
Borrowers to Agent, Lenders or the Letter of Credit Bank under this Agreement
and without limiting any other indemnification provisions set forth herein, the
Borrowers hereby jointly and severally, and in solido agree to indemnify Agent,
Lenders and the Letter of Credit Bank from, and to hold Agent, Lenders and the
Letter of Credit Bank harmless against, any and all claims, liabilities, losses,
costs and expenses (including, without limitation, reasonable attorney's fees
and expenses actually incurred) which Agent, Lenders or the Letter of Credit
Bank may (other than as a result of the gross negligence or willful misconduct
of Agent, Lenders or the Letter of Credit Bank or the Letter of Credit Bank's
failure to honor its obligations under any Letter of Credit in accordance with
the terms thereof and such failure to honor was not acceptable under applicable
law) incur or be subject to as a consequence, directly or indirectly, of (i) for
the validity, sufficiency, genuineness or legal effect of any document submitted
in connection with the application for or issuance of or the making of any
Drawings under any Letter of Credit that appears on its fact to the Letter of
Credit Bank to be proper, even if it should in fact prove to be in any respect
invalid, insufficient, inaccurate, untrue, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or any rights or benefits
thereunder or any proceeds thereof, in whole or in part, that appears on its
face to the Letter of Credit Bank to be proper, even if it should prove to be
invalid or ineffective for any reason; (iii) for the failure of any beneficiary
of any Letter of Credit to comply fully with the conditions required in order to
effect a Drawing thereunder; (iv) for any errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, telecopy, telex or
otherwise; (v) for any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Drawing under any Letter of
Credit; or (vi) for any consequences arising from causes beyond the control of
Agent, Lenders or the Letter of Credit Bank. In furtherance and extension and
not in limitation of the specific provisions hereinabove set forth, any action
taken or omitted by Agent, Lenders or the Letter of Credit Bank under or in
connection with any Letter of Credit or any related certificates, drafts or
other documents if taken or omitted in good faith and in accordance with the
terms of the Letter of Credit Bank's obligations under such Letter of Credit
and, in the absence of gross negligence or willful misconduct on the part of
Agent, Lenders or the Letter of Credit Bank, shall be binding upon the Borrowers
and shall not result in any liability of Agent, Lenders or the Letter of Credit
Bank to the Borrower.
1.7.6 Letter of Credit Participants.
1.7.6.1 Immediately upon the issuance by the Letter of Credit
Bank of any Letter of Credit, the Letter of Credit Bank shall be deemed to
have sold and transferred to each other Lender, and each such Lender (each,
a "Participant") shall be deemed irrevocably and unconditionally to have
purchased and received from such Letter of Credit Bank, without recourse or
warranty, an undivided interest and participation, to the extent of such
Participant's Percentage, in such Letter of Credit,
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each substitute letter of credit, each Drawing made thereunder and the
obligations of the Borrowers under this Agreement with respect thereto.
1.7.6.2 In determining whether to pay under any Letter of Credit,
the Letter of Credit Bank shall not have any obligation relative to the
Participants other than to determine that any documents required to be
delivered under such Letter of Credit have been delivered and that they
appear to comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by the Letter of Credit
Bank under or in connection with any Letter of Credit if taken or omitted
in the absence of gross negligence or willful misconduct, shall not create
for the Letter of Credit Bank any resulting liability.
1.7.6.3 In the event that the Letter of Credit Bank makes any
payment under any Letter of Credit and the Borrowers shall not have
reimbursed such amount in full to the Letter of Credit Bank pursuant to
SECTION 2.4.2, the Letter of Credit Bank shall promptly notify the Agent,
and the Agent shall promptly notify each Participant of such failure, and
each Participant shall promptly and unconditionally pay to the Agent for
the account of the Letter of Credit Bank, the amount of such Participant's
Percentage of such payment in Dollars and in same day funds; PROVIDED,
HOWEVER, that no Participant shall be obligated to pay the Agent its
Percentage of such unreimbursed amount for any wrongful payment made by the
Letter of Credit Bank under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part
of the Letter of Credit Bank. If the Agent so notifies any Participant
required to fund a payment under a letter of Credit prior to 11:00am on any
Business Day, such Participant shall make available to the Agent for the
account of the Letter of Credit Bank such Participant's Percentage of the
amount of such payment on such Business Day in same day funds. If and to
the extent such Participant shall not have so made its Percentage of the
amount of such payment available to the Agent for the account of the Letter
of Credit Bank, such Participant agrees to pay to the Agent for the account
of the Letter of Credit Bank, forthwith on demand such amount, together
with interest thereon, for each day from such date until the date such
amount is paid to the Agent for the account of the Letter of Credit Bank at
the overnight Federal Funds rate. The failure of any Participant to make
available to the Agent for the account of the Letter of Credit Bank its
Percentage of any payment under any Letter of Credit shall not relieve any
other Participant of its obligation hereunder to make available to the
Agent for the account of the Letter of Credit Bank its Percentage of any
payment under any Letter of Credit on the date required, as specified
above, but no Participant shall be responsible for the failure of any other
Participant to make available to the Agent for the account of the Letter of
Credit Bank such other Participant's Percentage of any such payment.
1.7.6.4 Whenever the Letter of Credit Bank receives a payment
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of a Reimbursement Obligation as to which the Agent has received for the
account of the Letter of Credit Bank any payment from the Participants
pursuant to SECTION 2.4.6.3 above, the Letter of Credit Bank shall pay to
the Agent and the Agent shall promptly pay to each Participant which has
paid its Percentage thereof, in Dollars and in same day funds, an amount
equal to such Participant's Percentage of the principal amount thereof and
interest thereon accruing after the purchase of the respective
participations.
1.7.6.5 The obligations of the Participants to make payments to
the Agent for the account of the Letter of Credit Bank with respect to
Letters of Credit shall be irrevocable and not subject to counterclaim,
compensation, set-off or other defense or any other qualification or
exception whatsoever and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including, without
limitation, any of the following:
1.7.6.5.1 any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
1.7.6.5.2 the existence of any claim, set-off,
compensation, defense or other right which the Borrowers may have
at any time against a beneficiary named in a Letter of Credit, any
transferee of any Letter of Credit (or any Person for whom any such
transferee may be acting), the Agent, the Letter of Credit Bank,
any Lender, or other Person whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying
transaction between the Borrowers and the beneficiary named in any
such Letter of Credit);
1.7.6.5.3 any draft, certificate or other document
presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
1.7.6.5.4 the surrender or impairment of any security
for the performance or observance of any of the terms of any of the
Loan Documents; or
1.7.6.5.5 the occurrence of any Event of Default.
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1.8 Extension of Facilities. If the Borrowers wish to obtain an
extension of the then effective Termination Date, the Borrowers shall provide
the Agent with a written notice to such effect not less than 60 days prior to
the then effective Termination Date. The Lenders may, in their sole and absolute
discretion, by written notice to the Borrowers, extend the Facilities for a
period of one year from the then effective Termination Date.
ARTICLE III
GENERAL LOAN PROVISIONS
1.9 Interest.
1.9.1 The Borrowers shall pay interest on the unpaid principal
amount of each Advance for each day from the day such Advance is made until
such Advance is due (whether at maturity, by reason of acceleration or
otherwise) at the rate per annum selected by the Borrowers in accordance
with SECTION 3.1.2 hereof out of the following options: (i) the sum of the
Prime Rate plus the Applicable Margin ("Prime Interest Rate"); or (ii) the
sum of LIBOR plus the LIBOR Applicable Margin ("LIBOR Interest Rate").
1.9.2 As of the Effective Date, Borrowers have selected the Prime
Interest Rate for the Initial Advances. Any selection of the LIBOR Interest
Rate shall be effective until the expiration of the applicable LIBOR
Interest Period at which time such rate of interest shall automatically
convert to the Prime Interest Rate unless an effective election to the
contrary has been made as provided below. Borrowers may by written notice
(or by telephonic notice promptly confirmed in writing) delivered to Agent
not later than 10:00 a.m. Eastern Time on the third Business Day prior to
the expiration of the applicable LIBOR Interest Period, direct that
interest accrue at the LIBOR Interest Rate on any or all of the Advances,
including any new Revolving Credit Advance, (or any portion of the Advances
which is in an amount of not less than $1,000,000 or greater integral
multiple of $100,000 thereof) as designated by the Borrowers in such
notice, as outstanding from time to time until the expiration of the LIBOR
Interest Period commencing on the third Business Day after the date on
which such election was effective as specified in the notice by Borrowers
and for the LIBOR Term selected by Borrowers in such notice. Upon
determining LIBOR and the LIBOR Interest Rate for the applicable LIBOR
Interest Period on which Borrowers election is effective, as stated in
Borrowers notice, Agent shall promptly notify Borrowers by telephone (which
shall be promptly confirmed in writing) of such determination and such
determination shall, in the absence of manifest error, be final, conclusive
and binding for all purposes.
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1.9.3 The Borrowers shall pay interest on the unpaid principal
amount of each Secured Obligation other than an Advance that is not a
Reimbursement Obligation for each day from the day such Secured Obligation
becomes due and payable until such Secured Obligation is paid at the
highest rate per annum applicable to Revolving Loans, payable on demand.
This SECTION 3.1.3 shall also apply the unpaid principal amount of any
Reimbursement Obligation and Overadvance Advance.
1.9.4 From and after the occurrence of an Event of Default, the
unpaid principal amount of each Secured Obligation shall bear interest
until paid in full (or, if earlier, until such Event of Default is cured or
waived in writing by the Required Lenders) at a rate per annum equal to the
Default Margin plus the rate otherwise in effect under SECTION 3.1.1,
3.1.2, OR 3.1.3, as applicable, payable on demand. The interest rate
provided for in this SECTION 3.1.4 shall to the extent permitted by
applicable law apply to and accrue on the amount of any judgment entered
with respect to any Secured Obligation and shall continue to accrue at such
rate during any proceeding described in SECTION 10.1.7 OR 10.1.8.
1.9.5 The interest rates provided for in SECTIONS 3.1.1, 3.1.2,
3.1.3 AND 3.1.4 shall be computed on the basis of a year of 360 days and
the actual number of days elapsed.
1.9.6 It is not intended by the Lenders or Agent, and nothing
contained in this Agreement or any Note shall be deemed, to establish or
require the payment of a rate of interest in excess of the maximum rate
permitted by applicable law (the "Maximum Rate"). If, in any month, the
Effective Interest Rate, absent such limitation, would have exceeded the
Maximum Rate, then the Effective Interest Rate for that month shall be the
Maximum Rate, and if, in future months, the Effective Interest Rate would
otherwise be less than the Maximum Rate, then the Effective Interest Rate
shall remain at the Maximum Rate until such time as the amount of interest
paid hereunder equals the amount of interest which would have been paid if
the same had not been limited by the Maximum Rate. In this connection, in
the event that, upon payment in full of the Secured Obligations, the total
amount of interest paid or accrued under the terms of this Agreement is
less than the total amount of interest which would have been paid or
accrued if the Effective Interest Rate had at all times been in effect,
then the Borrowers shall, to the extent permitted by applicable law, pay to
the Agent an amount equal to the difference between (i) the lesser of (A)
the amount of interest which would have been charged if the Maximum Rate
had, at all times, been in effect and (B) the amount of interest which
would have accrued had the Effective Interest Rate, at all times, been in
effect, and (ii) the amount of interest actually paid or accrued under this
Agreement. In the event the Lenders or Agent receives, collects or applies
as interest any sum in excess of the Maximum Rate, such excess amount shall
be applied to the reduction of the principal balance of the applicable
Secured Obligation, and, if no such principal is then outstanding, such
excess or part thereof remaining shall be paid to the Borrowers. For the
purposes of computing the Maximum Rate, to the extent permitted by
applicable law, all interest and charges, discounts, amounts, premiums or
fees deemed to constitute interest
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under applicable law, shall be amortized, prorated, allocated and spread in
substantially equal parts throughout the full term of this Agreement. The
provisions of this SECTION 3.1.5 shall be deemed to be incorporated into
every Loan Document (whether or not any provision of this SECTION 3.1.5 is
specifically referred to therein).
1.10 Fees.
1.10.1 Unused Line Fee. In connection with and as consideration for
the Lenders' commitment hereunder, subject to the terms hereof, to lend to
the Borrowers under the Revolving Facility, the Borrowers shall pay a fee
to the Agent, from the Effective Date until the Termination Date, in an
amount equal to 0.25% per annum of the average daily unused portion of the
Total Credit Facility, payable monthly in arrears on the first day of each
month and on the date of any permanent reduction in the Total Credit
Facility.
1.10.2 Facility Fee. The Borrowers shall pay to the Agent a closing
fee in the amount of 0.25% of the Total Credit Facility and in
consideration of the making of Loans under this Agreement and in order to
compensate the Agent for the costs associated with structuring, processing,
approving and closing the Revolving Facility and the Initial Advances, but
excluding expenses for which the Borrowers have agreed elsewhere in this
Agreement to reimburse the Agent. The closing fee shall be fully earned on
the Effective Date (notwithstanding any deferral and or forgiveness of
payment thereof as provided below) and shall be paid by the Borrowers on
the Effective Date.
1.10.3 Quarterly Audit Fee. Borrowers shall be responsible for all
Agent's audit fees incurred prior to the Effective Date. After the
Effective Date, for services performed by the Agent in connection with its
continuing administration of this Agreement and the credit facilities
provided hereunder and for monitoring the Collateral, the Borrowers shall
pay to the Agent an auditing fee of $500/day per auditor not to exceed
$2,500.00 per quarter plus expenses, payable so long as any Secured
Obligation shall remain outstanding or the Facilities shall not have been
terminated.
1.10.4 Letter of Credit Fee. The Borrowers shall pay to Agent, for
the account of the Letter of Credit Bank, a non-refundable Letter of Credit
Fee (the "Letter of Credit Fee") equal to one and one quarter (1.25%)
percent per annum of the stated amount of each Letter of Credit outstanding
pursuant to this Agreement. The Letter of Credit Fee for each Letter of
Credit shall be payable quarterly in advance on the issuance date of such
Letter of Credit (for the remainder of any calendar quarter then in
effect), and on the first fay of each calendar quarter thereafter. In
addition, the Borrowers shall pay to Agent, for the account of the Letter
of Credit Bank, on demand, the drawing, transfer and other fees relating to
Letters of Credit customarily charged by the Letter of Credit Bank.
1.10.5 General. All fees shall be fully earned by the Lenders and/or
Agent when due and payable and, except as otherwise set forth herein or
required by applicable law, shall not be subject to refund or rebate. All
fees are for compensation for services and are not, and shall not be deemed
to be, interest or a charge for the use of money.
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1.11 Manner of Payment.
1.11.1 Each payment (including prepayments) by the Borrowers on
account of the principal of or interest on the Advances or of any fee or
other amounts payable to the Agent for its own account or for the account
of the Lenders or the Letter of Credit Bank under this Agreement or any
Note shall be made not later than 1:30 p.m. on the date specified for
payment under this Agreement (or if such day is not a Business Day, the
next succeeding Business Day) to the Agent at the Agent's Office, in
Dollars, in immediately available funds and shall be made without any
setoff, counterclaim or deduction whatsoever.
1.11.2 The Borrowers hereby irrevocably authorize the Agent and
Letter of Credit Bank to charge any account of a Borrower maintained with
the Agent or Letter of Credit Bank with such amounts as may be necessary
from time to time to pay any Secured Obligations which are not paid when
due (after giving effect to any applicable grace period).
1.12 Statements of Account. The Agent will account to the Borrowers within
30 days after the end of each calendar month with a statement of Revolving
Loans, charges and payments made pursuant to this Agreement during such calendar
month, and such account rendered by the Agent shall be deemed an account stated
as between the Borrowers and the Agent.
1.13 Reduction of Revolving Facility and Termination of Agreement
1.13.1 Reduction of Revolving Facility.
1.13.1.1 The Borrowers shall have the right, at any time and
from time to time, upon at least 30 days prior irrevocable, written
notice of Agent, to reduce permanently all or a portion of the
Revolving Facility; PROVIDED, HOWEVER, that any such partial
reduction shall be made in increments of not less than $5,000,000.
Any request for reduction over $5,000,000 shall be in increments of
not less than $5,000,000. As of the date of reduction as set forth in
such notice, the Revolving Facility shall be permanently reduced to
the amount stated in the Borrowers' notice for all purposes herein,
and the Borrowers shall pay the amount necessary to reduce the amount
of the Revolving Loans outstanding under the Revolving Facility as so
reduced, together with accrued interest on the amounts so prepaid.
Upon such reduction, each Lender's Commitment shall be reduced pro
rata according to the amount of such reduction.
1.13.1.2 The amount of the Revolving Facility shall be
automatically reduced to zero on the Termination Date.
1.13.1.3 The Revolving Facility or any portion thereof
reduced pursuant to this SECTION 3.5 may not be reinstated.
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1.13.2 Termination of Agreement. The Borrowers shall have the right,
at any time, to terminate this Agreement upon not less than thirty (30)
Business Days prior written notice to the Agent of the Borrowers' intention
to terminate this Agreement, which notice shall specify the effective date
of such termination; PROVIDED, HOWEVER, that the effective date of such
termination shall not be less than 90 days after the Effective Date. On the
date specified in such notice, such termination shall be effected; PROVIDED
that the Borrowers shall, on or prior to such day, (1) pay to the Agent, in
same day funds, an amount equal to the aggregate amount of all Revolving
Loans, Overadvance Advances and Letter of Credit Obligations outstanding on
such date, together with accrued interest thereon, all fees payable
pursuant to SECTION 3.2 accrued from the date last paid through the
effective date of termination, any amounts payable to the Agent pursuant to
the other provisions of this Agreement, including, without limitation,
SECTIONS 10.2, 13.12 and 13.13 and any and all other Secured Obligations
then outstanding, (2) provide the Agent with an indemnification agreement
in form and substance satisfactory to the Agent with respect to returned
and dishonored items and such other matters as the Agent shall require.
1.14 Prepayments of Advances with the LIBOR Interest Rate. Borrowers may
prepay any Advance for which Borrowers have elected the LIBOR Interest Rate
without penalty only on the last day of the applicable LIBOR Interest Period,
and if any such prepayment is made on the day that is not the last date of the
applicable LIBOR Interest Period, and if requested by Agent, the Borrowers shall
pay to Agent a prepayment penalty in an amount equal to, at Agent's option,
either (x) such compensation as may be due to Agent or Lenders under SECTION 3.7
hereof or (y) the excess (if any) of (1) the interest that would have been
payable with respect to such Advance at the LIBOR Interest Rate for the
remainder of such LIBOR Interest Period based on the LIBOR Interest Rate
originally applicable to such LIBOR Interest Period over (2) the interest that
would have been payable with respect to such Loan at the LIBOR Interest Rate for
the remainder of such LIBOR Interest Period based on the LIBOR Interest Rate as
in effect on the date of such prepayment.
1.15 Funding Losses. The Borrowers shall compensate Lenders and Agent,
upon Agent's written request to the Borrowers (which request shall set forth the
basis for requesting such amounts in reasonable detail and which request shall
be made in good faith and, absent manifest error, shall be final, conclusive and
binding upon all the parties hereto), for all losses, expenses and liabilities
(including, without limitation, any interest paid by Lenders, or Agent to
Lenders of funds borrowed by it to make or carry its Loans with LIBOR Interest
Rates hereunder, in either case to the extent not recovered by Lenders in
connection with the re-employment of such funds and including loss of
anticipated profits), which Lenders may sustain: (i) if for any reason (other
than a default by Lenders) a borrowing of any Advance with LIBOR Interest Rate
does not occur on the date specified therefor in a notice of
conversion/continuation given by Borrowers under SECTION 3.1.2 of this
Agreement, (ii) if any repayment (including any prepayment) of any Advance at
the LIBOR Interest Rate occurs on a date which is not the last day of an
Interest Period applicable thereto (except that any Lender may elect to receive
the prepayment penalty specified in SECTION 3.6 above in lieu of compensation
under this SECTION 3.7), or (iii) if, for any reason, the Borrowers default in
their obligation to repay
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Advance with the LIBOR Interest Rate when due as required by the terms of this
Agreement.
1.16 Increased Costs and Reduced Returns. The Borrowers agree that if any
law now or hereafter in effect and whether or not presently applicable to the
Lenders or Agent or any request, guideline or directive of any Governmental
Authority (whether or not having the force of law and whether or not failure to
comply therewith would be unlawful) or the interpretation or administration
thereof by any Governmental Authority, shall either (a)(i)impose, affect, modify
or deem applicable any reserve, special deposit, capital maintenance or similar
requirement against any Advance, (ii) impose on the Lender or the Agent any
other condition regarding any Advance, this Agreement, the Note or the
facilities provided hereunder, or (iii) result in any requirement regarding
capital adequacy (including any risk-based capital guidelines) affecting the
Lenders or Agent being imposed or modified or deemed applicable to the Lenders
or Agent, or (b) subject the Lenders or Agent to any Taxes, including any Taxes
on the recording, registration, notarization or other formalization of the
Advances or the Note, and the result of any event referred to in CLAUSE (A) or
(B) above shall be to increase the cost to the Lenders or Agent of making,
funding or maintaining any Advance or to reduce the amount of any sum receivable
by the Lenders or Agent, or the Lenders' rate of return on capital with respect
to any Advance to a level below that which the Agent or the Lenders could have
achieved but for such imposition, modification or deemed applicability (taking
into consideration the Agent's or the Lender's policies with respect to capital
adequacy) by an amount deemed by the Agent (in the exercise of its discretion)
to be material, then, upon demand by the Agent, the Borrowers shall immediately
pay to the Agent additional amounts which shall be sufficient to compensate the
Lenders for such increased cost, tax or reduced rate of return. A certificate of
the Agent to the Borrowers claiming compensation under this SECTION 3.8 shall be
final, conclusive and binding on all parties for all purposes in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such compensation, the additional amount or amounts to be paid to
it hereunder and the method by which such amounts were determined. In
determining such amount, the Agent may use any reasonable averaging and
attribution methods. Notwithstanding the foregoing, the Agent shall not be
entitled to demand, and the Borrowers shall not be required to pay compensation
pursuant to this Section attributable to a period more than 90 days prior to the
date of such notice and certificate.
1.17 Unconditional and Absolute Guaranty.
1.17.1 Guaranty. As to the Secured Obligations extended directly to
or incurred directly by each other Borrower, each Borrower hereby
unconditionally guarantees the punctual payment when due, whether at stated
maturity, by reason of acceleration or otherwise, and performance of all
Secured Obligations now or hereafter existing under this Agreement, the
Note or any other Loan Document, whether for principal, interest, fees,
expenses or otherwise (such obligations, as to each Borrower in respect of
the Secured Obligations extended to or incurred directly by each other
Borrower, the "Guaranteed Obligations"), and agrees to pay any and all
expenses (including reasonable fees and expenses of counsel) incurred by
the Agent or the Lenders in enforcing any rights under this
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SECTION 3.9. Without limiting the generality of the foregoing, liability
hereunder shall extend to all amounts which constitute part of a Borrower's
Guaranteed Obligations and would be owed by any other Borrower to the Agent
or Lenders under any Loan Document but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such other Borrower. In
addition, each Borrower hereby unconditionally and irrevocably agrees that
upon default in the payment when due (whether at stated maturity, by
acceleration or otherwise) of any principal of, or interest on, any Advance
made to any other Borrower or such other amounts payable by such other
Borrower to the Agent or Lenders, it will forthwith pay the same, without
further notice or demand. The Borrowers acknowledge their business
interrelationship and hereby confirm to the Agent and the Lenders the
benefits to each Borrower by reason of the transactions contemplated by
this Agreement.
1.17.2 No Release. No payment or payments made by any of the
Borrowers or any other Person or received or collected by the Agent from
any of the Borrowers or any other Person by virtue of any action or
proceeding or any set-off or reduction of or in payment of the Guaranteed
Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of any other Borrower under this SECTION 3.9, which shall,
notwithstanding any such payment or payments other than payments made by
such party in respect of the Guaranteed Obligations or payments received or
collected from such party in respect of the Guaranteed Obligations, remain
liable for the Secured Obligations until the Secured Obligations are paid
in full and the Facilities terminated.
1.17.3 Guarantee Absolute. Each Borrower guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms
of the Loan Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Lender with respect thereto. The guarantee contained in this
SECTION 3.9 is a continuing guarantee of payment and not of collection; all
liabilities to which it applies or may apply under the terms hereof shall
be conclusively presumed to have been created in reliance hereon. The
liabilities under this guarantee shall be absolute and unconditional
irrespective of:
1.17.3.1 any lack of validity or enforceability of any Loan
Documents or any other agreement or instrument relating thereof;
1.17.3.2 any change in the time, manner or place of payment
of, or in any other term of, all or any part of the Guaranteed
Obligations, or any other amendment or waiver thereof or any consent
to departure therefrom, including, but not limited to, any increase
in the Guaranteed Obligations resulting from the extension of
additional credit to a Borrower or otherwise;
1.17.3.3 any taking, exchange, release or non-perfection of
any
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Collateral, or any release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the Guaranteed
Obligations;
1.17.3.4 any manner of application of collateral, or
proceeds thereof, to all or any of the Guaranteed Obligations, or any
manner of sale or other disposition of any collateral for all or any
of the Guaranteed Obligations or any other assets of a Borrower;
1.17.3.5 any change, restructuring or termination of the
corporate structure or existence of a Borrower; or
1.17.3.6 any other circumstances which might otherwise
constitute a defense available to, or a discharge of a Borrower or a
guarantor.
This guarantee shall continue to be effective or be reinstated as the
case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by the Agent
upon the insolvency, bankruptcy or reorganization of a Borrower or
otherwise, all as though such payment has not been made.
1.17.4 Waivers. Each Borrower hereby expressly waives promptness,
diligence, notice of acceptance and any other notice (except any notice
specifically provided for in this Agreement) with respect to any of the
Guaranteed Obligations and this guarantee and any requirement that the
Agent protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against a Borrower may
otherwise have under applicable law.
1.17.5 Survival. This guarantee is a continuing guaranty and shall
(i) remain in full force and effect until indefeasible payment in full
(after the Termination Date) of the Guaranteed Obligations and all other
amounts payable under this guarantee, (ii) be binding upon each Borrower,
their respective successors and assigns, and (iii) inure to the benefit of
and be enforceable by the Agent, Lenders and their successors, transferees
and assigns. Without limiting the generality of the foregoing CLAUSE (III),
the Lenders may assign or otherwise transfer all or any portion of their
rights and obligations under the Loan Documents (including, but not limited
to, all or any portion of the Advances and the Note) to any other Person,
and the assignee shall thereupon become vested with all the benefits in
respect thereof granted to such Lender herein or otherwise.
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1.18 Authorized Borrowed Representative. Each of American Aero and any
Additional Borrower hereby appoints Aero as its authorized representative and
instructs the Agent and the Lenders to accept from Aero all requests for
borrowings and instructions as to disbursement of proceeds thereof, to deliver
to Aero on behalf of American Aero, and any Additional Borrower all account
statements and other notices hereunder and otherwise to deal with Aero as the
representative of American Aero and any Additional Borrower for all purposes
under this Agreement, and the Agent and the Lenders shall be fully protected in
accepting and relying upon any such request or instructions or related item from
Aero.
1.19 Pro-Rata Borrowings. All borrowings of Advances (other than
Overadvance Advances) under this Agreement shall be made by the Lenders,
severally, on a pro-rata basis of their Commitment. It is understood that no
Lender shall be responsible for any default by any other Lender of its
obligation to make Revolving Loans hereunder and that each Lender shall be
obligated to make the Revolving Loans to be made by it hereunder, regardless of
the failure of any other Lender to fulfill its commitments.
ARTICLE IV
CONDITIONS PRECEDENT
1.20 Conditions Precedent to Initial Advances. Notwithstanding any other
provision of this Agreement, the Lenders' obligation to make the Initial
Advances is subject to the fulfillment of each of the following conditions prior
to or contemporaneously with the making of such Advances:
1.20.1 Closing Documents. The Agent shall have received each of the
following, all of which shall be satisfactory in form and substance to the
Agent and its counsel:
1.20.1.1 this Agreement, duly executed and delivered by
Borrowers;
1.20.1.2 the Note dated the Effective Date and duly executed
and delivered by the Borrowers;
1.20.1.3 certified copies of the certificate of articles of
organization and operating agreement and member agreements (or
articles of incorporation, bylaws, and shareholder agreement if such
Borrower is a corporation) of each Borrower as in effect on the
Effective Date and all entity action, including member or shareholder
approval, if necessary, taken by each Borrower and/or its members or
shareholders to authorize the execution, delivery and performance of
this Agreement and the other Loan Documents and the borrowing under
this Agreement.
1.20.1.4 certificates of incumbency and specimen signatures
with respect to each of the members and/or officers of each Borrower
and the manager (or the officers of each member and/or manager who is
a corporation or other entity) who
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are authorized to execute and deliver this Agreement or any other
Loan Document on behalf of such Borrower or any document, certificate
or instrument to be delivered in connection with this Agreement or
the other Loan Documents and to request borrowings under this
Agreement.
1.20.1.5 a certificate evidencing the good standing of each
Borrower in the jurisdiction of its organization and in each other
jurisdiction in which it is qualified as a foreign corporation to
transact business;
1.20.1.6 the Pledge Agreement duly executed and delivered by
Aero;
1.20.1.7 Financing Statements duly executed and delivered by
each Borrower, and evidence satisfactory to the Agent that the
Financing Statements have been filed in each jurisdiction where such
filing may be necessary or appropriate to perfect the Security
Interest;
1.20.1.8 a Schedule of Receivables, prepared as of May 31,
1998;
1.20.1.9 a Schedule of Equipment, prepared as of May 31,
1998;
1.20.1.10 a Schedule of Inventory, prepared as of May 31,
1998;
1.20.1.11 a Borrowing Base Certificate prepared as of the
Effective Date duly executed and delivered by the chief financial
officer of each Borrower demonstrating availability under the
Revolving Loans, after giving effect to the Initial Advances, of not
less than $4,000,000, together with such additional evidence of such
availability as the Agent shall require;
1.20.1.12 a letter from the Borrowers to the Agent requesting
the first advances under this Agreement (the "Initial Advances") and
specifying the method of disbursement;
1.20.1.13 copies of all financial statements referred to in
SECTION 5.1.13 and meeting the requirements thereof;
1.20.1.14 a certificate of the President of each Borrower
stating that, to the best of his knowledge, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct as of the Effective Date, both with
and without giving effect to the Loans to be made at such time and
the application of the proceeds thereof, and (b) no Default or Event
of Default exists;
1.20.1.15 evidence satisfactory to the Agent of the release
and
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termination of (or, at the option of the Lender, agreement to release
and terminate) all Liens other than Permitted Liens;
1.20.1.16 a signed opinion of Adams and Reese, L.L.P.,
counsel for the Borrowers, and such local counsel as the Agent shall
deem necessary or desirable, opining as to such matters in connection
with this Agreement as the Agent or its counsel may reasonably
request;
1.20.1.17 copies of each of the other Loan Documents duly
executed by the parties thereto with evidence satisfactory to the
Lender and its counsel in their reasonable judgment of the due
authorization, binding effect and enforceability of each such Loan
Document on each such party and such other documents and instruments
as the Agent may reasonably request.
1.20.2 Acquisitions. The assets of Titan Industries, Inc. shall be
transferred to American Aero, and the assets listed on SCHEDULE 4.1.2 shall
have been transferred to American Aero;
1.20.3 Preferred Interests. The sale of the preferred equity
interests listed in SCHEDULE 4.1.3 in Aero shall have been consummated and
the consideration therefor shall have been fully paid.
1.20.4 Appraisals. Receipt by Agent of a Real Estate Appraisal and
Equipment Appraisal acceptable and satisfactory to Agent, in its sole and
absolute discretion.
1.20.5 Environmental Report. Receipt by Agent of Environmental
Reports on the Real Estate in form and content acceptable to Agent, in its
sole and absolute discretion.
1.20.6 Title Policies. Receipt by Agent of the Title Policies,
acceptable and satisfactory to Agent, in its sole and absolute discretion.
1.20.7 Survey. Receipt by Agent of surveys of the Real Estate
certified to Lenders, in a form satisfactory to Agent, in its sole
discretion.
1.20.8 Insurance. Receipt of Agent of proof of and certificates of
the insurance required on the Collateral, including Real Estate, herein and
in the Security Documents by Agent acceptable to Agent, in its sole and
absolute discretion.
1.20.9 Audit. Receipt by Agent of an audit report based on a field
examination conducted by Agent or outside auditors selected by Agent,
acceptable to Agent, in its sole and absolute discretion.
1.20.10 No Injunctions, Etc. No action, proceeding, investigation,
regulation or
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legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or
prohibit or to obtain substantial damages in respect of or which is related
to or arises out of this Agreement or the consummation of the transactions
contemplated hereby or which, in the Agent's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this Agreement.
1.20.11 Material Adverse Change. As of the Effective Date, there
shall not have occurred any change which, in the Agent's sole and absolute
determination, has had or may have a Materially Adverse Effect as compared
to the condition of the Borrowers presented by the most recent unaudited
financial statements of the Borrowers described in SECTION 5.1.13 or as
compared to the condition of the Borrowers presented by preliminary drafts
of audited financial statements of the Borrowers for the fiscal year of the
Borrowers ended December 31, 1997.
1.20.12 Solvency. The Agent shall have received evidence satisfactory
to Agent that, after giving effect to the Initial Advances (i) each
Borrower has assets (excluding goodwill and other intangible assets not
capable of valuation) having value, both at fair value and at present fair
saleable value, greater than the amount of its liabilities, and (ii) each
Borrowers' assets are sufficient in value to provide such Borrower with
sufficient working capital to enable it profitably to operate its business
and to meet its obligations as they become due, and (iii) each Borrower has
adequate capital to conduct the business in which it is and proposes to be
engaged. Such evidence shall include a Consolidated and consolidating
balance sheet of Aero and its Consolidated Subsidiaries at May 31, 1998,
prepared by the Borrowers on a pro forma basis, giving effect to the
transactions contemplated by this Agreement and setting forth the
assumptions in which such balance sheet was prepared, together with a
restatement, to the extent necessary, of such balance sheet to reflect the
fair saleable value of the assets of the Borrowers; forecasted financial
statements consisting of balance sheets, cash flow statements and income
statements of Aero and its Consolidated Subsidiaries, giving effect to the
transactions contemplated by this Agreement and reflecting projected
borrowings hereunder and setting forth the assumptions on which such
forecasted financial statements were prepared, covering the five-year
period commencing on May 31, 1998, and prepared on a quarterly basis for
the first 12 months and on an annual basis for each of the four years
thereafter; and such other evidence as the Agent shall require supporting
the representation and warranty of the Borrowers set forth in SECTION
4.1.10, including without limitation, a certificate of the chief financial
officer of the Borrowers in the form of EXHIBIT 4.1.12.
1.21 All Advances. At the time of making of each Advance, including the
Initial Advances:
1.21.1 all of the representations and warranties made or deemed to
be made under this Agreement shall be true and correct at such time both
with and without giving effect to
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the Advances to be made and the application of the proceeds thereof, except
that representations and warranties which, by their terms, are applicable
only to the Effective Date shall be required to be true and correct only as
of the Effective Date,
1.21.2 the entity actions of the Borrowers referred to in SECTION
4.1.1.2 shall remain in full force and effect and the incumbency of
officers, members and officers of owners of Borrowers shall be as stated in
the certificates of incumbency delivered pursuant to SECTION 4.1.1.3 or as
subsequently modified and reflected in a certificate of incumbency
delivered to the Agent, and
1.21.3 the Agent may, without waiving either condition, consider the
conditions specified in SECTIONS 4.2.1 AND 4.2.2 fulfilled and a
representation by the Borrowers to such effect made if no written notice to
the contrary is received by the Agent from the Borrowers prior to the
making of the Advances then to be made.
1.22 Additional Borrower. At the request of the Borrowers then party to
this Agreement, and with the consent of the Majority Lenders, which consent may
be withheld by the Majority Lenders in their sole and absolute discretion, any
Wholly-Owned Subsidiary of Aero (a "Potential Borrower") may become a "Borrower"
hereunder upon receipt by the Agent of each of the following, all of which shall
be satisfactory in form and substance to the Majority Lenders and their counsel:
1.22.1 an Additional Borrower Certificate, duly executed and
delivered by the Potential Borrower and acknowledged by each Borrower;
1.22.2 certificates or other items acceptable to Agent in its sole
and absolute discretion of the Potential Borrower satisfying the
requirements of SECTIONS 4.1.1 THROUGH 4.1.17;
1.22.3 Financing Statements and Security Agreements duly executed
and delivered by the Potential Borrower, and evidence satisfactory to the
Agent that such Financing Statements have been filed in each jurisdiction
where such filing may be necessary or appropriate to perfect the Security
Interest;
1.22.4 Mortgages or Deeds of Trust duly executed and delivered by
the Potential Borrower covering Real Estate owned by the Potential
Borrower, and evidence satisfactory to Agent that such Mortgages or Deeds
of Trust have been properly recorded in the appropriate jurisdictions;
1.22.5 Pledge Agreements pledging to Agent the equity interests of
Aero in the Potential Borrower, whether membership interests, stock or
otherwise.
1.22.6 a signed opinion of Adams and Reese, L.L.P., counsel for the
Potential
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Borrower and the Borrowers, and such local counsel as the Agent shall deem
necessary or desirable, opining as to such matters in connection with this
Agreement as the Agent or its counsel may reasonably request;
1.22.7 updated Schedules to this Agreement as necessary to reflect
accurately the addition of the Potential Borrower as a Borrower hereunder;
and
1.22.8 such other documents and instruments as the Majority Lenders
may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
1.23 Representations and Warranties. The Borrowers represent and warrant
to the Lenders and to Agent as follows:
1.23.1 Organization; Power; Qualification. Each Borrower is an
entity, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has the entity power and
authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted and is duly qualified and authorized
to do business in each jurisdiction in which failure to be so qualified and
authorized would have a Materially Adverse Effect. The jurisdictions in
which each Borrower is qualified to do business as a foreign entity are
listed on SCHEDULE 5.1.1.
1.23.2 Subsidiaries; Ownership of the Borrower; Shareholder
Agreements. Except as set forth in SCHEDULE 5.1.2, each Borrower has no
Subsidiaries. The outstanding membership interests or stock, as the case
may be, of each Borrower has been duly and validly issued. To the extent
the Borrower is a limited liability company, the members have made their
capital contributions and the number and owners of such interests of such
Borrower are set forth on SCHEDULE 5.1.2. To the extent such Borrower is a
corporation such stock is fully paid and non-assessable and the owners of
such shares of capital stock of each such Borrower is set forth on SCHEDULE
5.1.2. Except as set forth on SCHEDULE 5.1.2, there are no member
agreements, options, subscription agreements, shareholder agreement or
other agreements or understandings to which each Borrower is a party in
effect with respect to the membership interests or capital stock or other
equity interest of such Borrower, including, without limitation, agreements
providing for special voting requirements or arrangements for approval of
entity actions or other matters relating to entity governance or
restrictions on membership interest or share transfer or providing for the
issuance of any securities convertible into membership or share interests
of such Borrower, any warrants or other rights to acquire any convertible
into membership interests, or any agreement that obligates such Borrower,
either by its terms or at the election of any other Person, to repurchase
such membership interest or shares under any circumstances.
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1.23.3 Authorization of Agreement, Notes, Loan Documents and
Borrowing. Each Borrower has the right and power and has taken all
necessary action to authorize it to execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party in
accordance with their respective terms and to borrow hereunder. This
Agreement and each of the other Loan Documents to which it is a party have
been duly executed and delivered by the duly authorized member, agent or
officer of each Borrower and each is, or when executed and delivered in
accordance with this Agreement will be, a legal, valid and binding
obligation of such Borrower, enforceable in accordance with its terms,
except as the same may be subject to and affected by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or similar laws
from time to time in effect and affecting the rights of creditors generally
and to the extent that the remedy of specific performance or other
equitable remedies may be unavailable in any jurisdiction or may be
withheld as a matter of judicial discretion.
1.23.4 Compliance of Agreement, Notes, Loan Documents and Borrowing
with Laws, Etc. The execution, delivery and performance of this Agreement
and each of the other Loan Documents to which a Borrower is a party in
accordance with their respective terms and the borrowings hereunder do not
and will not, by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any applicable law
relating to such Borrower or any of its Affiliates, (ii) conflict with,
result in a breach of or constitute default under (A) the certificate or
articles of organization, certificate or articles of incorporation,
operating agreement, bylaws or any members' or shareholders' agreement of
such Borrower, (B) any indenture, agreement or other instrument to which
such Borrower is a party or by which any of its property may be bound or
(c) any Governmental Approval relating to the Borrower, or, (iii) result in
or require the creation or imposition of any Lien upon or with respect to
any property now owned or hereafter acquired by such Borrower other than
the Security Interest.
1.23.5 Business. Each Borrower is engaged principally in the
business described on SCHEDULE 5.1.5.
1.23.6 Compliance with Law; Governmental Approvals. Except as set
forth in SCHEDULE 5.1.6, each Borrower (i) has all Governmental Approvals,
including permits relating to federal, state and local Environmental Laws,
ordinances and regulations required by any applicable law for it to conduct
its business, each of which is in full force and effect, is final and not
subject to review on appeal and is not the subject of any pending or, to
the knowledge of such Borrower, threatened attack by direct or collateral
proceeding, and (ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other applicable laws relating
to it, including, without being limited to, all Environmental Laws and all
occupational health and safety laws applicable to such Borrower or its
properties, except for instances of noncompliance which would not, singly
or in the
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aggregate, cause a Default or Event of Default or have a Materially Adverse
Effect and in respect of which adequate reserves have been established on
the books of such Borrower.
1.23.7 Titles to Properties. Except as set forth in SCHEDULE 5.1.7,
each Borrower has good and marketable title to or a valid leasehold
interest in all its Real Estate and valid and legal title to or a valid
leasehold interest in all personal property and assets used in or necessary
to the conduct of such Borrower's business, including, but not limited to,
those reflected on the most recent balance sheet of the Borrowers delivered
pursuant to SECTION 5.1.13.
1.23.8 Liens. Except as set forth in SCHEDULE 5.1.8, none of the
properties and assets of a Borrower is subject to any Lien, except
Permitted Liens. Other than the Financing Statements, no financing
statement under the Uniform Commercial Code of any state which names a
Borrower as debtor and which has not been terminated has been filed in any
state or other jurisdiction, and no Borrower has signed any such financing
statement or any security agreement authorizing any secured party
thereunder to file any such financing statement, except to perfect those
Liens listed in SCHEDULE 5.1.8 and Permitted Liens.
1.23.9 Indebtedness and Guaranties. Set forth on SCHEDULE 5.1.9 is a
complete and correct listing of all of each Borrower's (i) Debt and (ii)
Guaranties. No Borrower is in default of any material provision of any
agreement evidencing or relating to any such Debt or Guaranty.
1.23.10 Litigation. Except as set forth on SCHEDULE 5.1.10, there are
no actions, suits or proceedings pending (nor, to the knowledge of
Borrowers, are there any actions, suits or proceedings threatened, nor is
there any basis therefor) against or in any other way relating adversely to
or affecting any Borrower or any of its property in any court or before any
arbitrator of any kind or before or by any governmental body, except
actions, suits and proceedings that would not, singly or in the aggregate,
have a Materially Adverse Effect.
1.23.11 Tax Returns and Payments. Except as set forth on SCHEDULE
5.1.11, to the best of Borrowers' knowledge, all United States federal,
state and local and foreign national, provincial and local and all other
tax returns of each Borrower required by applicable law to be filed have
been duly filed, and all United States federal, state and local and foreign
national, provincial and local and all other taxes, assessments and other
governmental charges or levies upon each Borrower and its property, income,
profits and assets which are due and payable have been paid, except any
such nonpayment which is at the time permitted under SECTION 7.4. The
charges, accruals and reserves on the books of each Borrower in respect of
United States federal, state and local taxes and foreign national,
provincial and local taxes for all fiscal years and portions thereof since
the organization of such Borrower are in the judgment of such Borrower
adequate, and such Borrower knows of no reason to anticipate any additional
assessments for any of such years which, singly or in the aggregate,
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might have a Materially Adverse Effect.
1.23.12 Burdensome Provisions. No Borrower is a party to any
indenture, agreement, lease or other instrument, or subject to any charter
or other restriction, Governmental Approval or applicable law, compliance
with the terms of which might have a Materially Adverse Effect.
1.23.13 Financial Statements. The Borrowers have furnished to the
Agent a copy of (i) the draft unaudited pro forma Consolidated and
consolidating balance sheet of Aero and its Consolidated Subsidiaries as at
December 31, 1997 and the related statements of income, cash flow and
retained earnings for the twelve-month period then ended and (ii) the
unaudited pro forma Consolidated and consolidating balance sheet Aero and
its Consolidated Subsidiaries as at March 31, 1998 and the related
statements of income, cash flow and retained earnings for the four month
period then ended and (iii) the unaudited pro forma Consolidated and
consolidating balance sheet of Aero and its Consolidated Subsidiaries as at
April 30, 1998 and the related statement of income for the one month period
then ended. To the best of Borrowers' knowledge, such financial statements
are complete and correct and present fairly and in all material respects in
accordance with GAAP the financial position of Aero and its Consolidated
Subsidiaries as at the dates thereof and the results of operations of Aero
and its Consolidated Subsidiaries for the periods then ended. Except as
disclosed or reflected in such financial statements, no Borrower had any
material liabilities, contingent or otherwise, and there were no material
unrealized or anticipated losses of a Borrower.
1.23.14 Adverse Change. To the best of Borrowers' knowledge, since
the date of the most recent audited financial statements described in
SECTION 5.1.13, (i) no change in the business, assets, liabilities,
condition (financial or otherwise), results of operations or business
prospects of a Borrower has occurred that has had, or may have, a
Materially Adverse Effect, and (ii) no event has occurred or failed to
occur which has had, or may have, a Materially Adverse Effect.
1.23.15 ERISA. No Borrower or any Related Company maintains or
contributes to any Benefit Plan other than those listed on SCHEDULE 5.1.15.
Each Benefit Plan is in substantial compliance with ERISA, and no Borrower
or any Related Company has received any notice asserting that a Benefit
Plan is not in compliance with ERISA. No material liability to the PBGC or
to a Multiemployer Plan has been, or is expected by a Borrower to be,
incurred by such Borrower or any Related Company.
1.23.16 Absence of Defaults. No Borrower is in default under its
certificate or articles of organization, certificate or articles of
incorporation, operating agreement or bylaws, and no event has occurred
which has not been remedied, cured or waived (i) that constitutes a Default
or an Event of Default or (ii) that (x) constitutes or that, with the
passage of time or giving of notice, or both, would constitute a default or
event of default by a Borrower under any material agreement (other than
this Agreement) or judgment, decree or order to which
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such Borrower is a party or by which such Borrower or any of its properties
may be bound, which default or event of default would have a Materially
Adverse Effect, or (y) would require such Borrower to make any payment
thereunder prior to the scheduled maturity date therefor.
1.23.17 Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of
a Borrower and furnished to the Agent were, at the time the same were so
furnished, complete and correct in all material respects to the extent
necessary to give the recipient a true and accurate knowledge of the
subject matter, no fact is known to a Borrower which has had, or may in the
future have (so far as such Borrower can foresee), a Materially Adverse
Effect which has not been set forth in the financial statements or
disclosure delivered prior to the Effective Date, in each case referred to
in SECTION 5.1.13, or in such written information, reports or other papers
or data or otherwise disclosed in writing to the Agent prior to the
Effective Date. No document furnished or written statement made to the
Agent or the Lenders by a Borrower in connection with the negotiation,
preparation or execution of this Agreement or any of the Loan Documents
contains or will contain any untrue statement of a fact material to the
creditworthiness of such Borrower or omits or will omit to state a material
fact necessary in order to make the statements contained therein not
misleading.
1.23.18 Solvency. In each case after giving effect to the
Indebtedness represented by the Loans outstanding and to be incurred and
the transactions contemplated by this Agreement, each Borrower is solvent,
having assets of a fair value which exceeds the amount required to pay its
debts (including contingent, subordinated, unmatured and unliquidated
liabilities) as they become absolute and matured, and each Borrower is able
to and anticipates that it will be able to meet its debts as they mature
and has adequate capital to conduct the business in which it is or proposes
to be engaged.
1.23.19 Status of Receivables. Each Receivable reflected in the
computations included in any Borrowing Base Certificate meets the criteria
enumerated in CLAUSES (A) through (P) of the definition of Eligible
Receivables, except as disclosed in such Borrowing Base Certificate or as
disclosed in a timely manner in a subsequent Borrowing Base Certificate or
otherwise in writing to the Lender.
1.23.20 Chief Executive Office. The chief executive office of each
Borrower and the books and records relating to the Receivables are located
at the address or addresses set forth on SCHEDULE 5.1.20, and except as set
forth SCHEDULE 5.1.20 such Borrower has not maintained its chief executive
officer or the books and records relating to any Receivable at any other
address at any time during the five (5) years immediately preceding the
Agreement Date.
1.23.21 Equipment. The Equipment is located in either Louisiana,
Alabama or Texas.
1.23.22 Real Property. Set forth on SCHEDULE 5.1.22 is the address
(street, city, county and state) of each parcel of Real Estate owned or
leased by a Borrower.
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1.23.23 Corporate and Fictitious Names: Trade Names. Except as
otherwise disclosed on SCHEDULE 5.1.23, during the one-year period
preceding the Agreement Date, each Borrower or its predecessors has not
been known as or used any corporate or fictitious name other than the
entity name of such Borrower on the Effective Date. All trade names or
styles under which a Borrower creates Receivables, or to which instruments
in payment of Receivables are made payable, are listed on SCHEDULE 5.1.23.
1.23.24 Federal Regulations. No Borrower is engaged, principally or
as one of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" (as each of
the quoted terms is defined or used in Regulations G and U of the Board of
Governors of the Federal Reserve System).
1.23.25 Investment Company Act. No Borrower is an "investment
company" or a company "controlled" by an "investment company" (as each of
the quoted terms is defined or used in the Investment Company Act of 1940,
as amended).
1.23.26 Employee Relations. Except as set forth on SCHEDULE 5.1.26,
no Borrower is party to any collective bargaining agreement nor has any
labor union been recognized as the representative of a Borrower's
employees; no Borrower knows of any pending, threatened or contemplated
strikes, work stoppage or other labor disputes involving its employees or
those of its Subsidiaries.
1.23.27 Intellectual Property. Each Borrower owns or possesses all
Intellectual Property required to conduct its business as now and presently
planned to be conducted without, to its knowledge, conflict with the rights
of others, and SCHEDULE 5.1.27 lists all Intellectual Property owned by
each Borrower.
1.23.28 Bank Accounts, Lockboxes, Etc. SCHEDULE 5.1.28 is a complete
and correct list of all checking accounts, deposit accounts, lockboxes and
other bank accounts maintained by any Borrower.
1.24 Survival of Representations and Warranties, Etc. All representations
and warranties set forth in this ARTICLE V and all statements contained in any
certificate, financial statement or other instrument delivered by or on behalf
of a Borrower pursuant to or in connection with this Agreement or any of the
Loan Documents (including, but not limited to, any such representation, warranty
or statement made in or in connection with any amendment thereto) shall
constitute representations and warranties made under this Agreement. All
representations and warranties made under this Agreement shall be made or deemed
to be made at and as of the Agreement Date, at and as of the Effective Date and
at and as of the date of each Advance, except that representations and
warranties which, by their terms are applicable only to one such date shall be
deemed to be made only at and as of such date. All representations and
warranties made or deemed to be made under this Agreement shall survive and not
be waived by the execution and delivery of this Agreement, any investigation
made by or on behalf of the Agent or Lenders or any borrowing hereunder.
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ARTICLE VI
COLLATERAL COVENANTS
In addition, not in lieu of any covenants contained in the Security
Documents, until the Facilities have been terminated and all the Secured
Obligations have been indefeasibly paid in full, unless the Required Lenders
shall otherwise consent in the manner provided in SECTION 13.11:
1.25 Verification and Notification. The Agent shall have the right (a) at
any time and from time to time, in the name of the Agent or in the name of the
applicable Borrower, to verify the validity, amount or any other matter relating
to any Receivables by mail, telephone, telegraph or otherwise, and (b) upon the
occurrence and during the continuance of an Event of Default, to notify the
Account Debtors or obligors under any Receivables of the assignment of such
Receivables to the Agent, for the account of the Lenders, and to direct such
Account Debtor(s) or obligors to make payment of all amounts due or to become
due thereunder directly to the Agent and, upon such notification and at the
expense of such Borrower, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as such Borrower might have done.
1.26 Disputes, Returns and Adjustments.
1.26.1 In the event amounts due and owing under Receivables in
excess of $250,000 are in dispute between the Account Debtor and a
Borrower, such Borrower shall provide the Agent with prompt written notice
thereof.
1.26.2 Each Borrower shall notify the Agent promptly of all material
returns and credits in respect of Receivables, which notice shall specify
the Receivables affected.
1.26.3 Each Borrower may, in the ordinary course of business and
prior to a Default or an Event of Default, grant any extension of time for
payment of any Receivable or compromise, compound or settle the same for
less than the full amount thereof or release wholly or partly any Person
liable for the payment thereof or allow any credit or discount whatsoever
thereon; PROVIDED, THAT, (i) no such action results in the reduction of
more than $250,000 in the amount payable with respect to Receivable of any
Account Debtor or of more than $250,000 with respect to all Receivables in
any fiscal year of the Borrowers, and (ii) the Agent is promptly notified
of the amount of such adjustments and the Receivable(s) affected thereby.
1.27 Invoices. Upon the request of the Agent, the Borrowers shall deliver
to the Agent, at the Borrowers' expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, the original copy of all documents, including, without
limitation, repayment histories and present status reports, relating to
Receivables and such other documents and information relating to the Receivables
as the Agent shall specify.
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1.28 Delivery of Instruments. In the event any Receivable in an amount in
excess of $250,000 is, or Receivables in excess of $250,000 in the aggregate
are, at any time evidenced by a promissory note or notes, trade acceptance or
any other instrument for the payment of money, the applicable Borrower shall not
endorse, negotiate or otherwise transfer such notes, trade acceptances or other
instruments to any Person other than Agent; PROVIDED, THAT, such Receivable is
included in the Borrowing Base.
1.29 Ownership and Defense of Title.
1.29.1 Except for Permitted Liens, a Borrower shall at all times be
the sole owner of each and every item of Collateral and shall not create
any Lien on, or sell, lease, exchange, assign, transfer, pledge,
hypothecate, grant a security interest or security title in or otherwise
dispose of, any of the Collateral or any interest therein, except as
otherwise expressly contemplated herein or in the Security Document. Except
as otherwise provided in the Security Documents, Borrowers shall be allowed
to sell Inventory in the ordinary course of business.
1.29.2 Each Borrower shall defend its title in and to the Collateral
and shall defend the Security Interest in the Collateral against the claims
and demands of all Persons.
1.29.3 In addition to, and not in derogation of, the foregoing and
the requirements of any of the Security Documents, each Borrower shall (i)
protect and preserve all properties material to its business, including
Intellectual Property and maintain all tangible property in good and
workable condition in all material respects, with reasonable allowance for
wear and tear, and (ii) from time to time make or cause to be made all
needed and appropriate repairs, renewals, replacements and additions to
such properties necessary for the conduct of its business, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
1.30 Insurance. Each Borrower shall at all times maintain insurance with
responsible insurance companies against such risks and in such amounts as is
customarily maintained by similar businesses or as may be required by applicable
law, including such public liability, products liability, third party property
damage and business interruption insurance as is consistent with reasonable
business practices, and from time to time deliver to the Agent upon its request
a detailed list of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, the dates of the
expiration thereof and the properties and risks covered thereby.
1.31 Location of Offices and Collateral. No Borrower will change the
location of its chief executive office or the place where it keeps its books and
records relating to the Collateral or change its name, identity or corporate
structure without giving the Agent thirty (30) days' prior written notice
thereof.
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1.32 Records Relating to Collateral. Each Borrower will at all times keep
complete and accurate records of all Collateral.
1.33 Inspection. The Lenders and Agent (by any of their officers,
employees or agents) shall have the right, to the extent that the exercise of
such right shall be within the control of a Borrower, at any time or times
(prior to the occurrence of a Default or Event of Default, during normal
business hours) to (a) visit the properties of such Borrower, inspect the
Collateral and the other assets of such Borrower and its Subsidiaries and
inspect and make extracts from the books and records of such Borrower and its
Subsidiaries, including, but not limited to, management letters prepared by
independent accountants, all during customary business hours at such premises,
(b) discuss such Borrower's business, assets, liabilities, financial condition,
results of operations and business prospects, insofar as the same are reasonably
related to the rights of the Agent or Lenders hereunder or under any of the Loan
Documents, with such Borrower's and its Subsidiaries' (i) principal officers,
(ii) independent accountants and other professionals providing services to such
Borrower, and (iii) any other Person (except that any such discussion with any
third parties shall be conducted only in accordance with the Agent's standard
operating procedures relating to the maintenance of confidentiality of
confidential information of Borrowers), and (c) verify the amount, quantity,
value and condition of, or any other matter relating to, any of the Collateral
and in this connection to review, audit and make extracts from all records and
files related to any of the Collateral. Each Borrower will deliver to the Agent
any instrument necessary to authorize an independent accountant or other
professional to have discussions of the type outlined above with the Agent or
for the Agent to obtain records from any service bureau maintaining records on
behalf of such Borrower.
1.34 Maintenance of Equipment. Each Borrower shall maintain all physical
property that constitutes Equipment in good and workable condition in all
material respects, with reasonable allowance for wear and tear, and shall
exercise proper custody over all such property, except to the extent the failure
to do any of the foregoing does not have a Materially Adverse Effect.
1.35 Information and Reports.
1.35.1 Schedule of Receivables. The Borrowers shall deliver to the
Agent (i) on or before the Effective Date, a Schedule of Receivables as of
a date not more than three (3) Business Days prior to the Effective Date
setting forth a detailed aged trial balance of all of their then existing
Receivables, specifying the name of and the balance due from (and any
rebate due to) each Account Debtor obligated on a Receivable so listed, and
(ii) no later than 30 days after the end of each month, a Schedule of
Receivables as of the last Business Day of the immediately preceding month
setting forth (A) a detailed aged trial balance of all the Borrowers then
existing Receivables, specifying the name of and the balance due from (and
any rebate due to) each Account Debtor obligated on a Receivable so listed
and (B) a reconciliation to the Schedule of Receivables delivered in
respect of the next preceding month.
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1.35.2 Schedule of Inventory. The Borrowers shall deliver to Agent
(i) on or before the Effective Date, a Schedule of Inventory as of a date
not more than three (3) Business Days prior to Effective Date (ii) no later
than thirty (30) days after the end of a month, a Schedule of Inventory
dated as of the last business Day of the immediately preceding month.
1.35.3 Schedule of Equipment. The Borrowers shall deliver to Agent
on or before the Effective Date, a Schedule of Equipment as of a date not
more than three (3) Business Days prior to Effective Date.
1.35.4 Borrowing Base Certificate. The Borrowers shall deliver to
the Agent not later than fifteen (15) days from the last day of each month,
a Borrowing Base Certificate prepared as of the close of business on the
last day of such month signed by Borrowers' chief financial officers or
other employees of Borrowers acceptable to Agent.
1.35.5 Notice of Diminution of Value. The Borrowers shall give
prompt notice to the Agent of any matter or event which has resulted in, or
may result in, the actual or potential diminution in excess of $250,000 in
the value of any of its Collateral, except for any diminution in the value
of any Collateral in the ordinary course of business which has been
appropriately reserved against, as reflected in the financial statements
previously delivered to the Agent pursuant to ARTICLE VIII.
1.35.6 Certification. Each of the schedules delivered to the Agent
pursuant to this SECTION 6.11 shall be certified by the chief financial
officer or other employee of the Borrowers acceptable to Agent to be true,
correct and complete as of the date indicated thereon.
1.35.7 Other Information. The Agent or the Lenders may, in its
reasonable discretion, from time to time require the Borrowers to deliver
the schedules described in SECTION 6.11.1, 6.11.2 AND 6.11.3 more or less
often and on different schedules than specified in such Section, and the
Borrowers will comply with such requests. The Borrowers shall also furnish
to the Agent or the Lenders such other information with respect to the
Collateral as the Agent or the Lenders may from time to time reasonably
request.
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1.36 Power of Attorney. Each Borrower hereby appoints the Agent as its
attorney, with power (a) to endorse the name of such Borrower on any checks,
notes, acceptances, money orders, drafts or other forms of payment or security
that may come into the Agent's possession, and (b) to sign the name of such
Borrower on any invoice or bill of lading relating to any Receivables or other
Collateral, on any drafts against customers related to letters of credit, on
schedules and assignments of Receivables furnished to the Agent by such
Borrower, on notices of assignment, financing statements and other public
records relating to the perfection or priority of the Security Interest or
verifications of account and on notices to or from customers.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Borrowers covenant and agree that the Borrowers will duly and
punctually pay, jointly, severally and in solido, the principal of, and interest
on, and all other amounts payable with respect to, the Loans and all other
Secured Obligations in accordance with the terms of the Security Documents and
the other Loan Documents and that until the Facilities have been terminated and
all the Secured Obligations have been indefeasibly paid in full, unless the
Required Lenders shall otherwise consent in the manner provided for in SECTION
13.11, each Borrower will:
1.37 Preservation of Entity Existence and Similar Matters. Preserve and
maintain its entity existence, rights, franchises, licenses and privileges in
the jurisdiction of its organization and qualify and remain qualified as a
foreign limited liability company or corporation, as the case may be, and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization.
1.38 Compliance with Applicable Law. Comply with all applicable laws
relating to such Borrower.
1.39 Conduct of Business. Engage only in businesses substantially the same
as those conducted on the Effective Date.
1.40 Payment of Taxes and Claims. Pay or discharge when due (a) all Taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or upon any properties belonging to it, and (b) all lawful
claims of materialmen, mechanics, carriers, warehousemen and landlords for
labor, materials, supplies and rentals which, if unpaid, might become a Lien on
any properties of such Borrower, EXCEPT that this SECTION 7.4 shall not require
the payment or discharge of any such Tax, assessment, charge, levy or claim
which is not yet delinquent or which is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established on
the appropriate books.
1.41 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete), as may be required or as
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may be necessary to permit the preparation of financial statements in accordance
with GAAP.
1.42 Use of Proceeds. Not use any part of such proceeds to purchase or
carry, or to reduce or retire or refinance any credit incurred to purchase or
carry, any margin stock (within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System) or for any other purpose which would
involve a violation of such Regulation G or U or Regulation T or X of such Board
of Governors or for any other purpose prohibited by law or by the terms and
conditions of this Agreement.
1.43 Subordinated Debt. Lenders acknowledge that American Aero has Debt in
the original principal amount of $__________ owed to Weatherford Enterra U.S.,
Limited Partnership and Weatherford U.S., Inc. (collectively "Weatherford"). The
Subordinated Debt owed to Weatherford is subject to a Subordination Agreement
dated effective as of September 18, 1997 (the "Weatherford Subordination
Agreement"). Borrowers shall provide Agent written notice of any defaults under
the Subordinated Debt Loan Documents, as defined in the Weatherford
Subordination Agreement, together with a copy of any Standstill Notice, as
defined in the Weatherford Subordination Agreement. Borrowers acknowledge and
agree that if within thirty (30) days prior to the expiration of the Standstill
Period Borrowers have not cured such default, Agent shall have the right on
behalf of the Lenders, to make an Advance hereunder to pay in full the amounts
owed to Weatherford. Any such Advance shall be considered a Revolving Credit
Advance; PROVIDED, THAT, if such advance exceeds the ceiling for Revolving
Credit Advances, such Advance nevertheless shall constitute Secured Obligations
and, as such, shall entitle Lenders to all benefits thereof and security
therefor.
1.44 Accuracy of Information. All written information, reports, statements
and other papers and data furnished to the Agent or the Lenders, whether
pursuant to ARTICLE VIII or any other provision of this Agreement or any of the
other Loan Documents, shall be, at the time the same is so furnished, complete
and correct in all material respects to the extent necessary to give the Lender
true and accurate knowledge of the subject matter.
ARTICLE VIII
INFORMATION
Until the Facilities have been terminated and all the Secured Obligations
have been indefeasibly paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 13.11, the Borrowers will furnish to
the Agent at the Agent's Office:
1.45 Financial Statements.
1.45.1 Audited Year-End Statements. As soon as available, but in any
event within one-hundred twenty (120) days after the end of
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each fiscal year of the Borrowers, copies of the Consolidated balance sheet
of Aero and its Consolidated Subsidiaries as at the end of such fiscal year
and the related statements of income, shareholders' or members' equity and
cash flow for such fiscal year, in each case setting forth in comparative
form the figures for the previous year of such Persons and reported on,
without qualification, by a nationally recognized firm of certified public
accountants selected by the Borrowers and acceptable to the Agent.
1.45.2 Monthly Financial Statements. As soon as available, but in
any event within 30 days after the end of each accounting month of the
Borrowers, copies of the unaudited Consolidated and consolidating balance
sheet of Aero and its Consolidated Subsidiaries as at the end of such month
and the related unaudited income statement for Aero and its Consolidated
Subsidiaries for such month and for the portion of the fiscal year of Aero
and its Consolidated Subsidiaries through such month, certified by the
chief financial officer of the Borrowers to the best of his knowledge as
presenting fairly the financial condition and results of operations of Aero
and its Consolidated Subsidiaries as at the date thereof and for the
periods ended on such date, subject to normal year end adjustments.
1.45.3 Annual Budget. As soon as available, but in any event within
60 days before the end of each fiscal year of the Borrowers, a pro forma
balance sheet, income statement and statement of cash flows of Aero and its
Consolidated Subsidiaries for the next succeeding fiscal year, prepared on
a monthly basis, reflecting the Borrowers' reasonable projections.
1.45.4 Acquisitions. As soon as available, but in any event not
later than 30 days prior to the consummation of any Acquisition of a
Business Unit by Aero, a pro forma balance sheet of Aero and its
Consolidated Subsidiaries as of a date on or about the effectiveness of
such Acquisition and giving effect thereto, together with (i) audited
balance sheets for the Business Unit to be acquired for the last three (3)
years; (ii) projected financial statement giving effect to such Acquisition
for the next three (3) years; and (iii) a revision of the annual budget
required under SECTION 8.1.3 hereof as may be necessary to reflect the
consummation of such Acquisition.
1.46 Accountants' Certificate. Together with each delivery of financial
statements required by SECTION 8.1.1, a certificate of the accountants who
performed the audit in connection with such statements (a) stating that they
have reviewed this Agreement and that, in making the audit necessary to the
issuance of a report on such financial statements, they have obtained no
knowledge of any Default or Event of Default or, if such accountants have
obtained knowledge of a Default or Event of Default, specifying the nature and
period of existence thereof, and (b) setting forth the calculations necessary to
establish whether or not the Borrowers were in compliance with the covenants
contained in SECTIONS 9.1, 9.2, 9.5 AND 9.6 as of the date of such statements.
The Borrowers authorize the Agent to discuss the financial condition of the
Borrowers with the Borrowers' independent certified public accountants and agree
that such discussion or communication shall be without liability to either the
Agent or the Borrowers'
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independent certified public accountants. The Borrowers shall deliver a letter
addressed to such accountants, upon Agent's request, authorizing them to comply
with the provisions of this SECTION 8.2.
1.47 Officer's Certificate. Together with each delivery of financial
statements at the end of each month as required by SECTIONS 8.1.1 AND 8.1.2, a
certificate of the Borrowers' Presidents or chief financial officers in the form
attached hereto as EXHIBIT 8.3 (a) stating that, based on an examination
sufficient to enable him to make an informed statement, no Default or Event of
Default exists or, if such is not the case, specifying such Default or Event of
Default and its nature, when it occurred, whether it is continuing and the steps
being taken by the Borrowers with respect to such Default or Event of Default,
and (b) setting forth the calculations necessary to establish whether or not the
Borrowers were in compliance with the covenants contained in SECTIONS 9.1, 9.2,
9.5 AND 9.6 as of the date of such statements.
1.48 Copies of Other Reports.
1.48.1 Promptly upon receipt thereof, copies of all reports, if any,
submitted to a Borrower or its Board of Directors or Managers by its
independent public accountants, including, without limitation, all
management letters.
1.48.2 As soon as practicable, copies of all financial statements
and reports that Aero shall send to its members or shareholders generally
and of all registration statements and all regular or periodic reports that
Aero shall file with the Securities and Exchange Commission or any
successor commission if Aero becomes required to so.
1.48.3 From time to time and promptly upon each request, such
forecasts, data, certificates, reports, statements, opinions of counsel,
documents or further information regarding the business, assets,
liabilities, financial condition, results of operations or business
prospects of the Borrowers as the Agent may reasonably request. The rights
of the Agent under this SECTION 8.4.3 are in addition to and not in
derogation of its rights under any other provision of this Agreement or any
Loan Document.
1.48.4 If requested by the Agent, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations
G and U. respectively, of the Board of Governors of the Federal Reserve
System.
1.49 Notice of Litigation and Other Matters. Prompt notice of:
1.49.1 the commencement, to the extent a Borrower is aware of the
same, of all proceedings and investigations by or before any governmental
or nongovernmental body and all actions and proceedings in any court or
before any arbitrator against or in any other way relating adversely to, or
adversely affecting, such Borrower or any Affiliate of such Borrower
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or any of their respective properties, assets or businesses which might,
singly or in the aggregate, cause a Default or an Event of Default or have
a Materially Adverse Effect,
1.49.2 any amendment of the certificate or articles of organization,
certificate or articles of incorporation, bylaws or operating agreement of
a Borrower or any change in the Federal tax identification number of a
Borrower,
1.49.3 any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of a Borrower or any
Affiliate of such Borrower which has had or may have any Materially Adverse
Effect and any change in the President or chief financial officer of a
Borrower, and
1.49.4 any (i) Default or Event of Default, or (ii) event that
constitutes or that, with the passage of time or giving of notice or both,
would constitute a default or event of default by a Borrower under any
material agreement (other than this Agreement) to which such Borrower is a
party or by which such Borrower or any of its property may be bound if the
exercise of remedies thereunder by the other party to such agreement would
have, either individually or in the aggregate, a Materially Adverse Effect.
1.50 ERISA. As soon as possible and in any event within 30 days after a
Borrower knows, or has reason to know, that:
1.50.1 any Termination Event with respect to a Benefit Plan has
occurred or will occur,
1.50.2 the aggregate present value of the Unfunded Vested Accrued
Benefits under all Plans has increased to an amount in excess of $0,
1.50.3 such Borrower is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
required by reason of its complete or partial withdrawal (as described in
Section 4203 or 4205 of ERISA) from such Multiemployer Plan, or
1.50.4 a certificate of the President or the chief financial officer
of such Borrower setting forth the details of such of the events described
in SECTIONS 8.6.1 through 8.6.3 as applicable and the action which is
proposed to be taken with respect thereto and, simultaneously with the
filing thereof, copies of any notice or filing which may be required by the
PBGC or other agency of the United States government with respect to such
of the events described in SECTIONS 8.6.1 through 8.6.3 as applicable.
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ARTICLE IX
NEGATIVE COVENANTS
Until the Facilities have been terminated and all the Secured Obligations
have been indefeasibly paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 13.11, the Borrowers will not
directly or indirectly:
1.51 Financial Ratios.
1.51.1 Minimum Interest Charge Coverage. Permit the ratio of total
EBITDA to Interest Expense, in each case on a Consolidated basis for Aero
and its Consolidated Subsidiaries, at any time to be less than 1.25 to 1.0:
1.51.2 Minimum Capital. Permit the Consolidated Net Worth of Aero
and its Consolidated Subsidiaries plus the Subordinated Debt at any time to
be less than the Net Worth of Aero and its Consolidated Subsidiaries as
shown on the pro forma balance sheet provided pursuant to its April 30,
1998 Consolidated and consolidating Balance Sheet. Each fiscal quarter such
Consolidated Net Worth shall be adjusted to the greater of (i) the actual
increase in actual Net Worth or (ii) by at least 50% of Net Income. There
shall be no downward adjustment. For any upward adjustment to be made
pursuant to any Acquisition or the merger contemplated in ARTICLE XI,
Borrowers shall provide Agent a pro forma Consolidated and consolidating
balance sheet, giving effect to such Acquisition or merger, thirty (30)
days in advance of the requested adjustment. Any adjustment contemplated by
this SECTION 9.1.2 shall require the consent of the Majority Lenders, in
their sole and absolute discretion.
1.51.3 Quarterly Net Loss. Permit any Borrower to have consecutive
quarterly Net Losses.
1.52 Debt. Create, assume, or otherwise become or remain obligated in
respect of, or permit or suffer to exist or to be created, assumed or incurred
or to be outstanding any Debt, other than Debt described on SCHEDULE 9.2.
1.53 Guaranties. Become or remain liable with respect to any Guaranty of
any obligation of any other Person, except for the Guaranteed Obligations and
Guaranties described on SCHEDULE 9.3.
1.54 Investments. Acquire any Investment or permit any Investment to be
outstanding, other than Permitted Investments.
1.55 Acquisitions. Acquire any Business Unit that is not in the same or
similar business as Borrowers.
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1.56 Restricted Distributions and Payments. Declare or make any Restricted
Distribution or Restricted Payment other than the Restricted Payment set forth
on SCHEDULE 9.6.
1.57 Merger, Consolidation and Sale of Assets. Merge or consolidate with
any other Person or sell, lease or transfer or otherwise dispose of all or a
substantial portion of its assets to any Person except as set forth on
SCHEDULE 9.7.
1.58 Transactions with Affiliates. Effect any transaction with any
Affiliate on a basis less favorable to a Borrower than would be the case if such
transaction had been effected with a Person not an Affiliate.
1.59 Liens. Create, assume or permit or suffer to exist or to be created
or assumed any Lien on any of the property or assets of a Borrower, real,
personal or mixed, tangible or intangible, except for Permitted Liens.
1.60 Operating Leases. Enter into any lease other than a Capitalized Lease
which would cause the annual payment obligations of the Borrowers under all
leases (other than leases of Real Estate listed on SCHEDULE 9.11 and Capitalized
Leases) to exceed $1,000,000 in the aggregate.
1.61 Benefit Plans. Permit, or take any action which would result in, the
aggregate present value of the Unfunded Vested Accrued Benefits under all
Benefit Plans of the Borrowers to exceed $0.
1.62 Sales and Leasebacks. Enter into any arrangement with any Person
providing for the leasing from such Person of real or personal property which
has been or is to be sold or transferred, directly or indirectly, by a Borrower
to such Person to exceed $1,000,000 in the aggregate; PROVIDED, THAT, prior to
entering into any such arrangement no matter the value, Borrowers shall give
Agent ten (10) days notice of such transaction.
1.63 Amendments of Other Agreements. Amend in any way the interest rate
or principal amount or schedule of payments of principal and interest with
respect to any Indebtedness (other than the Secured Obligations) other than to
reduce the interest rate or extend the schedule of payments with respect
thereto.
ARTICLE X
DEFAULT
1.64 Events of Default. Each of the following shall constitute an Event of
Default, whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
nongovernmental body:
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1.64.1 Default in Payment of Advances. The Borrowers shall default
in any payment of principal of, or interest on, any Advance, Reimbursement
Obligations or Note when and as due (whether at maturity, by reason of
acceleration or otherwise).
1.64.2 Other Payment Default. The Borrowers shall default in the
payment, as and when due, of principal of or interest on, any other Secured
Obligation.
1.64.3 Misrepresentation. Any representation or warranty made or
deemed to be made by a Borrower under this Agreement or any other Loan
Document or any amendment hereto or thereto shall at any time prove to have
been incorrect or misleading in any material respect when made and such
default is not cured within thirty (30) days after notice by Agent to
Borrowers.
1.64.4 Defaulting Performance. The Borrowers shall default in the
performance or observance of any term, covenant, condition or agreement
contained in (i) ARTICLES 6, 7, 8, OR 9, or (ii) this Agreement (other than
as specifically provided for otherwise in this SECTION 10.1) and such
default is not cured within thirty (30) days after notice by Agent to
Borrowers.
1.64.5 Debt Cross-Default. (i) A Borrower shall fail to pay when due
and payable the principal of or interest on any Debt (other than the
Advances, Reimbursement Obligations or Note) where the principal amount of
such Debt is in excess of $250,000, or (ii) the maturity of any such Debt
shall have (A) been accelerated in accordance with the provisions of any
indenture, contract or instrument providing for the creation of or
concerning such Debt, or (B) been required to be prepaid prior to the
stated maturity thereof, or (iii) any event shall have occurred and be
continuing which, with or without the passage of time or the giving of
notice, or both, would permit any holder or holders of such Debt, any
trustee or agent acting on behalf of such holder or holders or any other
Person so to accelerate such maturity and such default is not cured within
thirty (30) days after notice by Agent to Borrower.
1.64.6 Other Cross-Defaults. A Borrower shall default in the payment
when due or in the performance or observance of any material obligation or
condition of any agreement, contract or lease (other than the Security
Documents or any such agreement, contract or lease relating to
Indebtedness), if the exercise of remedies thereunder by the other party to
such agreement could have a Materially Adverse Effect and such default is
not cured at the earlier of (i) thirty (30) days after notice from Agent to
Borrowers or (ii) the commencement of the exercise of remedies thereunder.
1.64.7 Voluntary Bankruptcy Proceeding. A Borrower shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (ii) commence a proceeding seeking to take advantage
of any other laws, domestic or foreign,
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relating to bankruptcy, insolvency, reorganization, winding up or
composition for adjustment of debts, (iii) consent to or fail to contest in
a timely and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for
or consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of a substantial part of its property,
domestic or foreign, (v) admit in writing its inability to pay its debts as
they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any entity action for the purpose of authorizing
any of the foregoing.
1.64.8 Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against a Borrower in any court of competent
jurisdiction seeking (i) relief under the federal bankruptcy laws (as now
or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts, or (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of such Borrower or of all or any
substantial part of the assets, domestic or foreign, of such Borrower, and
such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or an order granting the relief requested
in such case or proceeding against such Borrower (including, but not
limited to, an order for relief under such federal bankruptcy laws) shall
be entered.
1.64.9 Loan Documents. Any event of default or "Event of Default"
under any other Loan Document shall occur (and any grace period applicable
thereto pursuant to such Loan Document shall have expired) or a Borrower
shall default in the performance or observance of any material term,
covenant, condition or agreement contained in, or the payment of any other
sum covenanted to be paid by such Borrower under, any such Loan Document or
any provision of this Agreement, or of any other Loan Document after
delivery thereof hereunder, shall for any reason cease to be valid and
binding, other than a nonmaterial provision rendered unenforceable by
operation of law, or a Borrower or other party thereto (other than the
Lender) shall so state in writing, or this Agreement or any other Loan
Document, after delivery thereof hereunder, shall for any reason (other
than any action taken independently by the Lenders or Agent and except to
the extent permitted by the terms thereof) cease to create a valid,
perfected and, except as otherwise expressly permitted herein, first
priority Lien on, or security interest in, any of the Collateral purported
to be covered thereby; provided, however, if such default is a non-monetary
default, Borrowers shall have thirty (30) days after notice by Agent to
Borrowers in which to cure such default.
1.64.10 Failure of Agreements. A Borrower shall challenge the
validity and binding effect of any provision of any Loan Document after
delivery thereof hereunder or shall state in writing its intention to make
such a challenge, or any Security Document, after delivery thereof
hereunder, shall for any reason (except to the extent permitted by the
terms thereof) cease to create a valid and perfected first priority Lien
(except for Permitted Liens) on, or security interest in, any of the
Collateral purported to be covered thereby.
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1.64.11 Judgment. A final, unappealable judgment or order for the
payment of money in an amount that exceeds the uncontested insurance
available therefor by $1,000,000 or more shall be entered against a
Borrower by any court.
1.64.12 Attachment. A writ of attachment or sequestration or similar
process which exceeds $250,000 in value shall be issued against any
property of a Borrower or a writ of execution or fieri facias or similar
process which exceeds $250,000 in value shall be issued against any
property of a Borrower and such there has not been an appropriate bond
obtained against such process.
1.64.13 ERISA. (i) Any Termination Event with respect to a Benefit
Plan shall occur that, after taking into account the excess, if ant, of (A)
the fair market value of the assets of any other Benefit Plan with respect
to which a Termination Event occurs on the same day (but only to the extent
that such excess is the property of Borrower) over (B) the present value on
such day of all vested nonforfeitable benefits under such other Benefit
Plan, results in an Unfunded Vested Accrued Benefit in excess of $0, (ii)
any Benefit Plan shall incur an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA) for which a
waiver has not been obtained in accordance with the applicable provisions
of the Code and ERISA, or (iii) a Borrower is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer
Plan resulting from such Borrower's complete or partial withdrawal (as
described in Section 4203 or 4205 of ERISA) from such Multiemployer Plan.
1.64.14 Qualified Audits. The independent certified public
accountants retained by the Borrowers shall refuse to deliver an
unqualified opinion with respect to the annual financial statements of a
Borrower.
1.64.15 Material Adverse Effect. There occurs any act, omission,
situation, circumstance, event or undertaking or combination of acts,
omissions, situations, circumstances, events or undertakings which have, or
in the sole judgment of the Agent or Required Lenders would likely have, a
Materially Adverse Effect.
1.64.16 Change of Control. Should more than 35% of the interests in
Aero International, L.L.C. become owned by any Person other than McGowin I.
Patrick, Jr. or Clifton C. Inge, Jr. or who or which was not on the
Effective Date a member of Aero International, L.L.C., except pursuant to
the Merger pursuant to the Merger Letter Agreement. Should the group
composed of the members of Aero International, L.L.C. as of the Effective
Date or the group composed of McGowin I. Patrick, Jr., Clifton C. Inge,
Jr., Byron A. Adams, Jr., Thomas W. Pritchard and W. Steven McKenzie cease
to own 10% of the issued and outstanding stock of the entity which survives
the Merger.
1.64.17 Change of Management. (A) Prior to or the consummation of the
Merger pursuant to the Merger Letter Agreement, should the President of
Aero International, L.L.C. by any Person who or which was not on the
Effective Date a member of Aero International, L.L.C.; or (B) Following the
consummation of the Proposed Combination as defined in the Merger Letter
Agreement, should more than a majority of the members of the board of
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directors of Aero International, Inc. (as constituted following
consummation of the Proposed Combination as defined in the Merger Letter
Agreement) not meet at least one of the following criteria: (i) have been a
member of Aero International, L.L.C. on the Effective Date, or be McGowin
I. Patrick, Jr. or Clifton C. Inge, Jr.; (ii) be nominated for election to
such board of directors with the approval of, or elected to such board of
directors with the ratification of, at least 80% of (x) the group composed
of members of Aero International, L.L.C. as of the Effective Date, as to
approvals or ratifications made by shareholders; or (y) the group composed
of McGowin I. Patrick, Jr., Clifton C. Inge, Jr., Byron A. Adams, Jr.,
Thomas W. Pritchard and W. Steven McKenzie, as to approvals or
ratifications made by members of the board of directors.
1.65 Remedies.
1.65.1 Automatic Acceleration and Termination of Facilities.
Upon the occurrence of an Event of Default specified in SECTION 10.1.7 OR
10.1.8, (i) the principal of and the interest on the Advances and the Notes
at the time outstanding, and all other amounts owed to the Lenders under
this Agreement or any of the Loan Documents and all other Secured
Obligations, shall thereupon become due and payable without presentment,
demand, protest or other notice of any kind, all of which are expressly
waived, anything in this Agreement or any of the Loan Documents to the
contrary notwithstanding, and (ii) the Facilities and the commitment of the
Lenders to make advances thereunder or under this Agreement shall
immediately terminate.
1.65.2 Other Remedies. If any Event of Default (other than as
specified in SECTION 10.1.7 OR 10.1.8) shall have occurred and be
continuing, the Agent, on behalf of the Lenders, in its sole and absolute
discretion, may do any of the following:
1.65.2.1 declare the principal of and interest on the
Advances and the Notes at the time outstanding, and all other amounts
owed to the Lenders, Agent or Letter of Credit Bank under this
Agreement or any of the Loan Documents and all other Secured
Obligations, to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly
waived, anything in this Agreement or the Loan Documents to the
contrary notwithstanding;
1.65.2.2 terminate the Facilities and any commitment of the
Lender to make advances hereunder;
1.65.2.3 notify, or request the Borrower to notify, in
writing or otherwise, any Account Debtor or obligor with respect to
any one or more of the Receivables to make payment to the Agent or
any agent or designee of the Agent, at such address as may be
specified by the Agent, and, if, notwithstanding the giving of
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any notice, any Account Debtor or other such obligor shall make
payments to a Borrower, such Borrower shall hold all such payments it
receives in trust for the Lenders, without commingling the same with
other funds or property of, or held by, such Borrower and shall
deliver the same to the Agent or any such agent or designee
immediately upon receipt by such Borrower in the identical form
received, together with any necessary endorsements;
1.65.2.4 settle or adjust disputes and claims directly with
Account Debtors and other obligors on Receivables for amounts and on
terms which the Agent considers advisable and in all such cases only
the net amounts received by the Agent in payment of such amounts,
after deductions of costs and attorneys' fees, shall constitute
Collateral, and the Borrowers shall have no further right to make any
such settlements or adjustments or to accept any returns of
merchandise;
1.65.2.5 without notice, demand or other process, and
without payment of any rent or any other charge, enter any of the
Borrowers' premises and, without breach of the peace, until the Agent
completes the enforcement of its rights in the Collateral, take
possession of such premises or place custodians in exclusive control
thereof, remain on such premises and use the same and any of the
Borrowers' equipment, for the purpose of collecting any Receivable,
and the Agent is hereby granted a license or sublicense and all other
rights as may be necessary, appropriate or desirable to use the
Intellectual Property in connection with the foregoing, and the
rights of the Borrowers under all licenses and franchise agreements
shall inure to the Agent's benefit (provided, however, that any use
of any federally registered trademarks as to any goods shall be
subject to the control as to the quality of such goods of the owner
of such trademarks and the goodwill of the business symbolized
thereby);
1.65.2.6 exercise any and all of its rights under any and
all of the Security Documents and other Loan Documents;
1.65.2.7 apply any cash Collateral to the payment of the
Secured Obligations in any order in which the Agent may elect or use
such cash in connection with the exercise of any of its other rights
hereunder or under any of the Security Documents;
1.65.2.8 establish or cause to be established one or more
lockboxes or other arrangement for the deposit of proceeds of
Receivables, and, in such case, the Borrowers shall cause to be
forwarded to the Agent at the Agent's Office, on a daily basis,
copies of all checks and other items of payment and deposit slips
related thereto deposited in such lockboxes, together with collection
reports in form and substance satisfactory to the Agent; and
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1.65.2.9 exercise all of the rights and remedies of a
secured party under the UCC (whether or not the UCC is applicable)
and under any other applicable law, including, without limitation,
the right, without notice except as specified below and with or
without taking the possession thereof, to sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any
location chosen by the Agent, for cash, on credit or for future
delivery and at such price or prices and upon such other terms as the
Lender may deem commercially reasonable. The Borrowers agree that, to
the extent notice of sale shall be required by law, at least 10 days'
notice to the Borrowers of the time and place of any public sale or
the time after which any private sale is to be made shall constitute
reasonable notice, but notice given in any other reasonable manner or
at any other reasonable time shall also constitute reasonable
notification. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Agent
may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
1.66 Application of Proceeds. All proceeds from each sale of, or other
realization upon, all or any part of the Collateral following an Event of
Default shall be applied or paid over as follows:
1.66.1 First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
1.66.2 Second: to the payment of the Secured Obligations (with the
Borrowers remaining liable for any deficiency) in any order which the Agent
may elect, and
1.66.3 Third: the balance (if any) of such proceeds shall be paid to
the Borrowers or, subject to any duty imposed by law or otherwise, to
whomsoever is entitled thereto.
1.67 Power of Attorney. In addition to the authorizations granted to the
Agent or Lenders under SECTION 6.14 or under any other provision of this
Agreement or any of the Loan Documents, upon the occurrence and during the
continuance of an Event of Default, each Borrower hereby irrevocably designates,
makes, constitutes and appoints the Agent (and all Persons designated by the
Agent from time to time) as such Borrowers true and lawful attorney and agent in
fact, and the Agent or any agent of the Agent may, without notice to Borrowers,
and at such time or times as the Agent or any such agent in its sole discretion
may determine, in the name of such Borrower or the Agent, (a) demand payment of
the Receivables, enforce payment thereof by legal proceedings or otherwise,
settle, adjust, compromise, extend or renew any or all of the Receivables or any
legal proceedings brought to collect the Receivables, discharge and release the
Receivables or any of them and exercise
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all of such Borrower's rights and remedies with respect to the collection of
Receivables, (b) prepare, file and sign the name of such Borrower on any proof
of claim in bankruptcy or any similar document against any Account Debtor or any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral, (c) endorse the name of such Borrower
upon any chattel paper, document, instrument, notice, freight bill, bill of
lading or similar document or agreement relating to the Receivables or any other
Collateral, (d) use the stationery of such Borrower, open Borrower's mail,
notify the post office authorities to change the address for delivery of such
Borrowers' mail to an address designated by the Agent and sign the name of such
Borrower to verifications of the Receivables and on any notice to the Account
Debtors, (e) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Receivables or
other Collateral to which each Borrower or any Subsidiary of each Borrower has
access.
1.68 Miscellaneous Provisions Concerning Remedies.
1.68.1 Rights Cumulative. The rights and remedies of the Agent and
Lenders under this Agreement, the Note and each of the Loan Documents shall
be cumulative and not exclusive of any rights or remedies which it or they
would otherwise have. In exercising such rights and remedies, the Agent or
Lenders may be selective and no failure or delay by the Agent or Lenders in
exercising any right shall operate as a waiver of such right nor shall any
single or partial exercise of any power or right preclude its other or
further exercise or the exercise of any other power or right.
1.68.2 Waiver of Marshaling. Each Borrower hereby waives any right
to require any marshaling of assets and any similar right.
1.68.3 Limitation of Liability. Nothing contained in this ARTICLE X
or elsewhere in this Agreement or in any of the Loan Documents shall be
construed as requiring or obligating the Lender or any agent or designee of
the Lender to make any demand or to make any inquiry as to the nature or
sufficiency of any payment received by it or to present or file any claim
or notice or take any action with respect to any Receivable or any other
Collateral or the moneys due or to become due thereunder or in connection
therewith or to take any steps necessary to preserve any rights against
prior parties, and neither the Agent nor any of its agents or designees
shall have any liability to Borrower for actions taken pursuant to this
ARTICLE X, any other provision of this Agreement or any of the Loan
Documents, so long as the Agent or such agent or designee shall act
reasonably and in good faith.
1.68.4 Appointment of Receiver. In any action under this ARTICLE X,
the Agent shall be entitled to the appointment of a receiver, without
notice of any kind whatsoever, to take possession of all or any portion of
the Collateral and to exercise such power as the court shall confer upon
such receiver.
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1.69 Dividends; Redemption. Any dividends or redemption rights under any
equity and/or debt outstanding shall cease upon the occurrence of an Event of
Default.
1.70 Performance in Lenders. Should a Borrower fail to perform any
covenant, duty or agreement contained herein or any other Loan Documents, Agent,
at the request of or with the consent of the Required Lenders, may (but shall be
obligated to) perform or attempt to perform such covenant, duty or agreement on
behalf of such Borrower. In such event, Borrowers shall, at the request of Agent
or Lenders, promptly pay any amount expended by Agent or Lenders in such
performance to Agent at Agent's Office, together with interest thereon from the
date of expenditure until paid. Notwithstanding the foregoing, it is expressly
understood that neither Lenders or Agent assume any liability or responsibility
for the performance of any duties of Borrowers hereunder or under any of the
Loan Documents or other control over the management and affairs of Borrower.
1.71 Trademark License. Each Borrower hereby grants to the Agent the
nonexclusive right and license to use any trademark then used by such Borrower,
for the purposes set forth in SECTION 10.2.2.8 and for the purpose of enabling
the Agent to realize on the Collateral and to permit any purchaser of any
portion of the Collateral through a foreclosure sale or any other exercise of
the Agent's or Lenders' rights and remedies under the Loan Documents to use,
sell or otherwise dispose of the Collateral bearing any such trademark. Such
right and license is granted free of charge, without the requirement that any
monetary payment whatsoever be made to each Borrower or any other Person by the
Lender. Each Borrower hereby represents, warrants, covenants and agrees that it
presently has, and shall continue to have, the right, without the approval or
consent of others, to grant the license set forth in this SECTION 10.6.
ARTICLE XI
MERGER WITH INTERNATIONAL TOOL & SUPPLY, PLC
1.72 Merger with ITS. Lenders acknowledge that Borrowers intend to merge
with ITS pursuant to the terms of the Merger Letter Agreement (the "Merger").
1.72.1 Formation of Aero International, Inc. Upon the formation of
Aero International, Inc., subject to the terms and conditions contained in
this Agreement, including without limitation SECTION 4.3, Aero
International, Inc. shall become an Additional Borrower hereunder.
1.72.2 ITS Subsidiaries. Upon the completion of the Merger, subject
to the terms and conditions contained in this Agreement, including without
limitation SECTION 4.3, all Wholly-Owned Subsidiaries of Aero
International, Inc. shall become Additional Borrowers under this Agreement.
1.72.3 Definitive Agreement. Borrower shall give Agent at least five
(5) days advance notice of the proposed date of execution of the Definitive
Agreement, as defined in
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the Merger Letter Agreement, together with the last draft of the Definitive
Agreement. Agent shall have five (5) days from the receipt of the
Definitive Agreement (i) to provide Borrowers with Agent's comments to such
Agreement; and, (ii) to propose modification if the Definitive Agreement
differs from the overall transactions described in the Merger Letter
Agreement. If the Definitive Agreement differs substantially from the
terms of the Merger Letter Agreement, the Merger shall require the Required
Lenders' prior written approval.
1.72.4 Updated Borrowing Base Certificate. Borrowers shall provide
twenty (20) days prior to closing of the Merger transaction a proposed
Borrowing Base Certificate taking into account the transaction contemplated
by the Merger Letter Agreement.
1.73 Obligations. Lenders and Agent shall upon consummation of the Merger
be obligated to do the following in addition to any other obligations under this
Agreement, including without limitation, SECTION 4.3:
1.73.1 Obligations of Borrowers.
1.73.1.1 Thirty (30) days prior to the consummation of the
Merger, Borrowers shall provide Agent with a pro forma Consolidated
and consolidating balance sheet of Aero International, Inc. and its
Consolidated Subsidiaries as of a date on or about the effectiveness
of such merger and giving effect thereto, together with (i) audited
balance sheet of ITS for the last three (3) years; (ii) projected
financial statements for the next three (3) years giving effect to
the merger; and (iii) a revision of the annual budget required under
SECTION 8.1.3 hereof as may be necessary to reflect to consummation
of such merger. Such financial statements shall be acceptable to
Majority Lenders in their sole and absolute discretion.
1.73.1.2 Simultaneous with the Merger, Aero International,
Inc. and its Wholly-Owned Subsidiaries (giving effect to the merger)
shall grant to Agent for the ratable benefit of Lenders a first
priority Lien on all of such Additional Borrowers Inventory and
Receivables. The definition of Aero herein shall then mean Aero
International, Inc.
1.73.1.3 Borrowers shall pay all Debts of Aero
International, Inc. and its Wholly-Owned Subsidiaries (giving effect
to the Merger).
1.73.1.4 On the date of the closing of the transactions
contemplated by the Merger Letter Agreement, Borrowers shall provide
Agent with a Borrowing Base Certificate giving effect to such Merger.
1.73.2 Obligations of Lenders. Provided, that an Event of Default
has not occurred:
1.73.2.1 And provided, that there is sufficient Revolving
Credit
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Availability, Lenders shall make a Revolving Credit Advance in order
for Borrowers to fill their obligations under SECTION 11.2.1.3.
1.73.2.2 Within sixty (60) days of the completion of the
Merger contemplated by the Merger Letter Agreement, Agent shall
release its Liens on the Equipment and the Real Estate.
1.74 Termination of Certain Availability. Upon the consummation of the
Merger contemplated by the Merger Letter Agreement, all Fixed Asset Availability
and Credit CAPEX Availability shall cease, and Borrowers shall have no further
right to any Fixed Asset Advances or CAPEX Credit Advances. Upon consummation of
the Merger and giving effect to the Merger, should the outstanding Advances
exceed the Revolving Credit Availability, Borrowers agree to reduce immediately
the outstanding Advances to the Revolving Credit Availability.
1.75 Debt and Equity Offerings. Aero intends to issue $75,000,000 worth of
Subordinated Debt in connection with the Merger. Any offering of debt or equity
by Aero or its Wholly-Owned Subsidiaries shall be subject to the prior approval
of the Majority Lenders and subject to documentation acceptable to Agent and its
counsel.
ARTICLE XII
AGENT
1.76 Appointment. Each future Lender, by accepting a participation
interest and any other Lender hereby irrevocably designate and appoint National
Canada Finance Corp. as Agent of such Bank (such term to include for purposes of
this SECTION 12.1, National Canada Finance Corp. acting as Collateral Agent) to
act as specified herein and in the other Loan Documents, and each such Lender
hereby irrevocably authorizes National Canada Finance Corp. as the Agent to take
such action on its behalf under the provisions of this Agreement and the other
Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. The Agent agrees to act as such upon the express conditions contained
in SECTION 12.1. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein or in the other
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Lenders' Agent. The
provisions of this SECTION 12.1 are solely for the benefit of the Agent and the
Lenders, and Borrowers shall not have any rights as a third party beneficiary of
any of the provisions hereof. In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of the Lenders and the Agent does
not assume and shall not be deemed to have assumed any obligation or
relationship of agency or trust with or for Aero or any of its Subsidiaries.
1.77 Consultation with Counsel. Lenders agree that Agent may consult with
legal counsel
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selected by it and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel.
1.78 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents or attorneys-in-
fact and shall be entitled to advise of counsel concerning all matters
pertaining to such duties. The Agent shall not be responsible for the negligence
or misconduct of any agents or attorneys-in-fact selected by it with reasonable
care except to the extent otherwise required by SECTION 12.4.
1.79 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or the other Loan Documents (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by Borrowers or any of their respective
officers contained in this Agreement or the other Loan Documents, any other
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document or for any failure of Borrowers or any of
their respective officers to perform its obligations hereunder or thereunder.
The Agent shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or the other Loan Documents, or to inspect
the properties, books or records of Borrowers. The Agent shall not be
responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by the Agent to
the Lenders or by or on behalf of a Borrower to the Agent or any Lender or be
required to ascertain or inquire as to the performance or observance of any of
the terms, conditions, provisions, covenants or agreements contained herein or
therein or as to the use of the proceeds of the Advances or Letters of Credit or
of the existence or possible existence of any Default or Event of Default.
1.80 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, facsimile, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advise and statements of legal counsel (including,
without limitation, counsel to Borrowers), independent accountants and other
experts selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting,
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under this Agreement and the other Loan Documents in accordance with a request
of the Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.
1.81 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has actually received notice from a Lender, or a Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Banks; provided, that unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
1.82 Non-Reliance on Agent, and other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of Borrowers, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, assets, operations, property, financial and other condition,
prospects and creditworthiness of Borrowers. The Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial and other
condition, prospects or creditworthiness of Borrowers which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
1.83 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such ratably according to their respective Percentages from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgements, suits, costs, reasonable expenses, attorneys' fees or
disbursements of any kind whatsoever which may at any time (including without
limitation the Secured Obligations) be imposed on, incurred by or asserted
against the Agent in its capacity as such in any way relating to or arising out
of this Agreement or any other Loan Documents, or any documents contemplated by
or referred to herein or the transactions contemplated hereby or any action
taken or omitted to be taken by the Agent under or in connection with any of the
foregoing, but only to the extent any of the foregoing is not paid by Borrowers;
PROVIDED, THAT, no Lender shall be liable to the Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgment, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Agent. To the extent any Lender
would be required to indemnify the Agent pursuant to the immediately preceding
sentence but for the fact that it is a
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Defaulting Lender, such Defaulting Lender shall not be entitled to receive any
portion of any payment or other distribution hereunder until each other Lender
shall have been reimbursed for the excess, if any, of the aggregate amount paid
by such Lender under this SECTION 12.8 over the aggregate amount such Lender
would have been obligated to pay had such first Lender not been a Defaulting
Lender. If any indemnity furnished to the Agent for any purposes shall, in the
opinion of the Agent be insufficient or become impaired, the Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
SECTION 12.8 shall survive the payment of all Secured Obligations.
1.84 Agent in its Individual Capacity. The Agent and its affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with the Borrowers as though the Agent were not the Agent hereunder. With
respect to the Advances made by it and all Secured Obligations owing to it, the
Agent shall have the same rights and powers under this Agreement as any Lender
and may exercise the same as though it were not the Agent and the terms "Lender"
and "Lenders" shall include the Agent in its individual capacity.
1.85 Resignation of the Agent; Successor Agent. The Agent may resign as
the Agent upon twenty (20) days' notice to the Lenders. Upon the resignation of
the Agent, the Required Lenders shall appoint from among the Lenders a successor
Agent, which is a bank or a trust company, for the Lenders subject to prior
approval by the Borrowers in its discretion, whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall include such successor agent effective upon its appointment, and
the resigning Agent's rights, powers and duties as the Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement. After the resignation of the
Agent hereunder, the provisions of this SECTION 12.2 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.
1.86 Certain Action Requiring Consent of Majority Banks. Notwithstanding
anything to the contrary, Agent shall not without the consent of the Majority
Lenders: (a) increase the Commitment of any Lender; (b) change the repayment
schedule, waive any payments, change the maturity dates or change the rates of
interest per annum payable to the Lenders from the rates currently allowed to be
selected by Borrowers hereunder; (c) change the definitions of Required Lenders
or Majority Lenders; (d) discharge any Secured Obligations under this Agreement
or the Loan Documents; (e) release any Collateral; (f) increase the Percentage
of any Lender; (g) increase the Total Credit Facility; (h) release any Borrower
or guarantor of the Secured Obligations; or (i) amend the provisions of this
SECTION 12.11.
1.87 Benefit of Article XII. The agreements contained in this ARTICLE XII
are solely for the benefit of Agent and Lenders, and are not for the benefit of,
or to be relied upon by Borrower, or any other Person.
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ARTICLE XIII
MISCELLANEOUS
1.88 Notices.
1.88.1 Method of Communication. Except as specifically provided in
this Agreement or in any of the Loan Documents, all notices and the
communications hereunder and thereunder shall be in writing or by telephone
subsequently confirmed in writing. Notices in writing shall be delivered
personally or sent by overnight courier service, by certified or registered
mail, postage pre-paid, or by facsimile transmission and shall be deemed
received, in the case of personal delivery, when delivered, in the case of
overnight courier service, on the next Business Day after delivery to such
service, in the case of mailing, on the third day after mailing (or, if
such day is a day on which deliveries of mail are not made, on the next
succeeding day on which deliveries of mail are made) and, in the case of
facsimile transmission, upon transmittal by confirmed transmission;
PROVIDED, THAT in the case of notices to the Agent, the Agent shall be
charged with knowledge of the contents thereof only when such notice is
actually received by the Agent. A telephonic notice to the Agent as
understood by the Agent will be deemed to be the controlling and proper
notice in the event of a discrepancy with or failure to receive a
confirming written notice.
1.88.2 Addresses for Notices. Notices to any party shall be sent to
it at the following addresses, (or, effective 10 days after the giving of
notice thereof, any other address of which all the other parties are
notified in writing).
If to a Borrower: Aero International, L.L.C.
300 St. Francis Street
Mobile, Alabama 36602
Attention: McGowin I. Patrick, Jr.
Facsimile: (334) 432-2778
With a copy to: Adams & Reese, L.L.P.
4500 One St. Louis Centre
Mobile, Alabama 36602
Attention: Victor H. Lott, Jr. Esq.
Facsimile: (334) 438-7733
If to the Agent: National Bank of Canada
Atlanta Branch
200 Galleria Parkway, Suite 800
Atlanta, Georgia 30339
Attention: William L. Benning, Vice President
Facsimile: (770) 980-9531
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National Bank of Canada
125 W. 55th Street
New York, New York 10019
Attention: Thomas M. Doss, V.P., Senior Credit Officer
Facsimile: (212) 632-8564
With a copy to: McGlinchey Stafford
9th Floor, One American Place
Baton Rouge, Louisiana 70825
Attention: R. Marshall Grodner, Esq.
Facsimile: (504) 343-3076
If to a Lender: At the address listed on SCHEDULE 1
1.88.3 Agent's Office. The Agent hereby designates its office
located at National Bank of Canada, Atlanta Branch, 200 Galleria Parkway,
Suite 800, Atlanta, Georgia 30339, or any subsequent office which shall
have been specified for such purpose by written notice to the Borrowers, as
the office to which payments due are to be made and at which Advances will
be disbursed.
1.89 Expenses. The Borrowers agree to pay or reimburse on demand all costs
and expenses incurred by the Agent, Lenders and Letter of Credit Bank,
including, without limitation, the reasonable fees and disbursements of counsel,
in connection with (a) the negotiation, preparation, execution, delivery,
administration, enforcement and termination of this Agreement and each of the
other Loan Documents, whenever the same shall be executed and delivered,
including, without limitation, (i) the out-of-pocket costs and expenses incurred
in connection with the administration and interpretation of this Agreement and
the other Loan Documents, (ii) the costs and expenses of appraisals of the
Collateral, (iii) the costs and expenses of lien searches, and (iv) taxes, fees
and other charges of filing the Financing Statements and continuations and the
costs and expenses of taking other actions to perfect, protect, and continue the
Security Interest; (b) the preparation, execution and delivery of any waiver,
amendment, supplement or consent by the Agent or Lenders relating to this
Agreement or any of the Loan Documents; (c) sums paid or obligations incurred in
connection with the payment of any amount or taking any action required of a
Borrower under the Loan Documents that such Borrower fails to pay or take; (d)
costs of inspections and verifications of the Collateral, including, without
limitation, standard per diem fees, charged by the Agent or Lenders, travel,
lodging, and meals for inspections of the Collateral and the Borrowers
operations and books and records by the Agent's agents up to four times per year
and whenever an Event of Default exists; (e) costs and expenses of forwarding
loan proceeds, collecting checks and other items of payment, and establishing
and maintaining the Controlled Disbursement Account; (f) after the occurrence of
a Default, costs and expenses of preserving and protecting the Collateral; (g)
after the occurrence of
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a Default, consulting with and obtaining opinions and appraisals from one or
more Persons, including personal property appraisers, accountants and lawyers,
concerning the value of any Collateral for the Secured Obligations or related to
the nature, scope or value of any right or remedy of the Agent or the Lenders
hereunder or under any of the Loan Documents, including any review of factual
matters in connection therewith, which expenses shall include the fees and
disbursements of such Persons; and (h) costs and expenses paid or incurred to
obtain payment of the Secured Obligations, enforce the Security Interest, sell
or otherwise realize upon the Collateral and otherwise enforce the provisions of
the Loan Documents, or to prosecute or defend any claim in any way arising out
of, related to or connected with, this Agreement or any of the Loan Documents,
which expenses shall include the reasonable fees and disbursements of counsel
and of experts and other consultants retained by the Lender.
The foregoing shall not be construed to limit any other provisions of the
Loan Documents regarding costs and expenses to be paid by the Borrowers. The
Borrowers hereby authorize the Agent, upon ten (10) days' notice by the Agent to
the Borrowers, to debit the Borrowers' loan accounts (by increasing the
principal amount of the Revolving Loans) in the amount of any such costs and
expenses owed by the Borrowers when due.
1.90 Stamp and Other Taxes. The Borrowers will pay any and all stamp,
registration, recordation and similar taxes, fees or charges and shall indemnify
the Agent and the Lenders against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges, which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any of
the Loan Documents or the perfection of any rights or security interest
thereunder.
1.91 Setoff. In addition to any rights now or hereafter granted under
applicable law, and not by way of limitation of any such rights, upon and after
the occurrence of any Default or Event of Default, the Agent, Lenders, any
Affiliate of the Lenders and any participant with the Lenders in the Loans are
hereby authorized by the Borrowers at any time or from time to time, without
notice to the Borrowers or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, time or demand, including, but not limited to,
indebtedness evidenced by certificates of deposit, whether matured or unmatured)
and any other indebtedness at any time held or owing by the Lender, any
Affiliate of the Lender or any participant to or for the credit or the account
of Borrowers against and on account of the Secured Obligations irrespective or
whether or not (a) the Agent shall have made any demand under this Agreement or
any of the Loan Documents, or (b) the Agent shall have declared any or all of
the Secured Obligations to be due and payable as permitted by SECTION 11.2 and
although such Secured Obligations shall be contingent or unmatured.
1.92 Litigation. EACH OF THE LENDER AND EACH BORROWER HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
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ACTION MAY BE COMMENCED BY OR AGAINST SUCH BORROWER OR THE LENDER ARISING OUT OF
THIS AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY
OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN A BORROWER AND THE LENDER OF ANY KIND
OR NATURE. EACH BORROWER AND THE LENDER HEREBY AGREE THAT THE FEDERAL COURT OF
THE EASTERN DISTRICT OF LOUISIANA OR, AT THE OPTION OF THE LENDER, ANY COURT IN
WHICH THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH SITS IN A
JURISDICTION IN WHICH SUCH BORROWER TRANSACTS BUSINESS SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN SUCH BORROWER
AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN
DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. EACH BORROWER EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF
SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AND ITS COUNSEL AT THE RESPECTIVE
ADDRESSES SET FORTH IN SECTION 13.1.2, WHICH SERVICE SHALL BE DEEMED MADE UPON
RECEIPT THEREOF. THE NON-EXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION
SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN
ANY APPROPRIATE JURISDICTION.
1.93 Waiver of Rights. EACH BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER CHAPTER 14 OF TITLE
44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR PROVISION OF APPLICABLE
LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF
POSSESSION ENTITLING THE LENDER, ITS SUCCESSORS AND ASSIGNS TO POSSESSION OF THE
COLLATERAL UPON DEFAULT OR EVENT OF DEFAULT. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH THE LENDER MAY HAVE,
EACH BORROWER CONSENTS THAT, IF THE LENDER FILES A PETITION FOR AN IMMEDIATE
WRIT OF POSSESSION IN COMPLIANCE WITH SECTIONS 44-14-261 AND 44-14-262 OF THE
OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR PROVISION OF APPLICABLE LAW AND
THIS WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO,
THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND
PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION
IN ACCORDANCE WITH CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR IN
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ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW, WITHOUT THE NECESSITY
OF AN ACCOMPANYING BOND AS OTHERWISE REQUIRED BY SECTION 44-14-263 OF THE
OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR PROVISION OF
APPLICABLE LAW. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS READ AND FULLY
UNDERSTANDS THE TERMS OF THIS WAIVER AND THE EFFECT HEREOF.
1.94 Reversal of Payments. To the extent a Borrower makes a payment or
payments to the Agent or the Agent receives any payment or proceeds of the
Collateral for such Borrower's benefit, which payment(s) or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then, the Agent shall have the continuing and exclusive right to apply, reverse
and re-apply any and all payments to any portion of the Secured Obligations,
and, to the extent of such payment or proceeds received, the Secured Obligations
or part thereof intended to be satisfied shall be revived and continued in full
force and effect, as if such payment or proceeds had not been received by the
Agent.
1.95 Injunctive Relief. Each Borrower recognizes that, in the event a
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to the Lenders; therefore, such Borrower agrees that the Agent, at the
Agent's option, shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
1.96 Accounting Matters. All financial and accounting calculations,
measurements and computations made for any purpose relating to this Agreement,
including, without limitation, all computations utilized by a Borrower to
determine whether it is in compliance with any covenant contained herein, shall,
unless there is an express written direction or consent by the Agent to the
contrary, be performed in accordance with GAAP.
1.97 Assignment; Participation. All the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrowers may not assign or
transfer any of their respective rights under this Agreement. The Lenders may
assign to one or more Persons, or sell participations to one or more Persons in,
all or a portion of its rights and obligations hereunder and under the Note and,
in connection with any such assignment or sale of a participation, may assign
its rights and obligations under the Security Documents. The Lenders may, in
connection with any assignment or proposed assignment or sale or proposed sale
of a participation, disclose to the assignee or proposed assignee or participant
or proposed participant any information relating to a Borrower furnished to the
Lenders by or on behalf of such Borrower, PROVIDED, THAT, prior to any such
disclosure, each such assignee, proposed assignee, participant or proposed
participant shall agree with the Borrowers or the Lenders (which in the case of
an agreement with only the Lenders, the Borrowers shall be recognized as third
party beneficiaries thereof) to preserve the confidentiality of any confidential
information relating to the
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Borrowers received from the Lenders. Any assignment or sale of participation
interests by a Lender shall require the prior written approval of the Required
Lenders.
1.98 Amendments. Any term, covenant, agreement or condition of this
Agreement or any of the other Loan Documents may be amended or waived and any
departure therefrom may be consented to if, but only if, such amendment, waiver
or consent is in writing signed by the Agent at the direction of the Required
Lenders and, in the case of an amendment, by the Borrowers. Unless otherwise
specified in such waiver or consent, a waiver or consent given hereunder shall
be effective only in the specific instance and for the specific purpose for
which given. Any request for a waiver or consent by Agent hereunder shall be
made by Borrowers in writing together with a minimum payment to Agent of
$2,500.00 in addition to any fees due under SECTION 13.2 or otherwise. The
election of whether or not to waive or consent to any matter shall be in
Required Lenders' or Agent's sole discretion.
1.99 Performance of Borrowers' Duties. The Borrowers' obligations under
this Agreement and each of the Loan Documents shall be performed by the
Borrowers at their sole cost and expense. If a Borrower shall fail to do any act
or thing which it has covenanted to do under this Agreement or any of the Loan
Documents, the Agent may (but shall not be obligated to), upon ten (10) days'
notice by the Agent to the applicable Borrower, do the same or cause it to be
done either in the name of the Agent or in the name and on behalf of such
Borrower, and such Borrower hereby irrevocably authorizes the Agent so to act.
1.100 Indemnification. Each Borrower agrees to reimburse the Lenders for
all reasonable costs and expenses, including counsel fees and disbursements,
incurred and to indemnify and hold the Lender harmless from and against all
losses suffered by the Agent or Lenders, other than losses resulting from the
Agent's or Lender's gross negligence or willful misconduct, in connection with
(a) the exercise by the Agent or Lenders of any right or remedy granted to it
under this Agreement or any of the Loan Documents, (b) any claim, and the
prosecution or defense thereof, arising out of or in any way connected with this
Agreement or any of the Loan Documents, except in the case of a dispute between
such Borrower and the Agent and/or Lenders in which such Borrower prevails in a
final unappealed or unappealable judgment, and (c) the collection or enforcement
of the Secured Obligations or any of them.
1.101 All Powers Coupled with Interest. All powers of attorney and other
authorizations granted to the Agent, Lender and any Persons designated by the
Agent or Lenders pursuant to any provisions of this Agreement or any of the Loan
Documents shall be deemed coupled with an interest and shall be irrevocable so
long as any of the Secured Obligations remain unpaid or unsatisfied or the
Facilities have not been terminated.
1.102 Survival. Notwithstanding any termination of this Agreement, (a)
until all Secured Obligations have been paid in full and the Facilities
terminated, the Agent shall retain its Security Interest and shall retain all
rights under this Agreement and each of the Security Documents with
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respect to the Collateral as fully as though this Agreement had not been
terminated, and (b) the indemnities to which the Lender is entitled under the
provisions of this ARTICLE XIII and any other provision of this Agreement and
the other Loan Documents shall continue in full force and effect and shall
protect the Agent or Lenders against events arising after such termination as
well as before.
1.103 Severability of Provisions. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
1.104 Governing Law. This Agreement and the Note shall be construed in
accordance with and governed by the law of the State of Louisiana without giving
effect to those provisions of Louisiana law that may require another law to
apply.
1.105 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
1.106 Reproduction of Documents. This Agreement, each of the Loan Documents
and all documents relating thereto, including, without limitation, (a) consents,
waivers and modifications that may hereafter be executed, (b) documents received
by the Agent, and (c) financial statements, certificates and other information
previously or hereafter furnished to the Agent, may be reproduced by the Agent
by any photographic, photostatic, microcard, microfilm, miniature photographic
or other similar process, and the Agent may destroy any original document so
reproduced. Each party hereto stipulates that, to the extent permitted by
applicable laws any such reproduction shall be as admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original shall be in existence and whether or not such reproduction was made by
such Agent in the regular course of business), and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
ARTICLE XIV
NAME CHANGE
The parties hereto acknowledge that Aero and American Aero intend to change
their names to Aero Holdings, L.L.C. and Aero International, L.L.C.,
respectively. Upon any name change, the definition of Aero herein shall mean
and include the entity under its new name and the definition of American Aero
shall mean and include the entity under its new name. Borrowers, upon any name
change, shall execute any and all documents deemed necessary by Agent to assure
Borrowers' compliance with the terms and conditions of this Agreement or the
Loan Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized members in several counterparts all as of the
day and year first written above.
WITNESSES: BORROWERS:
________________________________ AERO INTERNATIONAL, L.L.C., A LOUISIANA
LIMITED LIABILITY COMPANY
By: /s/McGowin I. Patrick, Jr.
________________________________ _______________________________
Name: McGowin I. Patrick, Jr.
Title: President
WITNESS: AMERICAN AERO CRANES, L.L.C., A
LOUISIANA LIMITED LIABILITY COMPANY
________________________________
By: /s/ W. Steven McKenzie
_______________________________
Name: W. Steven McKenzie
Title: President
<PAGE>
WITNESS: AGENT:
________________________________ NATIONAL CANADA FINANCE CORP., A DELAWARE
CORPORATION
By: /s/
________________________________ _______________________________
Name:
Title:
WITNESS: LENDERS:
________________________________ NATIONAL CANADA FINANCE CORP., A DELAWARE
CORPORATION
By: /s/
________________________________ _______________________________
Name:
Title:
Date:
<PAGE>
LIST OF EXHIBITS
Exhibit 1.1.6 Additional Borrower Certificate
Exhibit 1.1.16 ASI Account Letter
Exhibit 1.1.20 Borrowing Base Certificate
Exhibit 1.1.39 Deed of Trust
Exhibit 1.1.96 Merger Letter Agreement
Exhibit 1.1.97 Mortgage
Exhibit 1.1.102 Note
Exhibit 1.1.115 Pledge Agreement
Exhibit 1.1.137 Security Agreement
Exhibit 2.2.5.1 Notice of Borrowing
Exhibit 4.1.12 Form CFO Certificate
Exhibit 8.3 Form Officer's Certificate
<PAGE>
LIST OF SCHEDULES
Schedule 1 Lenders
Schedule 4.1.2 Mobile Pulley Assets
Schedule 4.1.3 Preferred Offering
Schedule 5.1.1 Qualification in Foreign Jurisdiction
Schedule 5.1.2 Equity Interests/Subsidiaries
Schedule 5.1.5 Statement of Principal Business
Schedule 5.1.6 Violations of Laws/Governmental Approvals
Schedule 5.1.7 Exceptions to Title
Schedule 5.1.8 Liens
Schedule 5.1.9 Debt and Guaranties
Schedule 5.1.10 Litigation
Schedule 5.1.11 Tax Returns
Schedule 5.1.15 Benefit Plans
Schedule 5.1.20 Chief Executive Office
Schedule 5.1.22 Address of Real Estate
Schedule 5.1.23 Trade Names
Schedule 5.1.26 Labor Agreements
Schedule 5.1.27 Intellectual Property
Schedule 5.1.28 Bank Accounts
Schedule 6.4 Invoice Names
Schedule 9.2 Debt
Schedule 9.3 Guaranties
Schedule 9.6 Restricted Payments
Schedule 9.7 Merger
Schedule 9.11 Real Estate Leases
<PAGE>
SCHEDULE I
- ------------------------------------------------------------------------------
Lender's Name and Address Commitment
- ------------------------------------------------------------------------------
National Canada Finance Corp. $25,000,000
Atlanta Branch
200 Galleria Parkway, Suite 800
Atlanta, Georgia 30339
Attention: William L. Benning, Vice President
Facsimile: (770) 980-9531
- ------------------------------------------------------------------------------
Citizens Business Credit, a division of $15,000,000
Citizens Leasing Corporation
Citizens Bank Building
28 State Street
Boston, MA 02109
Attention: Daniel J. Landers, President
Facsimile: (617) 725-5827
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10(b)(ii)
April 27, 1999
Mr. McGowin I. Patrick, Jr.
President and Chief Operating Officer
AERO INTERNATIONAL, L.L.C.
300 St. Francis St.
Mobile AL 36602
RE: Loan Agreement (the "Loan Agreement") dated as of June 30, 1998,
by and among Aero International, L.L.C. ("Borrower"), National
Canada Finance Corp., as Agent Bank, and the Lenders named
therein (the "Banks")
Dear Mr. Patrick:
The Banks acknowledge that the execution, delivery and performance by
the Borrower of the Agreement and Plan of Share Exchanges (the "Share Exchange
Agreement") and the consummation of the transaction contemplated thereby without
the prior or simultaneous (i) payment of all Debts of all Wholly-Owned
Subsidiaries, (ii) grant of first priority lien on all Inventory and Receivables
of such Wholly-Owned Subsidiaries, or (iii) addition of such Wholly- Owned
Subsidiaries as Additional Borrowers shall not, separately or in the aggregate,
constitute material default under the Loan Agreement; PROVIDED, THAT, nothing
contained herein shall constitute a waiver of any defaults under the Loan
Agreement nor shall anything contained herein affect the rights of the Banks to
require the fulfillment of the conditions contained in clauses (i), (ii) and
(iii) above pursuant to Sections 11.2.1.2, 11.2.1.3 and 11.2.1.4 of the Loan
Agreement or otherwise subsequent to the closing of the transactions
contemplated by the Share Exchange Agreement. By its signature hereto, the
Borrower and by signature to any Certificate of Additional Borrower pursuant to
Section 4.3 or otherwise of the Loan Agreement, all Additional Borrowers, now or
in the future, agree that the Banks shall, after the closing, have and maintain
the rights to require the fulfillment of the conditions contained in clauses
(i), (ii) and (iii) above pursuant to Sections 11.2.1.2, 11.2.1.3 and 11.2.1.4
of the Loan Agreement and the failure to fulfill such conditions when so
required shall constitute an Event of Default under the Loan Agreement unless
otherwise agreed in writing.
To the extent the Banks' written approval is required for the Share
Exchange Agreement and the transactions contemplated thereby under Section
11.1.3 of the Loan Agreement, this letter shall constitute such written
approval.
The Guaranties and, unless and until the Banks require the fulfillment
of the conditions contained in Sections 11.2.1.2, 11.2.1.3 or 11.2.1.4 of the
Loan Agreement as set forth in the first paragraph of this letter, the Debt and
the Liens shown on the attached schedule shall be permitted under the Loan
Agreement.
<PAGE>
Mr. McGowin I. Patrick, Jr.
President and Chief Operating Officer
AERO INTERNATIONAL, L.L.C.
April 27, 1999
Page 2
This letter constitutes a Loan Document under the Loan Agreement.
CITIZENS BUSINESS CREDIT, a division NATIONAL CANADA FINANCE CORP.
of Citizens Leasing Corporation
By: /s/ By: /s/
-------------------------------- --------------------------------
Name: Name:
Title: Title:
ACKNOWLEDGED AND AGREED:
AERO INTERNATIONAL, L.L.C.
By: /s/
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10(c)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into this 18th day of September, 1997, by and among Weatherford Enterra U.S.,
Limited Partnership, a Louisiana limited partnership (the "Partnership"),
Weatherford U.S., Inc., a Delaware corporation ("Weatherford U.S." and, together
with the Partnership, the "Sellers"), and American Aero Cranes, L.L.C., a
Louisiana limited liability company (the "Buyer").
W I T N E S S E T H :
WHEREAS, Weatherford U.S. is the sole corporate general partner of the
Partnership;
WHEREAS, the Sellers desire to transfer to the Buyer the Business (as
hereinafter defined) and the properties, assets and liabilities related to the
Business, and the Buyer desires to acquire such Business, properties and assets
and assume such liabilities, all upon the terms and subject to the conditions
set forth herein; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and agreements, all as more fully set forth below;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Transferred Assets.
(a) Subject to the terms and conditions of this Agreement and in
consideration of the obligations of the Buyer as provided herein, and except as
otherwise provided in Section 1.2 hereof, at the Closing, the Sellers shall
sell, assign, transfer, grant, bargain, deliver and convey to the Buyer, free
and clear of all Liens, the Sellers' entire right, title and interest in, to and
under the Business, as a going concern, and all assets owned or used by the
Sellers in connection with or arising out of the Business of every type and
description, tangible and intangible, wherever located and whether or not
reflected on the books and records of the Sellers (all of such assets,
properties, rights and business being hereinafter sometimes collectively
referred to as the "Transferred Assets"), including, but not limited to,
(i) all Equipment, including the Equipment set forth in
Section 1.1(a)(i) of the Disclosure Schedule;
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<PAGE>
(ii) all Inventories, including the Inventories set forth in Section
1.1(a)(ii) of the Disclosure Schedule;
(iii) all trade and other accounts and notes receivable relating to
the Business (the "Accounts Receivable"), including the Accounts
Receivable set forth in Section 1.1(a)(iii) of the Disclosure Schedule;
(iv) all Real Property, including the Real Property set forth in
Section 1.1(a)(iv) of the Disclosure Schedule;
(v) the Leasehold Interests, including the Leasehold Interests set
forth in Section 1.1(a)(v) of the Disclosure Schedule;
(vi) all Proprietary Information, including the Proprietary
Information set forth in Section 1.1(a)(vi) of the Disclosure Schedule;
(vii) subject to Section 1.1(b) hereof, the benefit of all unfilled or
outstanding purchase orders, sales contracts, other commitments,
contracts and engagements to which the Sellers are entitled on the
Closing Date and that relate to the Business (the "Entitlements");
(viii) all prepaid expenses and deposits made by the Sellers relating
to the Business;
(ix) any goodwill associated with the Business; and
(x) all Contracts and Other Agreements and all Documents and Other
Papers.
(b) the Sellers shall use their best efforts to obtain such consents of
third parties as are necessary for the assignment of the Transferred Assets. To
the extent that any of the Transferred Assets are not assignable by the terms
thereof or for which consents to the assignment thereof cannot be obtained as
provided herein, the Transferred Assets shall be held by the Sellers in trust
for the Buyer and shall be performed by the Buyer in the name of the Sellers and
all benefits and obligations derived thereunder shall be for the account of the
Buyer; provided, however, that where entitlement of the Buyer to any of the
Transferred Assets that are not assignable by the terms thereof or for which
consents to the assignment thereof cannot be obtained as provided herein is not
recognized by any third party, the Sellers shall, at the request of the Buyer,
enforce in a reasonable manner, at the cost of the Sellers and for the account
of the Buyer, any and all rights of the Sellers against such third party.
(c) The Sellers shall notify each Person that may have possession of the
Transferred Assets at the Closing Date, whether by consignment or otherwise, of
the transfer of such Transferred Assets to the Buyer.
1.2 Excluded Assets. Anything in Section 1.1(a) hereof to the contrary
notwithstanding, there shall be excluded from the assets, properties, rights and
business
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<PAGE>
to be transferred to the Buyer hereunder all assets of the Sellers that do not
relate to the Business and those assets of the Sellers listed or described in
Section 1.2 of Disclosure Schedule (collectively, the "Excluded Assets").
1.3 Closing. Subject to the conditions set forth in this Agreement, the
Closing shall take place at the offices of Fulbright & Jaworski L.L.P., located
at such time, date and place as the parties hereto shall mutually agree upon in
writing (the "Closing Date"). Failure to consummate the transactions
contemplated hereby on such date shall not result in a termination of this
Agreement or relieve any party hereto of any obligation hereunder. Title to,
ownership of, control over and risk of loss of the Transferred Assets shall pass
to the Buyer at the Closing.
1.4 Purchase Price for the Assets.
(a) In consideration of the transfer to the Buyer of the Transferred
Assets, the Buyer shall (i) pay to the Sellers an amount in cash equal to the
Cash Purchase Price and (ii) assume (A) the payment obligations of the Sellers
with respect to all Trade Payables and Accrued Liabilities reflected on the
Final Balance Sheet, (B) the obligations of the Sellers under the express
written terms of the Entitlements to the extent and only to the extent such
obligations are not Pre-Closing Obligations, (C) any Damages suffered, incurred
or realized by the Sellers and their Affiliates arising from or relating to the
Non-Offered Employees not being offered employment by the Buyer and its
Affiliates and (D) all warranty obligations (other than Warranty Obligations)
with respect to the manufacture, sale or rental of products or the performance
of services in the conduct of the Business (collectively, the "Assumed
Liabilities"). The Cash Purchase Price and the Assumed Liabilities are herein
collectively referred to as the "Purchase Price".
(b) At the Closing, the Buyer shall deliver to the Sellers the Promissory
Note and an amount of cash (the "Closing Cash Payment") that, when added to the
Non-Adjusted Principal Amount, shall equal the Closing Purchase Price.
(c) The Non-Adjusted Principal Amount shall be:
(i) $812,500; plus
(ii) if there is an increase (the "Closing Inventories Increase") in
the Net Inventories from the Balance Sheet to the Closing Balance Sheet,
50% of the amount by which the Net Inventories on the Closing Balance
Sheet exceed the Net Inventories on the Balance Sheet; plus
(iii) if Accounts Payable on the Closing Balance Sheet exceed
$1,100,000, the amount by which Accounts Payable on the Closing Balance
Sheet exceed $1,100,000 (the "Closing Accounts Payable Difference"); plus
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<PAGE>
(iv) if a positive amount, 12.5% of (A) the Closing Purchase
Price minus (B) the sum of (1) $6,500,000, (2) the Closing Inventories
Increase and (3) the Closing Accounts Payable Difference; minus
(v) if a positive amount, 12.5% of (A) the sum of (1) $6,500,000,
(2) the Closing Inventories Increase and (3) the Closing Accounts
Payable Difference minus (B) the Closing Purchase Price.
(d) The Closing Cash Payment shall be the difference between the Closing
Purchase Price and the Non-Adjusted Principal Amount.
(e) The Closing Cash Payment shall be payable by wire transfer of same
day funds. The Promissory Note (i) shall be in a principal amount equal to the
Adjusted Principal Amount, (ii) shall bear interest at the fixed rate of 6.23%
per annum, (iii) shall be secured by a second lien position on the Transferred
Assets and (iv) shall be payable (A) in annual payments of accrued interest on
each of the first through fifth anniversaries of the Closing Date and (B) in
equal annual principal payments, with accrued interest thereon, on each of the
sixth through eighth anniversaries of the Closing Date.
(f) Capitalized terms used in this Section 1.4 and in Section 1.5 hereof
and not otherwise defined herein shall refer to such items as reflected on the
Balance Sheet, the Closing Balance Sheet or the Final Balance Sheet, as
applicable.
1.5 Purchase Price Adjustment.
(a) Within 30 calendar days after the Closing Date, the Sellers shall
prepare and deliver to the Buyer a statement reflecting the Final Cash Payment
and the Adjusted Principal Amount, the sum of which shall equal the Cash
Purchase Price, and the calculation thereof (the "Final Statement"), prepared on
a basis consistent with the Closing Balance Sheet; provided, however, that for
purposes of determining the Cash Purchase Price and the calculation thereof, (i)
"Accrued Liabilities" on the Closing Balance Sheet and the Final Balance Sheet
shall not include accrued general liabilities and auto insurance, accrued
warranty expense with respect to the Warranty Obligations, payroll deduction,
accrued sick pay, accrued bonuses, accrued audit fees, Taxes and accrued Taxes,
(ii) the amount of the allowance for doubtful accounts deducted from accounts
receivable set forth on the Final Balance Sheet shall be determined on a basis
consistent with the Closing Balance Sheet, (iii) the amount of the allowance for
obsolete, damaged, missing, excess or slow-moving inventories deducted from
inventories set forth on the Final Balance Sheet shall be $415,000, (iv) the
amount of the accrual for Company-provided employee medical and dental expenses,
to the extent such expenses are within the Company's deductible, set forth on
the Final Balance Sheet shall be $35,000, (v) the amount of the accrual for
expressed or implied warranty obligations, including, when applicable, handling,
transportation and installation costs, set forth on the Final Balance Sheet
shall be $43,740 and (vi) the amount of the accrual for penalties related to
failure to meet committed delivery dates for crane units set forth on the Final
Balance Sheet shall be $397,350. The Buyer shall provide the Sellers reasonable
access to the books and records pertaining to the
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Business to enable them to prepare the Final Statement. The Sellers shall
provide the Buyer access to copies of all work papers and other relevant
documents to verify the entries contained in the Final Statement. The Buyer
shall have a period of 30 calendar days after delivery to them of the Final
Statement (the "Response Period") to review it and make any objections the Buyer
may have in writing to the Sellers. If written objections to the Final Statement
are delivered to the Sellers within the Response Period, then the Buyer and the
Sellers shall attempt to resolve the matter or matters in dispute. If no written
objections are made within the Response Period, the Final Cash Payment and the
Adjusted Principal Amount shall be compared to the Closing Cash Payment and the
Non-Adjusted Principal Amount and adjustments will be made according to Section
1.5(e) and Section 1.5(f) hereof.
(b) The Cash Purchase Price shall be an amount equal to $6,500,000 (i)
plus, if applicable, the amount by which the Book Value from the Final Balance
Sheet exceeds $10,541,600, or (ii) minus, if applicable, the amount by which
$10,541,600 exceeds the Book Value from the Final Balance Sheet.
(c) The Adjusted Principal Amount shall be:
(i) $812,500; plus
(ii) if there is an increase (the "Final Inventories Increase") in
the Net Inventories from the Balance Sheet to the Final Balance Sheet,
50% of the amount by which the Net Inventories on the Final Balance
Sheet exceed the Net Inventories on the Balance Sheet; plus
(iii) if Accounts Payable on the Final Balance Sheet exceed
$1,100,000, the amount by which Accounts Payable on the Final Balance
Sheet exceed $1,100,000 (the "Final Accounts Payable Difference"); plus
(iv) if a positive amount, an amount (the "Designated Amount") equal
to 12.5% of (A) the Cash Purchase Price minus (B) the sum of (1)
$6,500,000, (2) the Final Inventories Increase and (3) the Final
Accounts Payable Difference (the Designated Amount, when added to the
Final Inventories Increase and the Final Accounts Payable Difference,
referred to as the "Positive Adjustment Amount"); minus
(v) if a positive amount, an amount (the "Negative Adjustment
Amount") equal to 12.5% of (A) the sum of (1) $6,500,000, (2) the Final
Inventories Increase and (3) the Final Accounts Payable Difference minus
(B) the Cash Purchase Price.
(d) The Final Cash Payment shall be the difference between the Cash
Purchase Price and the Adjusted Principal Amount.
(e) If the Final Cash Payment is greater than the Closing Cash Payment,
the Buyer shall pay to the Sellers the difference between such amounts. If
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the Final Cash Payment is less than the Closing Cash Payment, the Sellers shall
pay to the Buyer the difference between such amounts.
(f) The Promissory Note shall provide an automatic retroactive
adjustment of the principal amount thereof in accordance with Section 1.5(c)
hereof.
(g) Subject to Section 1.5(h) hereof, within five calendar days after
the end of the Response Period, any cash payment required pursuant to Section
1.5(e) hereof shall be made by wire transfer.
(h) If disputes with respect to the Final Statement cannot be resolved
by the Buyer and the Sellers within 15 calendar days after the delivery of the
objections to the Final Statement, then the specific matters in dispute shall be
submitted to Arthur Andersen LLP or such other independent accounting firm as
may be approved by the Buyer and the Sellers, which firm shall render its
opinion as to such matters. Based on such opinion, such independent accounting
firm will then send to the Buyer and the Sellers its determination on the
specific matters in dispute, which determination shall be final and binding on
the parties hereto. Within five calendar days after delivery of such opinion to
the Buyer and the Sellers, the cash payment shall be made, as set forth in
Section 1.5(e) hereof. Each of the Buyer, on the one hand, and the Sellers, on
the other hand, shall bear one-half of the fees and other costs charged by such
independent accounting firm.
1.6 Liabilities Not Assumed by the Buyer. Except for the Assumed
Liabilities, the Sellers shall pay and discharge in due course all of their
liabilities, debts and obligations relating to the Transferred Assets or the
Business, whether known or unknown, now existing or hereafter arising,
contingent or liquidated, including, without limitation, any Tax liabilities of
the Sellers pertaining to the Transferred Assets or the Business for periods
prior to the Closing Date, any Debt Obligations and the liabilities and
obligations set forth in clauses (a) through (e) below (collectively, the
"Related Liabilities"), and the Buyer shall not assume, or in any way be liable
or responsible for, any of such Retained Liabilities. Without limiting the
generality of the foregoing, the Retained Liabilities shall include the
following:
(a) any liability or obligation of the Sellers arising out of or in
connection with the negotiation and preparation of this Agreement and the
consummation and performance of the transactions contemplated hereby, whether or
not such transactions are consummated;
(b) any liability or obligation for any and all Taxes of, or pertaining
or attributable to, (i) the Sellers for any period that ends on or before the
Closing Date, or (ii) the Business or the Transferred Assets for any period or
portion thereof that ends on or before the Closing Date;
(c) any liability (other than with respect to the Assumed Liabilities)
to which any of the parties may become subject as a result of the fact that the
transactions contemplated by this Agreement are being effected without
compliance with the bulk
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sale provisions of the Uniform Commercial Code as in effect in any state or any
similar statute as enacted in any jurisdiction;
(d) any liability or obligation of the Sellers arising out of or in
connection with the Sellers' obligations under Section 1.1(b) hereof; and
(e) all other liabilities and obligations, direct, indirect, contingent
or liquidated, not reflected on the Final Balance Sheet or arising prior to the
Closing and related to the conduct or operation of the Transferred Assets or the
Business on or prior to the Closing Date, including, but not limited to, the
Pre-Closing Obligations.
1.7 Prorations of Expenses and Certain Property Taxes.
(a) The Sellers warrant that the Transferred Assets are not, and on the
Closing Date will not be, subject to or liable for any special assessments or
similar types of impositions. Any general property Tax assessed against or
pertaining to the Transferred Assets for the taxable period that includes the
Closing Date shall be prorated between the Buyer and the Sellers as of the
Closing Date, to the Buyer's satisfaction. In the event that amount of any such
general property Tax cannot be ascertained as of the Closing Date, proration
shall be made on the basis of the preceding year, the Buyer shall receive a
credit against the Cash Purchase Price on the Closing Date for the Sellers' pro
rata portion of such general property Taxes, and to the extent that such
proration may be inaccurate the Sellers, on the one hand, and the Buyer, on the
other hand, agree to make such payment to the other after the tax statements
have been received as is necessary to allocate such general property Tax
properly between the Sellers, on the one hand, and the Buyer, on the other hand,
as of the Closing Date.
(b) Except as otherwise provided in this Agreement, the Sellers and the
Buyer agree that amounts payable with respect to utility charges and other items
of expense attributable to the conduct of the Business shall be prorated as of
the Closing Date to the extent the charges and expenses cannot be identified as
to the party that received the benefits to which such charges and expenses
relate. To the extent such amounts are estimated on the Closing Date and such
prorations are inaccurate, the Sellers, on the one hand, and the Buyer, on the
other hand, agree to make such payment to the other after such amounts are
correctly computed as is necessary to allocate such charges properly between the
Sellers, on the one hand, and the Buyer, on the other hand, as of the Closing
Date.
1.8 Transfer Taxes and Recording Fees.
(a) Notwithstanding any provision of law imposing the burden of Transfer
Taxes (as hereinafter defined) on the Sellers or the Buyer, as the case may be,
any sales, use and other transfer Taxes imposed in connection with the
consummation of the transactions contemplated by this Agreement, other than
value-added taxes that will be reimbursed to Buyer (collectively, "Transfer
Taxes"), shall be borne equally by the Buyer, on the one hand, and the Sellers,
on the other hand. The Sellers and the Buyer agree to cooperate in good faith
with each other, and to use their commercially
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reasonable efforts, to minimize Transfer Taxes. Without limiting the generality
of the preceding sentence, (i) the appropriate party hereto shall promptly and
properly complete, execute and deliver to the other party resale, exemption
and/or similar certificates or other documentation necessary or appropriate
under any applicable law to claim and/or evidence that all or any portion of the
sale or transfer of the Transferred Assets under this Agreement is exempt from
or otherwise not subject to Transfer Taxes imposed under such applicable law and
(ii) each of the parties hereto shall consult and cooperate in good faith with
each other on a timely basis to effectively handle and contest any audit,
examination, investigation or administrative, court or other proceeding relating
to Transfer Taxes.
(b) The Buyer shall pay any and all recording, filing or other fees
relating to the conveyance or transfer of the Transferred Assets from the
Sellers to the Buyer.
(c) The Buyer shall deliver to the Sellers on the Closing Date a
certificate certifying that the Inventories are being purchased for resale to
the extent stated therein.
(d) If a party hereto shall fail to pay on a timely basis any amount for
which such party is responsible under this Section 18, the other party may pay
such amount to the appropriate Governmental Entity or Governmental Entities or
other appropriate third party or parties, and the party responsible for payment
of such amount shall promptly reimburse the other party for such amount so paid.
(e) The respective rights and obligations of the parties hereto under
the Section 1.8 shall survive the Closing without limitation.
1.9 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Transferred Assets by the Buyer and the Sellers within 60 days
following the Closing Date subject to the following:
(a) such allocation of the Purchase Price will be reflected in Form 8594
that will be filed by the Buyer and the Sellers in accordance with Section 1060
of the Code, with such adjustments as may be necessary pursuant to Section 1.5
hereof; and
(b) the Buyer and the Sellers agree to treat and report in filings under
the Code (and, if necessary, to cause each of their respective Affiliates to so
treat and report) the transactions contemplated by this Agreement in a manner
consistent with one another.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise set forth in the Disclosure Schedule, the Sellers
jointly and severally represent and warrant to the Buyer as follows:
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2.1 Corporate Matters.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Louisiana. The
Partnership has partnership power and authority under all applicable laws,
ordinances and orders of public authorities to own, operate and lease its
properties and assets and to carry on its business in the manner currently
conducted in each jurisdiction in which it so conducts the Business. The
Partnership has all requisite partnership power and authority to enter into this
Agreement and to perform its obligations under this Agreement. Weatherford U.S.
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Weatherford U.S. has corporate power and
authority under all applicable laws, ordinances and orders of public authorities
to own, operate and lease its properties and assets, to carry on its business in
the manner currently conducted and to act as a general partner of the
Partnership, and it is qualified to do business as a foreign corporation in each
jurisdiction in which it conducts the Business as general partner of the
Partnership, except where the failure to be so qualified would not have a
Material Adverse Effect. Weatherford U.S. has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations under this
Agreement.
(b) True, correct and complete copies of the Articles of Partnership in
Commendam of the Partnership and the Certificate of Incorporation and Bylaws of
Weatherford U.S. have been provided by the Sellers to the Buyer, and such
Articles of Partnership in Commendam, Certificate of Incorporation and Bylaws
are in full force and effect.
(c) Set forth in Section 2.1(c) of the Disclosure Schedule is a list of
assumed names under which the Partnership operates the Business.
2.2 Validity of Agreement and Conflict with Other Instruments.
(a) This Agreement, and all transactions contemplated hereby, have been
duly authorized and approved by all necessary partnership action on the part of
the Partnership and all necessary corporate action on the part of Weatherford
U.S. No further partnership action is necessary on the part of the Partnership
and no further corporate action is necessary on the part of Weatherford U.S. to
execute and deliver this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Sellers and is a legal, valid and binding obligation of the Sellers enforceable
against the Sellers in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect that affect creditors' rights generally
and by legal and equitable limitations on the availability of specific remedies.
(b) The execution, delivery and performance of this Agreement and the
other agreements and documents to be delivered by the Sellers to the Buyer, the
consummation of the transactions contemplated hereby or thereby and the
compliance
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with the provisions hereof or thereof by the Sellers will not, with or without
the passage of time or the giving of notice or both:
(i) conflict with, constitute a breach, violation or termination of
any provision of, or give rise to any right of termination, cancellation
or acceleration, or loss of any right or benefit or both, under, any of
the Contracts and Other Agreements,
(ii) conflict with or violate the Articles of Partnership in
Commendam of the Partnership, or the Certificate of Incorporation or
Bylaws of Weatherford U.S.,
(iii) result in the creation or imposition of any Lien on any of the
Transferred Assets, or
(iv) violate any law, statute, ordinance, regulation, judgment,
writ, injunction, rule, decree, order or any other restriction of any
kind or character applicable to the Sellers or any of their properties
or assets,
other than conflicts, breaches, violations, terminations or conflicts that would
not materially and adversely affect the Business or the ability of the Sellers
to consummate the transactions provided for in this Agreement.
2.3 Approvals, Licenses and Authorizations.
(a) No order, license, consent, waiver, authorization or approval of, or
exemption by, or the giving of notice to, or the registration with, or the
taking of any other action in respect of, any Person not a party to this
Agreement, including any Governmental Entity, and no filing, recording,
publication or registration in any public office or any other place is now, or
under existing law in the future will be, necessary on behalf of the Sellers to
authorize the execution, delivery and performance of this Agreement by the
Sellers or any other agreement contemplated hereby to be executed and delivered
by the Sellers and the consummation of the transactions contemplated hereby or
thereby (including, but not limited to, assignment of the Transferred Assets),
or to effect the legality, validity, binding effect or enforceability thereof.
(b) All material licenses, permits, concessions, warrants, franchises
and other governmental authorizations and approvals of all Governmental Entities
required or necessary for the Sellers to carry on the Business in the places and
in the manner currently conducted have been duly obtained and are in full force
and effect. No material violations are in existence or have been recorded with
respect to such licenses, permits or other authorizations and no proceeding is
pending or, to the best knowledge of the Sellers, threatened with respect to the
revocation or limitation of any of such licenses, permits or other
authorizations.
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2.4 Title to Properties.
(a) Either the Partnership or Weatherford U.S. owns each parcel of Real
Property, free and clear of any Liens, other than Permitted Liens.
(b) Either the Partnership or Weatherford U.S. is the lessee or has
succeeded to the rights of the lessee under all of the Leasehold Interests and
owns the Leasehold Interests free and clear of all Liens, except for Permitted
Liens. Each lease agreement evidencing a Leasehold Interest is in full force and
effect and affords the Sellers possession, subject to the provisions of the
lease agreement, of the subject matter of the lease agreement. The Sellers are
not in material default under the terms of any such lease agreement.
(c) All Equipment (excluding Equipment that did not have a gross book
value of $1,000 or more at their respective dates of acquisition by the
Partnership or Weatherford U.S.) as of August 31, 1997 is set forth in Section
1.1(a)(i) of the Disclosure Schedule. Either the Partnership or Weatherford U.S.
owns all Equipment free and clear of all Liens, except for Permitted Liens.
(d) All Inventories at August 31, 1997 are set forth in Section
1.1(a)(ii) of the Disclosure Schedule. Either the Partnership or Weatherford
U.S. owns all Inventories free and clear of all Liens, except for Permitted
Liens.
(e) The Accounts Receivable are owned by the Partnership free and clear
of all Liens. All of the Accounts Receivable, whether or not reflected in the
financial statements of the Sellers, represent transactions in the ordinary
course of business and are valid obligations arising from sales actually made or
services actually performed by the Sellers.
(f) Either the Partnership or Weatherford U.S. owns or possesses
licenses or other rights to use all rights to all Proprietary Rights necessary
for the conduct of the Business as currently conducted. On the Closing Date, the
Sellers will transfer or cause to be transferred all Proprietary Rights
necessary for the conduct of the Business as currently conducted. Set forth in
Section 1.1(a)(vi) of the Disclosure Schedule is a complete and accurate list of
all patents, trademarks and licenses pertaining to the Business that the Sellers
own or possess or otherwise have rights to use and all patents, trademarks and
licenses pertaining to the Business that the Sellers own or possess or otherwise
have rights to use. No licenses, sublicenses, covenants or agreements have been
granted or entered into by the Sellers in respect of the items listed in Section
1.1(a)(vi) of the Disclosure Schedule except as noted thereon. The Sellers have
not received any notice of infringement, misappropriation or conflict from any
other Person with respect to such Proprietary Rights and, to the Sellers'
knowledge, the conduct of the Business has not infringed, misappropriated or
otherwise conflicted with any Proprietary Rights of any such Person. All of the
Proprietary Rights that are owned by the Sellers are owned free and clear of all
Liens and all such Proprietary Rights will be transferred to the Buyer free and
clear of all Liens. All Proprietary Rights that are licensed by the Sellers from
third parties are licensed pursuant to valid and existing license agreements and
such interests are not subject to
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any Liens other than those under the applicable license agreements. The
consummation of the transactions contemplated by this Agreement will not result
in the loss of any Proprietary Rights and will not conflict with, constitute a
breach, violation or termination of, any agreement or understanding, whether
written or otherwise, relating to any Proprietary Rights necessary for the
conduct of the Business as currently conducted.
2.5 Contracts and Commitments.
(a) None of the Transferred Assets is subject to, and, except for the
Retained Liabilities, neither of the Sellers is a party to or bound by (in each
case, pertaining to the Business):
(i) any agreement, contract or commitment requiring the expenditure
or series of related expenditures of funds in excess of $25,000 (other
than purchase orders in the ordinary course of business for goods
necessary for the Partnership to complete then existing contracts or
purchase orders);
(ii) any loan or advance to, or investment in, any Person or any
agreement, contract, commitment or understanding relating to the making
of any such loan, advance or investment;
(iii) any Debt Obligations;
(iv) any management service, employment, consulting or other similar
type contract or agreement;
(v) any sales, distributorship or similar agreement relating to the
products sold or services provided by the Partnership;
(vi) any license, royalty or similar agreement; or
(vii) any agreement, contract or commitment relating to the sale,
design, manufacture or provision of products or services containing covenants
purporting to limit the line of business or geographic area in which the
Business may be conducted.
(b) The Sellers are not in breach of any provision of, or in default
(nor do the Sellers have knowledge of any event or circumstance that with
notice, or lapse of time or both, would constitute an event of default) under
the terms of any of the Contracts and Other Agreements that constitute a part of
the Transferred Assets, except for breaches or defaults that would not have a
Material Adverse Effect. All of the Contracts and Other Agreements are in full
force and effect. The Sellers are not aware of any pending or threatened
disputes with respect to any of the Contracts and Other Agreements.
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(c) The enforceability of the Contracts and Other Agreements will not be
affected in any manner by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.6 No Litigation. There is no action, suit, claim, investigation or legal,
administrative, arbitration or other proceeding, or governmental investigation
or examination, or any change in any zoning or building ordinance pending or, to
the knowledge of the Sellers, threatened against or affecting the Business or
any of the Transferred Assets, at law or in equity, before or by any
Governmental Entity or that would challenge or have the effect of preventing or
delaying the transactions contemplated by this Agreement.
2.7 No Adverse Changes or Events. Since December 31, 1996, the Business has
been consistently operated only in the ordinary course, and there has not been:
(a) any adverse change in the financial condition, assets, liabilities
(contingent or otherwise) or results of operations of the Business except for
such changes that in the aggregate have not had a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the Transferred Assets or the
Business;
(c) any increase in the compensation or rate of compensation or
commissions or bonuses payable or to become payable by the Partnership to any
employee of the Partnership who is employed in connection with the Business that
is not consistent with past practice, any payment or accrual of, or commitment
with respect to, any bonus plan or severance arrangement that is not consistent
with past practice or any change or modification to any severance arrangement;
(d) any sale, assignment, transfer or other disposition or lapse of any
Proprietary Rights;
(e) any sale, transfer or other disposition of any properties or assets,
real, personal or mixed, tangible or intangible, material to the Business (other
than sales of Inventory in the ordinary course of business); or
(f) any change in the Sellers' method of accounting for financial, Tax
or other purposes.
2.8 Environmental Matters. The sole representations of the Sellers with
respect to environmental matters are set forth in this Section 2.8. To the
extent representations in other sections of this Agreement also could apply to
environmental matters, including, but not limited to, matters related to,
arising under or concerning Environmental Laws, such representations shall be
construed to exclude all environmental matters and to apply to matters other
than environmental matters.
(a) Except as would not have a Material Adverse Effect, neither of the
Sellers nor, to the knowledge of the Sellers, any prior owner or operator of the
Business
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or the Transferred Assets has caused or allowed the generation, use, treatment,
storage or disposal of Hazardous Materials at any site or facility owned, leased
or operated by the Sellers and used in the Business except in accordance with
all applicable Environmental Laws.
(b) Except as would not have a Material Adverse Effect, the Sellers do
not own or lease any real property, improvements or related assets that form a
part of the Transferred Assets or the Business from or upon which there have
been any disposals or releases of Hazardous Materials.
(c) Except as would not have a Material Adverse Effect, the Sellers have
secured all Environmental Permits necessary to the conduct of the Business and
the Sellers are in compliance with such permits.
(d) To the knowledge of the Sellers, there are no proceedings, claims or
lawsuits related to or arising under any Environmental Law and related to the
Business or the Transferred Assets.
(e) The Sellers are not currently operating or required to be operating
the Business under any compliance order, schedule, decree or agreement, any
consent decree, order or agreement, or corrective action decree, order or
agreement issued or entered into under any Environmental Law.
(f) The Sellers have made available, or will make available, to the
Buyer true and complete copies of any environmental reports, surveys, studies or
audits of the Real Property and Leasehold Interests in the possession of the
Sellers.
2.9 Condition of Assets. Except as expressly provided herein, the Inventory,
personal property and Equipment included in the Transferred Assets are being
sold, transferred and conveyed on an "AS IS, WHERE IS" condition, and the
Sellers make NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THEIR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR AS TO THEIR CONDITION.
2.10 Warranties and Product Liability. Except for (i) warranties implied by
law and (ii) warranties disclosed in Section 2.10 of the Disclosure Schedule,
the Partnership has not given or made any warranties in connection with the sale
or rental of goods or services pertaining to the Business on or prior to the
Closing Date, including, without limitation, warranties covering the customer's
consequential damages.
2.11 Finder's Fees. Except for fees payable by the Sellers to Merrill Lynch
& Co. and Simmons & Company International, neither the Sellers nor any Affiliate
of the Sellers has employed or retained any investment banker, broker, agent,
finder or other party, or incurred any obligation for brokerage fees, finder's
fees or commissions, with respect to the sale by the Sellers of any of the
Transferred Assets or with respect to the transactions contemplated by this
Agreement, or otherwise dealt with anyone purporting to act in the capacity of a
finder or broker with respect thereto whereby any
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party hereto may be obligated to pay such a fee or commission. The Sellers agree
to indemnify and hold the Buyer and its Affiliates harmless from and against any
and all claims, liabilities or obligations with respect to all fees, commissions
or expenses asserted to any Person on the basis of any act, statement, agreement
or commitment alleged to have been made by the Sellers or any Affiliate of the
Sellers with respect to any such fee, commission or expense.
2.12 Taxes. Except in each case where the failure to do any such thing would
not have a Material Adverse Effect, the Sellers have filed all federal, state,
local and foreign Tax and information returns applicable to the Business
required to be filed, have paid all Taxes applicable to the Business required to
be paid in respect of all periods for which returns have been filed, have
established an adequate accrual or reserve for the payment of all Taxes
applicable to the Business payable in respect of the period subsequent to the
periods covered by the most recent applicable Tax returns, have made all
necessary estimated Tax payments and have no liability for Taxes applicable to
the Business in excess of the amount so paid or accruals or reserves so
established in the applicable financial statements of the Sellers. The Sellers
are not delinquent in the payment of any Tax or in the filing of any Tax returns
applicable to the Business, and no deficiencies for any Tax applicable to the
Business have been claimed or assessed or, to the knowledge of the Sellers,
threatened or proposed, that have not been settled or paid. To the Sellers'
knowledge, no Tax returns of the Sellers applicable to the Business are
currently being audited.
2.13 Compliance with Laws. To the knowledge of the Sellers, the Sellers have
complied in all material respects with all applicable laws, ordinances and
regulations and all orders, writs, injunctions, awards, judgments and decrees,
applicable to the Business the violation of which would have Material Adverse
Effect, including, without limitation: (a) applicable federal, state and local
laws, ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing, ownership
or management of the Sellers' owned, leased or licensed real or personal
property, products and technical data that constitute Transferred Assets, (ii)
employment and employment practices, terms and conditions of employment, and
wages and hours relating to the Business, and (iii) safety, health, fire
prevention, building standards and zoning relating to the Transferred Assets or
the Business, (b) the Export Administration Act and regulations promulgated
thereunder and all other laws, regulations, orders, writs, injunctions,
judgments and decrees applicable to the export or re-export of controlled
commodities or technical data controlled under the Export Administration Act
insofar as such Act would pertain to the Business, (c) the Immigration Reform
and Control Act and (d) the Foreign Corrupt Practices Act.
2.14 Employees.
(a) Section 2.14(a) of the Disclosure Schedule sets forth as of the
date of this Agreement a list of all employment contracts and material
consulting agreements currently in effect between the Sellers and any employee
who is primarily engaged in the Business that is not terminable at will,
including agreements with the sole purpose of providing for the confidentiality
of proprietary information or assignment of inventions.
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(b) The Sellers (i) to their knowledge, have not within the past five
years and are not now subject to a union organizing effort regarding the
Business, (ii) are not subject to any collective bargaining agreement with
respect to any of their employees engaged in the Business, (iii) are not subject
to any other contract, written or oral, with any trade or labor union,
employees' association or similar organization regarding the Business and (iv)
are not engaged in any material labor dispute regarding the Business.
(c) Section 2.14(c) of the Disclosure Schedule sets forth a list of all
pension, retirement, disability, medical, dental or other health plans, life
insurance or other death benefit plans, profit sharing, deferred compensation
agreements, stock, option, bonus or other incentive plans, vacation, sick,
holiday or other paid leave plans, severance plans or other similar employee
benefits plans maintained by the Sellers for employees engaged in the Business,
including, without limitation, all "employee benefit plans" as defined in
Section 3(3) of ERISA.
(d) Section 2.14(d) of the Disclosure Schedule sets forth as of the
date of this Agreement a list of all employees engaged in the Business. Section
2.14(d) of the Disclosure Schedule also sets forth the following information
with regarding to each such employee: (i) rate of compensation, (ii) most recent
bonus schedule and (iii) all other forms of compensation (including commissions)
paid to such employees in the past 12 months.
(e) Except as accrued on the Balance Sheet, the Sellers have paid all
amounts that as of December 31, 1996 were due and payable to or on account of
the employees engaged in the Business (including, without limitation, wages,
overtime pay, salaries, bonuses, commissions, vacation pay, sick pay and holiday
pay).
2.15 Insurance. All policies of insurance in force relating to the Business
or the Transferred Assets are described in Section 2.15 of the Disclosure
Schedule.
2.16 Financial Statements. The unaudited balance sheets and the unaudited
statements of income at and for the years ended December 31, 1996 and 1995 (the
"Annual Financial Statements") and the unaudited balance sheet and the unaudited
statement of income of the Business at and for the eight month period ended
August 31, 1997 (the "Stub-Period Financial Statements" and, together with the
Annual Financial Statements, the "Financial Statements") set forth in Section
2.16 of the Disclosure Schedule were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered by the Financial Statements, except for the exclusion of notes
thereto. The carrying values of the assets and liabilities stated in the
Financial Statements have been incorporated into the corresponding consolidated
financial statements of Weatherford Enterra, Inc. and its subsidiaries, which
were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered by the Financial
Statements, except, in the case of the Stub-Period Financial Statements, for the
exclusion of notes thereto. The Balance Sheet and the Closing Balance Sheet were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered thereby, except for the
exclusion of
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notes thereto and the exclusion of certain accounts on the Closing Balance
Sheet. The Closing Balance Sheet has not been rendered untrue as representations
of the financial condition of the Business at August 31, 1997 by events
subsequent to such date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows:
3.1 Corporate Matters. The Buyer is a limited liability company duly
incorporated, validly existing and in good standing under the laws of the State
of Louisiana. The Buyer has all requisite corporate power and authority to enter
into this Agreement and to perform its obligations under this Agreement. This
Agreement, and all transactions contemplated hereby, have been duly authorized
and approved by all necessary corporate action on the part of the Buyer. No
further corporate action is necessary on the part of the Buyer to execute and
deliver this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Buyer and is a legal,
valid and binding obligation of the Buyer, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect that affect creditors' rights generally and by legal and
equitable limitations on the availability of specific remedies. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, and the compliance with the provisions hereof,
by the Buyer will not violate any provision of, or constitute a default under,
any contract or other agreement to which the Buyer is a party or by which it is
bound, or conflict with its Articles of Organization and Operating Agreement,
other than violations, defaults or conflicts that would not materially and
adversely affect the ability of the Buyer to consummate the transactions
provided for in this Agreement.
3.2 Approvals and Authorizations. No order, license, consent, waiver,
authorization or approval of, or exemption by, or the giving of notice to, or
the registration with, or the taking of any other action in respect of, any
Person not a party to this Agreement, including any Governmental Entity, and no
filing, recording, publication or registration in any public office or any other
place is now, or under existing law in the future will be, necessary on behalf
of the Buyer to authorize its execution, delivery and performance of this
Agreement or any other agreement contemplated hereby to be executed and
delivered by the Buyer and the consummation of the transactions contemplated
hereby or thereby (including, but not limited to, assignment of the Transferred
Assets), or to effect the legality, validity, binding effect or enforceability
thereof.
3.3 Finder's Fees. Except for fees payable by the Buyer to IP Capital
Corporation, neither the Buyer nor any Affiliate of the Buyer has employed or
retained any investment banker, broker, agent, finder or other party, or
incurred any obligation for brokerage fees, finder's fees or commissions, with
respect to the transactions
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contemplated by this Agreement, or otherwise dealt with anyone purporting to act
in the capacity of a finder or broker with respect thereto whereby any party
hereto may be obligated to pay such a fee or a commission. The Buyer agrees to
indemnify and hold the Sellers and their Affiliates harmless from and against
any and all claims, liabilities or obligations with respect to all fees,
commissions or expenses asserted by any Person on the basis of any act,
statement, agreement or commitment alleged to have been made by the Buyer or any
Affiliate of the Buyer with respect to any such fee, commission or expense.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Delivery of Corporate Documents; Record Retention.
(a) The Sellers shall deliver to the Buyer all Documents and Other
Papers relating to the Transferred Assets, the Assumed Liabilities and the
current and proposed operations of the Business. The Sellers shall deliver to
the Buyer the historical books and records in the possession of the Sellers and
their Affiliates relating to the Business for the five year period ending on the
Closing Date.
(b) In the event and for so long as any party is contesting or defending
against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand asserted by a third party (including any Governmental
Entity) in connection with (i) any transaction contemplated by this Agreement or
(ii) any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act or transaction on or
prior to the Closing Date involving the Business or the Transferred Assets, each
of the other parties will to the extent reasonably practicable cooperate with
the contesting or defending party and its counsel in the contest or defense, and
provide such testimony and access to its books and records as shall be necessary
in connection with the contest or defense, all at the sole cost and expense of
the contesting or defending party (except to the extent the contesting or
defending party is entitled to indemnification therefor under Article 7 hereof);
provided, however, that nothing herein requires any party to retain any books
and records other than in the ordinary course of business; provided further, any
party hereto, before destroying any historical books and records that relate in
whole or in part to the Business or the Transferred Assets, shall give each such
other party reasonable notice of its intention to destroy such books and records
and an opportunity to make copies thereof at the sole expense of the party
destroying such copies. In addition, the Buyer agrees to provide the Sellers and
any Affiliate of the Sellers with reasonable access to any Documents and Other
Papers and any books and records delivered to the Buyer by the Sellers pursuant
to Section 4.1(a) hereof, as may be necessary for the preparation of any Tax
returns or financial statements or as may be necessary for any other legitimate
business purpose. Notwithstanding the foregoing, information as to which the
contesting or defending party may reasonably assert would waive a privilege need
not be disclosed.
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4.2 Further Assurances. The Sellers shall execute, acknowledge and deliver
or cause to be executed, acknowledged and delivered to the Buyer such bills of
sale, assignments (including, but not limited to, assignments of leases) and
other instruments of transfer, assignment and conveyance, in form and substance
satisfactory to counsel for the Buyer, as shall be necessary to vest in the
Buyer all the right, title and interest in and to the Transferred Assets free
and clear of all Liens (including the release of all Liens of record) and shall
use their best efforts to cause to be taken such other action as the Buyer
reasonably may require to more effectively implement and carry into effect the
transactions contemplated by this Agreement.
4.3 Employee Matters.
(a) The Buyer agrees to offer employment to all of the employees (other
than the Excluded Employees) of the Partnership or Affiliates of the Partnership
who are engaged in the Business. The Buyer shall not offer employment to the
employees set forth on the list provided by the Buyer to the Sellers on
September 3, 1997 (the "Excluded Employees"), and shall not be responsible for
any severance benefits or other liabilities in respect of the Excluded
Employees. Any employees of the Partnership or Affiliates of the Partnership who
are engaged in the Business that the Buyer or one of its Affiliates in fact
employs immediately after the Closing Date shall hereinafter be referred to as
the "Transferred Employees". Any employees (other than Non-Offered Employees) of
the Partnership or Affiliates of the Partnership who are engaged in the Business
who are not employed by the Buyer or one of its Affiliates immediately after the
Closing Date shall hereinafter be referred to as the "Terminated Employees". In
determining eligibility for and entitlement to vacation and other normal
benefits (excluding stock-based plans and incentive programs) based on length of
service by Transferred Employees under the Buyer's or its Affiliates' normal
policies, service with the Partnership or an Affiliate of the Partnership shall
be considered by the Buyer and its Affiliates as service with the Buyer and its
Affiliates. The term "Non-Offered Employee", as used in this Section 4.3, means
any employee (other than an Excluded Employee) of the Partnership or an
Affiliate of the Partnership who is engaged in the Business who was not offered
employment with the Buyer or one or more of its Affiliates.
(b) Any employee of the Partnership or an Affiliate of the Partnership
who is engaged in the Business and who on the Closing Date is on short-term
disability, long-term disability or worker's compensation shall remain on the
payroll or the responsibility of the Partnership until such employee ceases to
be on short-term disability, long-term disability or worker's compensation. At
the time that such employee ceases to be on short-term disability, long-term
disability or worker's compensation, such employee shall become for all purposes
a Transferred Employee.
(c) The Partnership shall be responsible for the severance obligations,
if any, with respect to the Terminated Employees. The Buyer agrees that if the
employment of any of the Transferred Employees with the Buyer or its Affiliates
is terminated by the Buyer within six months following the Closing Date other
than for cause, the Buyer will provide to such terminated Transferred Employee
the severance that such Transferred Employee would have received had the
Transferred Employee
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been entitled to receive severance from the Partnership or any of its Affiliates
in accordance with the severance policy (including, as applicable, the
Weatherford Enterra Special Severance Payment Plan) of the Sellers previously
provided to the Buyer, without giving effect to any provisions that eliminate
the severance payment obligations as a result of a purchaser of the Business
offering the Transferred Employee employment.
(d) The Buyer agrees to reimburse the Sellers for the severance payments
due any Non-Offered Employees that are made in accordance with the Sellers'
existing severance policy (including, as applicable, the Weatherford Enterra
Special Severance Payment Plan) and for any medical or other obligations under
the Consolidated Omnibus Budget Reconciliation Act (COBRA) and other similar
obligations arising from the terminated employment of the Non-Offered Employees.
(e) In determining eligibility for and the amount of severance benefits
the Transferred Employees may become entitled to upon termination of employment
with the Buyer or one of its Affiliates after the Closing Date under the normal
severance policies of the Buyer (or other Affiliate of the Buyer that employees
the Transferred Employees), service with the Partnership or an Affiliate of the
Partnership shall be considered as service with the Buyer and its Affiliates.
(f) The Buyer agrees to provide to all Transferred Employees the
opportunity to participate in group health and other benefit plans maintained by
it for similarly situated employees. The Buyer agrees to waive any pre-existing
condition limitation for all Transferred Employees under the group health plan
maintained by it or its Affiliates.
(g) The Buyer shall be fully responsible for all liabilities related to
the termination by the Buyer of the employment of any of the Transferred
Employees within 90 days after the Closing Date or such other period that would
expose the Partnership to liabilities under the WARN Act as a result of the
premature termination by the Buyer of the employment of any of the Transferred
Employees.
4.4 Use of Corporate Names. All uses of the corporate names set forth in
Section 1.1(a)(vi) of the Disclosure Schedule, or any derivations thereof, are
being transferred to the Buyer hereunder as part of the Transferred Assets. The
Sellers agree that they will not take any action that could reasonably be
expected to adversely affect the Buyer's right to the use of such names or cause
confusion with respect to the Buyer's use of the such names. All goodwill with
respect to the use of the names will inure to the benefit of the Buyer, and the
Sellers will not have any rights to sue or recover against any person with
respect to the use of such names.
4.5 Repurchase of Uncollected Accounts Receivable. The Buyer shall use its
best efforts to collect in full, consistent with the past practices of the
Business, all Accounts Receivable. If the Accounts Receivable outstanding at
the Closing shall not have been fully collected within 150 days following the
Closing Date in an amount equal to the outstanding unpaid amounts thereof at the
Closing, the Buyer may, from time to time, require the Sellers to purchase any
Accounts Receivable that have not been so
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fully collected at a purchase price equal to the original outstanding amount of
such Accounts Receivable at the Closing less net collections thereon from the
Closing Date to the repurchase date; provided, however, that the Sellers shall
be required to repurchase such unpaid Accounts Receivable only to the extent
that the aggregate amount of such unpaid Accounts Receivable exceeds the
allowance for doubtful accounts deducted from accounts receivable set forth on
the Final Balance Sheet, and if such an excess exists, the Sellers shall only be
required to pay an amount for such unpaid Accounts Receivable equal to such
excess; provided, further, that the Buyer may not settle or compromise any
Accounts Receivable without the prior written consent of the Sellers. As a
condition to any such repurchase, the Buyer shall reconvey to the Sellers the
unpaid Accounts Receivable to be repurchased and shall provide the Sellers with
sufficient detail regarding such Accounts Receivable. The Buyer shall represent
and warrant that the Buyer has not transferred or conveyed such Accounts
Receivable to any other Person and that such Accounts Receivable are free and
clear of any Liens created by the Buyer (other than Liens in favor of the
Buyer's senior lender). Payment for the repurchase of any Accounts Receivable
shall be made within ten days following the transfer thereof to the Sellers. The
Buyer shall provide to the Sellers any documents or information reasonably
requested by the Sellers in connection with the Sellers' collection of any
Accounts Receivable repurchased from the Buyer.
4.6 Nondisclosure of Proprietary Information.
(a) The Sellers agree that, from and after the Closing Date, the Sellers
and their respective Affiliates shall hold in confidence and will not directly
or indirectly at any time reveal, report, publish, disclose or transfer to any
Person other than the Buyer any of the Proprietary Information or utilize any of
the Proprietary Information for any purpose; provided, however, that this
restriction shall not apply to any Proprietary Information that (i) becomes
generally available to the public through no fault of the Sellers or (ii) the
Sellers are required by applicable law to disclose.
(b) The Sellers acknowledge that all documents and objects containing
or reflecting any Proprietary Information, whether developed by the Sellers or
by someone else for the Sellers or any of their respective Affiliates, will
after the Closing Date become the exclusive property of the Buyer and be
delivered to the Buyer.
4.7 Covenant Not to Compete.
(a) As an inducement to the Buyer to acquire the Business, each Seller
agrees that, effective as of the Closing Date and for a period of three years
(or, in Louisiana, two years) thereafter, it and its Affiliates shall not,
without the consent of the Buyer, directly or indirectly, engage in the
manufacture and service of pedestal-mounted, hydraulic cranes, or supply parts
and services in connection therewith, in any geographic area in Louisiana, the
Gulf Coast region, offshore of the Gulf Coast region, Nigeria, Malaysia or
Singapore in which the Sellers were conducting the Business as of the Closing
Date, provided, however, that, notwithstanding the foregoing, the Sellers and
their Affiliates shall not be prohibited from servicing pedestal-mounted,
hydraulic cranes owned by them, or supplying parts in connection therewith. Each
Seller acknowledges that this covenant not to compete is being
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provided as an inducement to the Buyer to acquire the Business and the
Transferred Assets and that this Section 4.7 contains reasonable limitations as
to time, geographical area and scope of activity to be restrained that do not
impose a greater restraint than is necessary to protect the goodwill or other
business interest of the Buyer. Whenever possible, each provision of this
Section 4.7 shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Section 4.7 shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Section 4.7. If any provision of
this Section 4.7 shall, for any reason, be judged by any court of competent
jurisdiction to be invalid or unenforceable, such judgment shall not affect,
impair or invalidate the remainder of this Section 4.7 but shall be confined in
its operation to the provision of this Section 4.7 directly involved in the
controversy in which such judgment shall have been rendered. In the event that
the provisions of this Section 4.7 should ever be deemed to exceed the time or
geographic limitations permitted by applicable laws, then such provision shall
be reformed to the maximum time or geographic limitations permitted by
applicable law. The foregoing provisions of this Section 4.7 shall not prevent
the Sellers or any of their respective Affiliates from making any acquisition
(whether by way of assets, stock or otherwise) of, or retain any interest in, or
any investment in, in either case, whether directly or indirectly, any business,
entity or affiliated group of entities that on a consolidated basis during the
most recent fiscal quarter derived 25% or less of its gross revenues from the
manufacture and service of pedestal-mounted, hydraulic cranes so long as such
acquisition is pursuant to an agreement entered into on or after one year from
the Closing Date. The foregoing provisions shall also not prohibit any Person
who may in the future acquire 50% or more of the outstanding capital stock of
either Seller (or any successor thereto) from engaging in the manufacture and
service of pedestal-mounted, hydraulic cranes as long as such acquiring Person
was engaged in the manufacture and service of pedestal-mounted, hydraulic cranes
prior to such acquisition.
(b) The Sellers agree that, from and after the Closing Date, the Sellers
and their respective Affiliates shall not for a period of one year solicit any
Transferred Employees.
4.8 Warranty Obligations. Except with respect to the Buyer's agreement (set
forth below) to satisfy Warranty Obligations, subject to reimbursement by the
Sellers, the Buyer shall not assume, and the Sellers shall remain solely liable
for, all liabilities and obligations of the Sellers for Warranty Obligations,
except to the extent that the Buyer's failure after the Closing to properly
store and maintain the Inventories or the Buyer's gross negligence or willful
misconduct gives rise to the liability or obligation. From and after the
Closing, the Buyer shall have the exclusive responsibility of satisfying
Warranty Obligations on the Sellers' behalf; provided, however, that for any
Warranty Obligation that the Buyer reasonably believes will create a cost to the
Sellers of more than $5,000, or $50,000 when aggregated with other Warranty
Obligations, the Buyer shall give the Sellers not less than seven days notice
(unless a shorter period is required because of the customer's reasonable needs)
prior to beginning such warranty work, during which time period the Sellers may
object in good faith to such warranty work as not being a Warranty Obligation.
The Sellers shall pay the Buyer, within 30
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days of being invoiced therefor, an amount equal to 85% of the Buyer's current
published list price (or, if there is no published list price, 110% of the
Buyer's current standard cost, or, if the Buyer has no current standard cost,
110% of the Buyer's actual out-of-pocket costs) for products used to satisfy
Warranty Obligations and, in the case of warranty service, 110% of the Buyer's
current standard cost (or, if the Buyer has no current standard cost, 110% of
the Buyer's actual out-of-pocket costs) for such work, including salaries and
benefits of employees actually performing the work and the amount of any
refunds. The Sellers shall have the right to review the calculation of any
actual out-of-pocket costs. The Buyer shall provide to the Sellers any documents
or information reasonably requested by the Sellers in connection with the
satisfaction of Warranty Obligations by the Buyer. For purposes of this Section
4.8, "Warranty Obligations" shall mean warranties given or made by the Sellers
on or prior to the Closing Date with respect to the manufacture, sale or rental
of products or the performance of services in the conduct of the Business to the
extent such manufacture or sale of products has been invoiced, or such rental
products or performance of services has been rendered, on or prior to the
Closing Date.
ARTICLE 5
BUYER'S CONDITIONS
The obligation of the Buyer to purchase the Transferred Assets and to
assume the Assumed Liabilities as contemplated hereby is, at the option of the
Buyer, subject to the satisfaction on or before the Closing Date of the
conditions set forth below, any of which may be waived by the Buyer in writing;
provided, however, the Buyer's election to proceed with the Closing shall not be
deemed a waiver of any breach of any representation, warranty or covenant
herein, whether or not known to the Buyer or existing on the Closing Date, and
such action shall not prejudice the Buyer's right to recover damages for any
such breach.
5.1 Good Standing. The Sellers shall have delivered to the Buyer
certificates issued by the Secretary of State of the State of Louisiana and the
Secretary of the State of the State of Delaware evidencing the good standing of
the Partnership and Weatherford U.S., respectively, in each case as of a date
not more than five calendar days prior to the Closing Date.
5.2 Instruments of Transfer. The Sellers shall have executed, acknowledged
and delivered to the Buyer such bills of sale, assignments (including but not
limited to assignments of the leases) and other instruments of transfer,
assignment and conveyance, in form and substance mutually agreeable, as shall be
necessary to vest in the Buyer all the right, title and interest in and to the
Transferred Assets.
5.3 No Litigation. No preliminary or permanent injunction or other order of
any Governmental Entity shall be in effect nor shall there be in effect any
statute, rule, regulation or executive order promulgated or enacted by any
Governmental Entity that, in any such case, prevents the consummation of the
transactions contemplated by this Agreement. No suit, action, claim, proceeding
or investigation before any
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Governmental Entity shall have been commenced or threatened by any Person other
than the Buyer or any of its Affiliates seeking to prevent the sale of the
Transferred Assets or the Business or asserting that the sale of all or a
portion of the Transferred Assets or the Business would be unlawful.
5.4 Licenses, Consents and Approvals. The Sellers shall have delivered to
the Buyer a copy of each of the licenses, consents, approvals and other
authorizations from Governmental Entities necessary or appropriate for the
Sellers to consummate the transactions contemplated by this Agreement.
5.5 Consents of Third Persons. A copy of those consents from Third Persons
that are listed in Section 2.3(a) of the Disclosure Schedule and that have been
received by the Sellers shall have been delivered to the Buyer.
5.6 Resolutions. The Buyer shall have received certified copies of
resolutions of the Board of Directors of Weatherford U.S. approving this
Agreement and the transactions contemplated hereby.
5.7 Opinions of Counsel to the Sellers. The Buyer shall have received
written opinions dated the Closing Date from counsel to the Sellers, in form and
substance reasonably satisfactory to the Buyer and its counsel.
5.8 Foreign Sales Offices. The Buyer and the Sellers or their Affiliates
shall have executed agreements relating to the Sellers' foreign sales offices
substantially in the forms of Exhibit 5.8(a), Exhibit 5.8(b) and Exhibit 5.8(c)
attached hereto.
5.9 Spencer Road Lease. The Buyer and the Sellers or their Affiliates shall
have executed and delivered a lease agreement relating to the Spencer Road
facility substantially in the form of Exhibit 5.9 attached hereto.
5.10 Documents with the Buyer's Senior Lender. The Buyer, the Sellers and
the Buyer's senior lender shall have negotiated and executed a mortgage and
security agreement and standstill and subordination agreements securing the
Promissory Note, on terms and conditions acceptable to the Buyer and its senior
lender.
ARTICLE 6
SELLERS' CONDITIONS
The obligation of the Sellers to transfer the Transferred Assets as
contemplated hereby is, at the option of the Sellers, subject to the
satisfaction on or before the Closing Date of the conditions set forth below,
any of which may be waived by the Sellers in writing; provided, however, the
Sellers' election to proceed with the closing of the transactions contemplated
hereby shall not be deemed a waiver of any breach of any representation,
warranty or covenant herein, whether or not known to the Sellers or existing on
the Closing Date, and such action shall not prejudice the Sellers' right to
recover damages for any breach.
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6.1 Good Standing. The Buyer shall have delivered to the Sellers a
certificate issued by the Secretary of State of the State of Louisiana
evidencing the good standing of the Buyer as of a date not more than five
calendar days prior to the Closing Date.
6.2 Receipt of the Transferred Assets. The Buyer shall have paid the
Closing Cash Payment and the Buyer shall have duly executed and delivered to the
Sellers an instrument acknowledging receipt of the Transferred Assets and
assumption of the Assumed Liabilities in form and substance mutually agreeable.
6.3 Licenses, Consents and Approvals. The Buyer shall have delivered to
the Sellers a copy of each of the licenses, consents, approvals and other
authorizations from Governmental Entities necessary or appropriate for the Buyer
to consummate the transactions contemplated by this Agreement.
6.4 No Litigation. No preliminary or permanent injunction or other order
of any Governmental Entity shall be in effect nor shall there be in effect any
statute, rule, regulation or executive order promulgated or enacted by any
Governmental Entity that, in any such case, prevents the consummation of the
transactions contemplated by this Agreement. No suit, action, claim, proceeding
or investigation before any Governmental Entity shall have been commenced or
threatened by any Person other than the Sellers or any of the Affiliates of the
Sellers seeking to prevent the sale of the Transferred Assets or the Business or
asserting that the sale of all or a portion of the Transferred Assets or the
Business would be unlawful.
6.5 Resolutions. The Sellers shall have received certified copies of
resolutions of the Board of Directors of the Buyer approving this Agreement and
the transactions contemplated hereby.
6.6 Opinion of Counsel to the Buyer. The Sellers shall have received a
written opinion dated the Closing Date from counsel to the Buyer, in form and
substance reasonably satisfactory to the Sellers and their counsel.
6.7 Foreign Sales Offices. The Buyer and the Sellers or their Affiliates
shall have executed agreements relating to the Sellers' foreign sales offices
substantially in the forms of Exhibit 5.8(a), Exhibit 5.8(b) and Exhibit 5.8(c)
attached hereto.
6.8 Spencer Road Lease. The Buyer and the Sellers or their Affiliates
shall have executed and delivered a lease agreement relating to the Spencer Road
facility substantially in the form of Exhibit 5.9 attached hereto.
6.9 Documents with the Buyer's Senior Lender. The Buyer, the Sellers and
the Buyer's senior lender shall have negotiated and executed a mortgage and
security agreement and standstill and subordination agreements securing the
Promissory Note, on terms and conditions acceptable to the Sellers.
6.10 The Buyer's Note. The Buyer shall have executed and delivered to
the Sellers a promissory note (the "Promissory Note") substantially in the form
of Exhibit 6.10 attached hereto.
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ARTICLE 7
IDENTIFICATION
7.1 Indemnification by the Sellers. Except as otherwise limited by this
Article 7 and by Article 8 hereof, the Sellers agree, jointly and severally, to
indemnify, defend and hold the Buyer and each of its officers, directors,
employees, agents, stockholders and controlling Persons and their respective
successors and assigns harmless from and against and in respect of Damages
actually suffered, incurred or realized by such party (collectively, "Buyer
Losses"), arising out of or resulting from or relating to:
(a) any misrepresentation, breach of warranty or breach of any
covenant or agreement made or undertaken by the Sellers in this Agreement; or
(b) any Retained Liability.
Notwithstanding the foregoing, the Sellers shall not be liable under clause (a)
of this Section 7.1 in respect to a misrepresentation or breach of warranty
unless and until the aggregate amount of any Buyer Losses for which the Buyer is
entitled to indemnification pursuant to such clause from all such Persons
exceeds $250,000 and then only for those Buyer Losses that in the aggregate
exceed $250,000; provided, however, (i) liability under clause (b) of this
Section 7.1 shall not be so limited and (ii) liability under clause (a) of this
Section 7.1 shall not exceed $1,400,000 except for Retained Liabilities, which
shall not be limited. Notwithstanding the foregoing, the Sellers shall not be
liable under this Section 7.1 or otherwise in respect to any alleged deficiency
in, or inadequacy or absence of, any Identified Reserve in any of the Financial
Statements, the Balance Sheet, the Closing Balance Sheet or the Final Balance
Sheet.
7.2 Indemnification by the Buyer. Except as otherwise limited by this
Article 7 and by Article 8 hereof, the Buyer agrees to indemnify, defend and
hold the Sellers and each of their officers, directors, employees, agents,
stockholders and controlling Persons and their successors and assigns harmless
from and against and in respect of Damages actually suffered, incurred or
realized by such party (collectively, "Seller Losses"), arising out of or
resulting from:
(a) any misrepresentation, breach of warranty or breach of any
covenant or agreement made or undertaken by the Buyer in this Agreement; or
(b) any Assumed Liability.
7.3 Procedure. All claims for indemnification under this Article 7
shall be asserted and resolved as follows:
(a) An Indemnitee shall promptly give the Indemnitor notice of
any matter that an Indemnitee has determined has given or could give rise to a
right of
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indemnification under this Agreement, stating the amount of the Losses, if
known, and method of computation thereof, all with reasonable particularity, and
stating with particularity the nature of such matter. Failure to provide such
notice shall not affect the right of the Indemnitee to indemnification except to
the extent such failure shall have resulted in liability to the Indemnitor that
could have been actually avoided had such notice been provided within such
required time period.
(b) The obligations and liabilities of an Indemnitor under this
Article 7 with respect to Losses arising from claims of any third party that are
subject to the indemnification provided for in this Article 7 ("Third Party
Claims") shall be governed by and contingent upon the following additional
terms and conditions; if an Indemnitee shall receive notice of any Third Party
Claim, the Indemnitee shall give the Indemnitor prompt notice of such Third
Party Claim and the Indemnitor may, at its option, assume and control the
defense of such Third Party Claim at the Indemnitor's expense and through
counsel of the Indemnitor's choice reasonably acceptable to Indemnitee. In the
event the Indemnitor assumes the defense against any such Third Party Claim as
provided above, the Indemnitee shall have the right to participate at its own
expense in the defense of such asserted liability, shall cooperate with the
Indemnitor in such defense and will attempt to make available on a reasonable
basis to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnitor. In the event the Indemnitor does not
elect to conduct the defense against any such Third Party Claim, the Indemnitor
shall pay all reasonable costs and expenses of such defense as incurred and
shall cooperate with the Indemnitee (and be entitled to participate) in such
defense and attempt to make available to it on a reasonable basis all such
witnesses, records, materials and information in its possession or under its
control relating thereto as is reasonably required by the Indemnitee. Except for
the settlement of a Third Party Claim that involves the payment of money only
and for which the Indemnitee is totally indemnified by the Indemnitor, no Third
Party Claim may be settled without the written consent of the Indemnitee.
(c) With respect to any Buyer Loss for which the Sellers are
required to indemnify and defend the Buyer pursuant to the terms of this
Agreement and that relates to environmental matters and requires any removal,
remedial, response, clean-up or other corrective action ("Remedial Action") to
address conditions that cause, contribute to or are associated with such Buyer
Loss, the Sellers may elect to implement and complete such Remedial Action,
which Remedial Action shall not be required to achieve cleanup standards that
are more stringent than those required under Environmental Laws existing as of
the Closing Date. The Sellers shall endeavor to plan, design, implement and
perform such Remedial Action without undue delay and in a manner consistent with
the operations and requirements of the Business. The Sellers shall provide the
Buyer with copies of all reports, plans and correspondence submitted to any
Governmental Entity with respect to such Remedial Action.
7.4 Limitation. No claim for indemnification under this Article 7 may be
asserted subsequent to the Survival Period; provided, however, that any claim
for indemnification under this Article 7 made during the Survival Period shall
be valid notwithstanding that the claim may not be resolved within the Survival
Period.
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7.5 Payment. Payment of any amounts due pursuant to this Article 7 shall
be made within ten Business Days after notice is sent by the Indemnitee.
7.6 Failure to Pay Indemnification. If and to the extent the Indemnitee
shall make written demand upon the Indemnitor for indemnification pursuant to
this Article 7 and the Indemnitor shall refuse or fail to pay in full within ten
Business Days of such written demand the amounts demanded pursuant hereto and in
accordance herewith, then the Indemnitee may utilize any legal or equitable
remedy to collect from the Indemnitor the amount of its Losses. Nothing
contained herein is intended to limit or constrain the Indemnitee's rights
against the Indemnitor for indemnity, the remedies herein being cumulative and
in addition to all other rights and remedies of the Indemnitee.
7.7 Adjustment of Liability. The amount which an Indemnitee shall be
entitled to receive from an Indemnitor with respect to any indemnifiable Losses
under this Article 7 shall be net of any insurance recovery by the Indemnitee on
account of such Losses from an unaffiliated party.
7.8 Release. In consideration for the agreement of the Sellers to
indemnify and defend the Buyer in the manner provided in this Agreement, the
Buyer hereby releases, acquits and forever discharges the Sellers from any
claim, demand or cause of action the Buyer may have against the Sellers,
including, but not limited to, any right of contribution or reimbursement
provided under any Environmental Law.
7.9 Express Negligence. THE FOREGOING INDEMNITIES SET FORTH IN THIS
ARTICLE 7 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH
THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING TEXAS' EXPRESS NEGLIGENCE
RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES
BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT, ACTIVE OR
PASSIVE) OR OTHER DEFAULT OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.
ARTICLE 8
NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS,
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
The several representations and warranties of the parties to this
Agreement shall survive the Closing Date and shall remain in full force and
effect for a period of (a) three years following the Closing Date, for the
representations and warranties set forth in Section 2.12 hereof, and (b) two
years following the Closing Date, for all other representations and warranties
(the period during which the representations and warranties shall survive being
referred to herein with respect to such representations and warranties as the
"Survival Period"), and shall be effective with respect to any inaccuracy
therein or breach thereof (and a claim for indemnification under Article 7
hereof may be made thereon) if a written notice asserting the claim shall have
been
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duly given in accordance with Article 7 within the Survival Period with respect
to such matter. All covenants and agreements contained herein shall survive
without limitation. Any claim for indemnification made during the Survival
Period shall be valid and the representations and warranties relating thereto
shall remain in effect for purposes of such indemnification notwithstanding that
such claim may not be resolved within the Survival Period.
ARTICLE 9
DEFINITIONS OF CERTAIN TERMS
In addition to terms defined elsewhere in this Agreement, the following
terms shall have the meanings assigned to them herein, unless the context
otherwise indicates, both for purposes of this Agreement and the Disclosure
Schedule:
9.1 "Accounts Receivable" shall have the meaning given such term in
Section 1.1(a)(iii) hereof.
9.2 "Accrued Liabilities" shall mean the "accrued liabilities" of the
Sellers to the extent accrued and reflected on the financial statements of the
Business, excluding intercompany liabilities, Taxes and accrued Taxes.
9.3 "Adjusted Principal Amount" shall mean the amount determined in
accordance with Section 1.5(c) hereof.
9.4 "Affiliate" shall mean, with respect to any Person, an individual or
entity that directly or indirectly, controls, is controlled by or is under
common control with such Person.
9.5 "Agreement" shall mean this Asset Purchase Agreement among the
Sellers and the Buyer, as amended from time to time by such parties.
9.6 "Annual Financial Statements" shall have the meaning given such term
in Section 2.16 hereof.
9.7 "Assumed Liabilities" shall have the meaning given such term in
Section 1.4(a) hereof.
9.8 "Balance Sheet" shall mean the unaudited balance sheet as of
December 31, 1996, prepared by the Sellers, set forth in Section 9.8 of the
Disclosure Schedule.
9.9 "Book Value" shall mean the dollar amount, as reflected on the
Closing Balance Sheet or the Final Balance Sheet, as the case may be, by which
(a) the total value of the Transferred Assets exceeds (b) the total value of the
Trade Payables and Accrued Liabilities.
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9.10 "Business" shall mean the businesses and operations of American
Aero Cranes, a division of the Partnership that manufactures for sale or rental
pedestal-mounted, hydraulic cranes and provides parts and services in connection
therewith; provided, however, that "Business" shall not include the real estate,
facility and improvements located at 11909 Spencer Road (FM 529), Houston,
Texas, other than the Real Property set forth in Section 1.1(a)(iv) of the
Disclosure Schedule and the improvements thereon.
9.11 "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized by law to
close.
9.12 "Buyer" shall have the meaning specified in the preamble.
9.13 "Buyer Losses" shall have the meaning given such term in Section
7.1 hereof.
9.14 "Cash Purchase Price" shall mean the amount determined in
accordance with Section 1.5(b) hereof.
9.15 "CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. (S)9601 et seq.
9.16 "Closing" shall mean the closing of the transactions contemplated
by this Agreement.
9.17 "Closing Accounts Payable Difference" shall have the meaning given
such term in Section 1.4(c)(iii) hereof.
9.18 "Closing Balance Sheet" shall mean the unaudited balance sheet of
the Business dated as of August 31, 1997, prepared by the Sellers, reflecting
the Transferred Assets and the Assumed Liabilities, set forth in Section 9.18 of
the Disclosure Schedule.
9.19 "Closing Cash Payment" shall have the meaning given such term in
Section 1.4(b) hereof.
9.20 "Closing Date" shall have the meaning given such term in Section
1.3 hereof.
9.21 "Closing Inventories Increase" shall have the meaning given such
term in Section 1.4(c)(ii) hereof.
9.22 "Closing Purchase Price" shall mean $6,500,000 (i) plus, if
applicable, the amount by which the Book Value from the Closing Balance Sheet
exceeds $10,541,600, or (ii) minus, if applicable, the amount by which
$10,541,600 exceeds the Book Value from the Closing Balance Sheet.
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9.23 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or similar provisions of legislation replacing such law from
time to time.
9.24 "Contracts and Other Agreements" shall mean all contracts,
agreements, understandings, indentures, notes, bonds, loans, instruments,
leases, mortgages, franchises, licenses, commitments or binding arrangements,
whether express or implied, oral or written, relating to the Business and to
which either of the Sellers is a party or bound or to which the properties or
assets of either of the Sellers are subject.
9.25 "Damages" shall mean any and all liabilities, losses, damages,
demands, assessments, claims, costs and expenses (including interest, awards,
judgments, penalties, settlements, fines, costs of remediation, diminutions in
value, costs and expenses incurred in connection with investigating and
defending any claims or causes of action (including, without limitation,
attorneys' fees and expenses and all fees and expenses of consultants and other
professionals)).
9.26 "Debt Obligations" shall mean any contract, agreement, indenture,
note or other instrument relating to the borrowing of money or any guarantee or
other contingent liability in respect of any indebtedness or obligation of any
Person (other than the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business) pertaining to the Business.
9.27 "Designated Amount" shall have the meaning given such term in
Section 1.5(c)(iv) hereof.
9.28 "Disclosure Schedule" shall mean the disclosure schedule delivered
to the Buyer.
9.29 "Documents and Other Papers" shall mean and include any document,
agreement, instrument, certificate, writing, notice, consent, affidavit, letter,
telegram, telex, sale brochures and other related materials, statement, file,
computer disk, microfiche or other document in electronic format, schedule,
exhibit or any other paper or record whatsoever relating to the Business.
9.30 "Entitlements" shall have the meaning given such term in Section
1.1(a)(vii) hereof.
9.31 "Environmental Laws" shall mean all federal, state, or municipal
laws, rules, regulations, statutes, ordinances or orders of any Governmental
Entity relating to (a) the control of any potential pollutant or protection of
the air, water or land, (b) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal or transportation and (c) exposure to hazardous,
toxic or other substances alleged to be harmful. "Environmental Laws" shall
include, but not be limited to, the Clean Air Act, 42 U.S.C. (S)7401 et seq.,
the Resource Conservation Recovery Act, 42 U.S.C (S)6901 et seq., the Superfund
Amendments and Reauthorization Act, 42 U.S.C. (S)11001, et seq., the Toxic
Substances Control Act, 15 U.S.C. (S)2601 et seq., the Water Pollution Control
Act, 33 U.S.C. (S)1251 et seq., the Safe Drinking Water Act, 42 U.S.C. (S)300f
et seq. and CERCLA. The term "Environmental Laws" shall also include all state,
local and
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municipal laws, rules, regulations, statutes, ordinances and orders dealing with
the same subject matter or promulgated by any governmental or quasi-governmental
agency thereunder or to carry out the purposes of any federal, state, local and
municipal law. "Environmental Laws" does not include the Occupational Safety and
Health Act or any other federal, state or local law, statute, ordinance,
regulation or order governing worker safety or workplace conditions.
9.32 "Environmental Permit" shall mean any permit, license, approval,
registration, identification number or other authorization with respect to the
Transferred Assets or the Business under any Applicable Environmental Law.
9.33 "Equipment" shall mean all machinery, transportation equipment,
tools, equipment, vehicles, furnishings and fixtures owned or leased by the
Sellers, or subject to a contract of purchase and sale, or lease commitment,
that are used in the Business as operated by the Partnership.
9.34 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
9.35 "Excluded Assets" shall have the meaning given such term in
Section 1.2 hereof.
9.36 "Excluded Employees" shall have the meaning given such term in
Section 4.3 hereof.
9.37 "Final Accounts Payable Difference" shall have the meaning given
such term in Section 1.5(c)(iii) hereof.
9.38 "Final Balance Sheet" shall mean an unaudited balance sheet of the
Business dated as of the Closing Date, prepared by the Sellers, reflecting the
Transferred Assets and Assumed Liabilities, prepared on a basis consistent with
the Closing Balance Sheet and used to prepare the Final Statement.
9.39 "Final Cash Payment" shall have the meaning given such term in
Section 1.5(d) hereof.
9.40 "Final Inventories Increase" shall have the meaning given such term
in Section 1.5(c)(ii) hereof.
9.41 "Final Statement" shall have the meaning given such term in Section
1.5(a) hereof.
9.42 "Financial Statements" shall have the meaning given such term in
Section 2.16 hereof.
9.43 "Governmental Entity" shall mean any arbitrator, court,
administrative or regulatory agency, commission, department, board or bureau or
body or other government or authority or instrumentality or any entity or Person
exercising
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executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
9.44 "Hazardous Materials" shall mean any (a) petroleum or petroleum
products, (b) hazardous substances as defined by (S) 101(14) of CERCLA and (c)
any other chemical, substance or waste that is regulated by any Governmental
Entity under any Environmental Law.
9.45 "Identified Reserves" shall mean (i) allowance for doubtful
accounts deducted from accounts receivable (including, without limitation, any
"Allowance for Accounts Receivable" as referenced in account number 113110 on a
balance sheet), (ii) allowance for obsolete, damaged, missing, excess or
slow-moving inventories deducted from inventories (including, without
limitation, any "Raw Materials Inventory Allowance", "Work in Process Inventory
Allowance" or "Finished Goods Inventory Allowance" as referenced in account
number 116001, 116003 or 116004, respectively, on a balance sheet), (iii)
accrual for Company-provided employee medical and dental expenses, to the extent
such expenses are within the Company's deductible, (iv) accrual for expressed or
implied warranty obligations, including, when applicable, handling,
transportation and installation costs (including, without limitation, any
"Accrued Warranties" as referenced in account number 222009 on a balance
sheet), and (v) accrual for penalties related to failure to meet committed
delivery dates for crane units (including, without limitation, any "Accrued Late
Penalties" as referenced in account number 210015 on a balance sheet).
9.46 "Indemnitee" shall mean the Person or Persons indemnified or
entitled, or claiming to be entitled to be indemnified, pursuant to the
provisions of Section 7.1 or Section 7.2 hereof, as the case may be.
9.47 "Indemnitor" shall mean the Person or Persons having the
obligation to indemnify pursuant to the provisions of Section 7.1 or Section 7.2
hereof, as the case may be.
9.48 "Inventories" shall mean all inventories of finished goods,
tooling inventory, work in progress and raw materials relating to the Business,
wherever situated.
9.49 "Leasehold Interests" shall mean the interests of the Sellers as
lessees in the real property that pertains to the Business.
9.50 "Lien" shall mean any lien, pledge, claim, charge, security
interest or other encumbrance, option, defect or other rights of any third
Person of any nature whatsoever.
9.51 "Losses" shall mean Seller Losses or Buyer Losses, as the case may
be.
9.52 "Material Adverse Effect" shall mean a single event, occurrence or
fact that, together with all other events, occurrences and facts that could
reasonably be expected to result in a loss to the Business, would have, or might
reasonably be
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expected to have, a material adverse effect on the assets, business, operations
or financial condition of the Transferred Assets or the Business, or that would
constitute a criminal violation of law involving a felony.
9.53 "Negative Adjustment Amount" shall have the meaning given such
term in Section 1.5(c)(v) hereof.
9.54 "Non-Adjusted Principal Amount" shall mean the amount determined
in accordance with Section 1.4(c) hereof.
9.55 "Non-Offered Employees" shall have the meaning given such term in
Section 4.3(a) hereof.
9.56 "Partnership" shall have the meaning specified in the preamble.
9.57 "Permitted Liens" shall mean (a) Liens securing or relating to
liabilities or obligations that are to be assumed by the Buyer pursuant to this
Agreement, (b) Liens for current taxes and assessments not yet due, (c) inchoate
mechanic and materialmen Liens for construction in progress, (d) inchoate
workmen, repairmen, warehousemen and carriers Liens arising in the ordinary
course of business or (e) Liens created by the Buyer.
9.58 "Person" shall mean a corporation, an association, a partnership,
an organization, a business, an individual or a Governmental Entity.
9.59 "Positive Adjustment Amount" shall have the meaning given such
term in Section 1.5(c)(iv) hereof.
9.60 "Pre-Closing Obligations" shall mean all obligations of the
Sellers relating to the Business (including indemnification and other contingent
obligations) regarding (i) acts, events or omissions by any Person or
circumstances existing at or prior to the Closing Date, (ii) goods or services
provided to or for the benefit of the Sellers or any of the Affiliates of the
Sellers prior to the Closing Date, (iii) goods or services provided by or on
behalf of the Sellers or any of the Affiliates of the Sellers or licensees prior
to the Closing Date, (iv) any pending or threatened litigation or claims made or
threatened prior to the Closing Date, (v) any Retained Liabilities, (vi) the
conduct of the Business, the ownership or operation of the Transferred Assets or
any benefit realized by the Sellers prior to the Closing Date and (vii) Debt
Obligations.
9.61 "Promissory Note" shall have the meaning given such term in
Section 6.10 hereof.
9.62 "Proprietary Information" shall mean collectively (a) Proprietary
Rights and (b) any and all other information and material proprietary to the
Sellers, owned, possessed or used by the Sellers, whether or not such
information is embodied in writing or other physical form, and that is not
generally known to the public, that (i) relates to financial information
regarding the Business, including, without limitation, (A) business plans and
(B) sales, financing, pricing and marketing procedures or
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methods of the Sellers or (ii) relates to specific business matters concerning
the Business, including, without limitation, the identity of or other
information regarding sales personnel or customers of the Business.
9.63 "Proprietary Rights" means all patents, inventions, shop rights,
know how, trade secrets, designs, plans, manuals, computer software,
specifications, confidentiality agreements, confidential information and other
proprietary technology and similar information; all registered and unregistered
trademarks, service marks, logos, trade and corporate names (including the names
"American Aero", "American Aero Cranes" and all derivations thereof) and all
other trademark rights; all registered and unregistered copyrights; and all
registrations for, and applications for registration of, any of the foregoing,
that are used in the conduct of the Business.
9.64 "Purchase Price" shall have the meaning given such term in
Section 1.4(a) hereof.
9.65 "Real Property" shall mean the owned real property of the Sellers
pertaining to the Business.
9.66 "Remedial Action" shall have the meaning given such term in
Section 7.3(c) hereof.
9.67 "Response Period" shall have the meaning given such term in
Section 1.5(a) hereof.
9.68 "Retained Liabilities" shall have the meaning given such term in
Section 1.6 hereof.
9.69 "Sellers" shall have the meaning specified in the preamble.
9.70 "Seller Losses" shall have the meaning given such term in
Section 7.2 hereof.
9.71 "Stub-Period Financial Statements" shall have the meaning given
such term in Section 2.16 hereof.
9.72 "Survival Period" shall have the meaning given such term in
Article 8 hereof.
9.73 "Taxes" shall mean all federal, state, local, foreign and other
taxes, charges, fees, duties, levies, imposts, customs or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, profit share, license,
lease, service, service use, value added, withholding, payroll, employment,
excise, estimated, severance, stamp, occupation, premium, property, windfall
profits, or other taxes, fees, assessments, customs, duties, levies, imposts, or
charges of any kind whatsoever, together with any interest, penalties, additions
to tax, fines or other additional amounts imposed thereon or related thereto,
and the term "Tax" means any one of the foregoing Taxes.
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9.74 "Terminated Employees" shall have the meaning given such term in
Section 4.3(a) hereof.
9.75 "Third Party Claims" shall have the meaning given such term in
Section 7.3(b) hereof.
9.76 "Trade Payables" shall mean those obligations of the Sellers
relating to the provision of goods and services to the Sellers for the conduct
of the Business in the ordinary course of business of the Sellers that relate to
the Transferred Assets and that are classified as Trade Payables in accordance
with generally accepted accounting principals as consistently applied by the
Sellers (including, without limitation, any "Accounts Payable" as referenced in
account numbers 210001, 210002, 210005 and 210999 on a balance sheet of the
Business).
9.77 "Transferred Assets" shall have the meaning given such term in
Section 1.1(a) hereof.
9.78 "Transferred Employees" shall have the meaning given such term in
Section 4.3(a) hereof.
9.79 "WARN Act" shall mean the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Sections 2101-2109.
9.80 "Warranty Obligations" shall have the meaning given such term in
Section 4.8 hereof.
9.81 "Weatherford U.S." shall have the meaning specified in the
preamble.
ARTICLE 10
MISCELLANEOUS
10.1 Public Announcements. Subject to applicable securities law or
stock exchange requirements, neither the Buyer, on the one hand, nor the
Sellers, on the other hand, shall, without the prior approval of the other
party, issue, or permit any of their respective partners, directors, officers,
employees, agents or Affiliates to issue, any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby.
10.2 Expenses. The expense of obtaining a customary title policy
relating to the Real Property shall be borne by the Sellers, the expense of
obtaining customary surveys of the Real Property shall be borne by the Buyer and
the customary closing costs charged by the title company will be borne equally
by the Buyer, on the one hand, and the Sellers, on the other hand. Except as
otherwise set forth herein, each party agrees to pay, without right of
reimbursement from any other party, the costs incurred by such party incident to
the preparation and execution of this Agreement and performance of its
obligations hereunder, including without limitation the fees and
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disbursements of legal counsel, accountants and consultants employed by such
party in connection with the transactions contemplated by this Agreement.
10.3 Notices. All notices, requests, consents, directions and other
instruments and communications required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered in person, by courier, by overnight delivery service with proof of
delivery or by prepaid registered or certified United States first-class mail,
return receipt requested, addressed to the respective party at the address set
forth below, or if sent by facsimile or other similar form of communication
(with receipt confirmed) to the respective party at the facsimile number set
forth below:
If to the Partnership or Weatherford U.S., to:
Weatherford Enterra U.S., Limited Partnership
1360 Post Oak Boulevard, Suite 1000
Houston, Texas 77056
Attention: H. Suzanne Thomas
Facsimile: (713) 622-0913
Confirm: (713) 439-9400
Copies to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Charles L. Strauss
Facsimile: (713) 651-5246
Confirm: (713) 651-5151
If to the Buyer, to:
American Aero Cranes, L.L.C.
300 St. Francis Street
Mobile, Alabama 36602
Attention: McGowin I. Patrick, Jr.
Facsimile: (334) 432-2778
Confirm: (334) 432-4472
Copies to:
ADAMS and REESE, L.L.P.
4500 One St. Louis Centre
Mobile, Alabama 36602
Attention: Victor H. Lott, Jr.
Facsimile: (334) 438-7733
Confirm: (334) 433-3234
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or to such other address or facsimile number and to the attention of such other
Person(s) as any party may designate by written notice. Any notice mailed
shall be deemed to have been given and received on the third Business Day
following the day of mailing.
10.4 Bulk Transfer Laws. The Sellers agree with the Buyer that the
provisions of any statute of any state or jurisdiction regulating bulk sales or
transfers do not apply to this Agreement.
10.5 Successors. This Agreement shall insure to the benefit of and be
binding upon the Buyer and the Sellers and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties hereto.
10.6 Entire Agreement. This Agreement and the exhibits hereto and the
Disclosure Schedule constitute the entire agreement and understanding between
the parties relating to the subject matter hereof and thereof and supersedes all
prior representations, endorsements, premises, agreements, memoranda
communications, negotiations, discussions, understandings and arrangements,
whether oral, written or inferred, between the parties relating to the subject
matter hereof. This Agreement may not be modified, amended, rescinded, canceled,
altered or supplemented, in whole or in part, except upon the execution and
delivery of a written instrument executed by a duly authorized representative of
each of the parties hereto.
10.7 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas without giving
effect to choice of law principles.
10.8 Waiver. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other breach of
the same or any other term or condition.
10.9 Severability. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
10.10 No Third Party Beneficiaries. Any agreement contained, expressed
or implied in this Agreement shall be only for the benefit of the parties hereto
and their respective legal representatives, successors and assigns, and such
agreements shall not inure to the benefit of the obligees of any indebtedness of
any party hereto, it being the intention of the parties hereto that no Person
shall be deemed a third party beneficiary of this Agreement, except to the
extent to a third party is expressly given rights herein.
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10.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.12 Heading. The headings of the Articles and Sections of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof or affect
in any way the meaning or interpretation of this Agreement.
10.13 Negotiated Transaction. The provisions of this Agreement were
negotiated by the parties hereto, and this Agreement shall be deemed to have
been drafted by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
SELLERS:
WEATHERFORD ENTERRA U.S., LIMITED PARTNERSHIP
BY WEATHERFORD U.S., INC., ITS GENERAL PARTNER
By: /s/ H. Suzanne Thomas
--------------------------------------------
Name: H. Suzanne Thomas
---------------------------------------
Title: Senior Vice President and Secretary
--------------------------------------
WEATHERFORD U.S., INC.
By: /s/ H. Suzanne Thomas
--------------------------------------------
Name: H. Suzanne Thomas
---------------------------------------
Title: Senior Vice President and Secretary
--------------------------------------
BUYER:
AMERICAN AERO CRANES, L.L.C.
BY IPC INDUSTRIES, INC., MANAGER
By: /s/ McGowin I. Patrick, Jr.
--------------------------------------------
Name: McGowin I. Patrick, Jr.
---------------------------------------
Title: Vice President
--------------------------------------
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EXHIBIT 10(d)
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into this 30th day of June, 1998 by
and among TITAN INDUSTRIES, INC., a Louisiana corporation ("Seller") and
AMERICAN AERO CRANES, L.L.C., a Louisiana limited liability company
("Purchaser").
WHEREAS, Seller operates a business of repairing and servicing cranes for the
marine industry. Seller owns equipment, inventories, contract rights, leasehold
interests, and miscellaneous assets used in connection with the operation of
its business; and
WHEREAS, Purchaser desires to acquire substantially all the assets used or
useful, or intended to be used, in the operation of Seller's business, and
Seller desires to sell such assets to Purchaser.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. ASSETS PURCHASED; LIABILITIES ASSUMED.
1.1 Assets Purchased. Seller agrees to sell to Purchaser and Purchaser
agrees to purchase from Seller, on the terms and conditions set forth in this
Agreement, the Seller's entire right, title and interest in, to and under the
Business, as a going concern, all of the assets owned or used by the Seller in
connection with or arising out of the Business of every type and description,
tangible and intangible, wherever located and whether or not reflected on the
books and records of the Seller (all of the assets, properties, rights and
business being hereinafter sometimes collectively referred to as the "Assets"),
including, but not limited to,
(i) All equipment relating to the Business, including the equipment
set forth on Exhibit A;
(ii) All inventory relating to the Business, including the inventory
set forth on Exhibit A;
(iii) All accounts and notes receivable relating to the Business,
including the accounts receivable set forth on Exhibit A;
(iv) All real property of the Business;
(v) All leasehold interests on real or personal property;
(vi) All proprietary information of the Business;
(vii) The benefit of all contracts, unfulfilled or outstanding
purchase orders, sales contracts, labor and employee benefit
plans, agency agreements, pricing agreements, other commitments
and engagements to which the Seller is entitled on the
Effective Date (herein defined) and that relate to the
Business; and
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(viii) Any goodwill associated with the Business.
1.2 Liabilities Assumed. Purchaser shall accept the assignment and assume
responsibility of the Business and all of its liabilities, debts and
obligations, whether known or unknown, now existing or hereafter arising,
contingent or liquidated, including without limitation, liabilities of the
Seller or the Business for periods prior to the Effective Date and Closing Date.
("Liabilities").
Section 2. PURCHASE PRICE FOR ASSETS. The purchase price for the Assets shall
be Two Million Four Hundred Ninety-Seven Thousand Nine Hundred Ninety-Three and
83/100 ($2,497,993.83) payable as provided in Section 3 hereof and Purchaser
shall assume all of the Liabilities.
Section 3. PAYMENT OF PURCHASE PRICE; ALLOCATION. The price for the Assets
shall be paid at Closing as follows:
(i) Purchaser shall pay in full that certain promissory note owed by Seller to
Hibernia National Bank in the amount of One Million Eight Hundred Twenty-Two
Thousand Fifteen and 50/100 ($1,822,015.50) Dollars as of May 31, 1998.
(ii) Purchaser shall execute a promissory note in form and substance
acceptable to Seller and in favor of Seller in the amount of Six Hundred
Seventy-Five Thousand Nine Hundred Seventy-Eight and 33/100 ($675,978.33)
Dollars.
The parties to this Agreement shall agree on the allocation of the Assets and
the purchase price so that filings with the Internal Revenue Service by or with
respect to each party to this Agreement shall be consistent with one another.
Section 4. ADJUSTMENTS. The operation of Seller's business and related
income and expenses up to the close of business on the Effective Date shall be
for the account of Seller and thereafter for the account of Purchaser. Expenses,
including but not limited to utilities, personal property taxes, rents, real
property taxes, wages, vacation pay, payroll taxes, and fringe benefits of
employees of Seller, shall be prorated between Seller and Purchaser as of the
close of business on the Effective Date, the proration to be made and paid,
insofar as reasonably possible, on the Closing Date, with settlement of any
remaining items to be made within ninety (90) days following the Closing Date.
Section 5. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Purchaser as follows:
5.1 Corporate Existence. Seller is now and on the Effective Date was and on
the Closing Date will be a corporation duly organized and validly existing and
in good standing under the laws of the State of Louisiana. Seller has all
requisite corporate power and authority to own, operate and/or lease the Assets,
as the case may be, and to carry on its business as now being conducted.
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5.2 Authorization. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the board of directors and
shareholders of Seller, and this Agreement constitutes a valid and binding
Agreement of Seller in accordance with its terms.
5.3 Financial Statements. Attached hereto as Exhibit B are Seller's audited
financial statements for the years ended December 31, 1995, 1996 and 1997 and
pro forma unaudited financial statements for the five (5) month period ended May
31, 1998 ("Financial Statements"). The Financial Statements are in accordance
with the books and records of Seller and are true, correct, and complete; fairly
present financial conditions of Seller at the dates of such Financial Statements
and the results of its operations for the periods then ended; and were prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods. Except as described in this Agreement,
since May 31, 1998 there has been no material adverse change in the financial
condition of Seller.
5.4 Title to Assets. Seller holds good and marketable title to the Assets,
free and clear of restrictions on or conditions to transfer or assignment, and
free and clear of liens, pledges, charges, or encumbrances.
5.5 Litigation. Seller has no knowledge of any claim, litigation,
proceeding, or investigation pending or threatened against Seller that might
result in any material adverse change in the business or condition of Assets
being conveyed under this Agreement.
Section 6. REPRESENTATIONS OF PURCHASER. Purchaser represents and warrants as
follows:
6.1 Corporate Existence. Purchaser is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Louisiana. Purchaser has all requisite limited liability company power and
authority to enter into this Agreement and perform its obligations hereunder.
6.2 Authorization. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the members of Purchaser,
and this Agreement constitutes a valid and binding Agreement of Purchaser in
accordance with its terms.
Section 7. COVENANTS OF SELLER.
7.1 Access to Premises and Information. At reasonable times prior to the
Effective Date and Closing Date, Seller will provide Purchaser and its
representatives with reasonable access during business hours to the assets,
titles, contracts, and records of Seller and furnish such additional information
concerning Seller's business as Purchaser from time to time may reasonably
request.
7.2 Change of Name. Seller will take all action necessary or appropriate to
permit Purchaser to legally commence use of Seller's name and the name "Titan"
on and as of the Effective Date.
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7.3 Conditions and Best Efforts. Seller will use its best efforts to
effectuate the transactions contemplated by this Agreement and to fulfill all
the conditions of the obligations of Seller under this Agreement, and will do
all acts and things as may be required to carry out its obligations under this
Agreement and to consummate and complete this Agreement, including obtaining the
consent of any third party to any contract assumed by Purchaser pursuant hereto.
Section 8. COVENANTS OF PURCHASER.
8.1 Conditions and Best Efforts. Purchaser will use its best efforts to
effectuate the transactions contemplated by this Agreement and to fulfill all
the conditions of Purchaser's obligations under this Agreement, and shall do all
acts and things as may be required to carry out Purchaser's obligations and to
consummate this Agreement.
Section 9. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The obligation
of Purchaser to purchase the Assets is subject to the fulfillment, prior to or
at the Effective Date and Closing Date, of each of the following conditions, any
one or portion of which may be waived in writing by Purchaser:
9.1 Representations, Warranties, and Covenants of Seller. All
representations and warranties made in this Agreement by Seller shall be true as
of the Effective Date and Closing Date as fully as though such representations
and warranties had been made on and as of the Effective Date and Closing Date,
and, as of the Effective Date and Closing Date, Seller shall not have violated
or shall not have failed to perform in accordance with any covenant contained in
this Agreement.
9.2 Conditions of the Business. There shall have been no material adverse
change in the manner of operation of Seller's business prior to the Effective
Date and Closing Date.
9.3 No Suits or Actions. At the Effective Date and Closing Date, no suit,
action, or other proceeding shall have been threatened or instituted to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the
contemplated transactions.
9.4 Closing Obligations. The Seller shall have fulfilled the obligations set
forth in Section 15.2.
Section 10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, prior to or at the Effective Date and Closing Date,
of each of the following conditions, any one or a portion of which may be waived
in writing by Seller;
10.1 Closing Obligations. The Purchaser shall have fulfilled the obligations
set forth in Section 15.3.
10.2 Representations, Warranties. and Covenants of Purchaser. All
representations and warranties made in this Agreement by Purchaser shall be true
as of the Effective Date and
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Closing Date as fully as though such representations and warranties had been
made on and as of the Effective Date and Closing Date, and Purchaser shall not
have violated or shall not have failed to perform in accordance with any
covenant contained in this Agreement.
Section 11. PURCHASER'S ACCEPTANCE. Purchaser represents and acknowledges
that it has entered into this Agreement on the basis of its own examination,
personal knowledge, and opinion of the value of the business. Purchaser has not
relied on any representations made by Seller other than those specified in this
Agreement. Purchaser further acknowledges that Seller has not made any agreement
or promise to repair or improve any of the leasehold improvements, equipment, or
other personal property being sold to Purchaser under this Agreement, and that
Purchaser takes all such property in the condition existing on the date of this
Agreement, except as otherwise provided in this Agreement.
Section 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement shall survive the Closing of this
Agreement.
Section 13. SELLER'S INDEMNIFICATION. Seller hereby agrees to indemnify
and hold Purchaser, its successors, and assigns harmless from and against any
and all claims, liabilities, and obligations of every kind and description,
contingent or otherwise, arising out of or related to the operation of Seller's
business prior to the close of business on the Effective Date, except for
claims, liabilities, and obligations of Seller expressly assumed by Purchaser
under this Agreement or paid by insurance maintained by Seller or Purchaser.
Section 14. PURCHASER'S INDEMNIFICATION. Purchaser acknowledges that all
events with respect to the Business from the close of business on, and after the
Effective Date are, have been, and shall be for the account of Purchaser.
Purchaser agrees to defend, indemnify, and hold harmless Seller from and against
any and all claims, liabilities, and obligations of every kind and description
arising out of or related to the operation of the business from the close of
business on and after the Effective Date (except, as to the events between the
Effective Date and the Closing, those arising out of the wanton or intentional
acts of Seller) or arising out of Purchaser's failure to perform obligations of
Seller assumed by Purchaser pursuant to this Agreement.
Section 15. CLOSING.
15.1 Time and Place. This Agreement shall be closed at the offices of Adams
and Reese, L.L.P., One St. Louis Centre, Suite 4500, Mobile, Alabama at 8:30
a.m. on June 30, 1998, or at such other time as the parties may agree in
writing. If Closing has not occurred on or prior to August 31, 1998, then any
party may elect to terminate this Agreement. If, however, the Closing has not
occurred because of a breach of contract by one or more parties, the breaching
party or parties shall remain liable for breach of contract.
15.2 Obligations of Seller at the Closing. At the Closing and
coincidentally with the performance by Purchaser of its obligations described in
Section 16.3, Seller shall deliver to Purchaser the following:
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(a) Executed original counterparts of the Bill of Sale, Assignment and
Assumption Agreement to effectuate the transfer and assignment of the Assets;
and
(b) Certified copy of resolution of Seller's Board of Directors
authorizing the sale of the Assets and the consummation of the transaction
contemplated by this Agreement.
15.3 Obligations of Purchaser at the Closing. At the Closing and
coincidentally with the performance by Seller of its obligations described in
Section 16.2, Purchaser shall deliver to Seller the following:
(a) Executed original counterparts of the Bill of Sale, Assignment and
Assumption Agreement to effectuate the assumption of all liabilities of Seller;
(b) Certified copy of unanimous consent of all members of Purchaser
authorizing the purchase of the Assets and the consummation of the transactions
contemplated by this Agreement.
Section 16. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
16.1 Books and Records. This sale includes the books of account and records
of Seller's business. However, Seller or its agents shall have access to such
books and records and may make copies thereof. Purchaser will exercise
reasonable care in the safekeeping of such records. Seller shall retain its
general ledger but shall make it available for inspection by Purchaser from time
to time upon reasonable request.
Section 17. MISCELLANEOUS PROVISIONS.
17.1 Effective Date. The Effective Date of this Agreement shall be May 31,
1998. All parties have agreed to this Effective Date, in part to avoid post-
closing adjustments necessary to accommodate the period after the effect of the
Financial Statements.
17.2 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified, or supplemented only by a written agreement signed by
all of the parties hereto.
17.3 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Louisiana.
17.4 Titles and Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor affect the interpretation of this Agreement.
17.5 Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
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17.6 Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement. Any
amendments to this Agreement must be in writing and signed by the party against
whom enforcement of that amendment is sought.
17.7 Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
17.8 Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purpose of the Agreement.
17.9 Counterparts. This Agreement may be executed in several counterparts
and all so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not signatories to the original or the
same counterpart.
17.10 Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
17.11 Savings Clause. If any provision of this Agreement, or the application
of such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall not be
affected thereby.
Dated:
AMERICAN AERO CRANES, L.L.C. TITAN INDUSTRIES, INC.
a Louisiana limited liability company a Louisiana corporation
By: /s/ W. Steven McKenzie By: /s/ McGowin I. Patrick, Jr.
---------------------- ---------------------------
W. Steven McKenzie McGowin I. Patrick, Jr.
President and CEO President
Attached Exhibits: A - Assets
B -Financial Statements
Aero Roll-Up/Titan Asset Purchase/APA/Titan-AAC-2
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EXHIBIT 10(e)
CAPITAL CONTRIBUTION AGREEMENT
This Capital Contribution Agreement is entered into this 30th day of June,
1998, by and among IPC INDUSTRIES, INC., an Alabama corporation ("IPC") and
AMERICAN AERO CRANES, L.L.C., a Louisiana limited liability company ("AAC") and
AERO INTERNATIONAL, L.L.C., a Louisiana limited liability company ("Aero").
WHEREAS, IPC operates a business of a general machine shop and foundry,
referred to as the Mobile Pulley & Machine Works Division, and a corporate
division (collectively, the "Business"). IPC owns equipment, inventories,
contract rights, leasehold interests, and miscellaneous assets used in
connection with the operation of the Business; and
WHEREAS, IPC wishes to acquire a preferred membership interest in Aero; and
WHEREAS, the parties have agreed that if IPC will contribute the Business
to Aero as a capital contribution in Aero, then Aero will issue Class B
Preferred Membership Interest units to IPC and shall pay other valuable
consideration including cash and the assumption of liabilities; and
WHEREAS, Aero is the parent company of AAC, and Aero wishes for AAC to take
title to the assets contributed and to assume the aforementioned liabilities.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. CAPITAL CONTRIBUTION.
1.1 Assets Transferred. IPC agrees to transfer to AAC, as a capital
contribution to Aero, and AAC agrees to acquire from IPC, on the terms and
conditions set forth in this Agreement, IPC's entire right, title and interest
in, to and under the Business, as a going concern, including all of the assets
owned or used by the IPC in connection with or arising out of the Business of
every type and description, tangible and intangible, wherever located and
whether or not reflected on the books and records of the IPC (all of the assets,
properties, rights and business being hereinafter sometimes collectively
referred to as the "Assets"), including, but not limited to,
(i) All equipment relating to the Business, including the equipment
set forth on Exhibit A;
(ii) All inventory relating to the Business, including the inventory
set forth on Exhibit A;
(iii) All accounts and notes receivable relating to the Business,
including the accounts receivable set forth on Exhibit A;
(iv) All real property of the Business;
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(v) All leasehold interests on real or personal property;
(vi) All proprietary information of the Business;
(vii) The benefit of all contracts, unfulfilled or outstanding
purchase orders, sales contracts, labor and employee benefit
plans, agency agreements, pricing agreements, other commitments
and engagements to which the IPC is entitled on the Effective
Date (herein defined) and that relate to the Business;
(viii) All cash and cash equivalents of the Business; and
(ix) Any goodwill associated with the Business.
1.2 Liabilities Assumed. Except for the Excluded Liabilities pursuant to
Section 2 hereof, AAC shall accept the assignment and assume responsibilities of
the Business and all of its liabilities, debts and obligations, whether known or
unknown, now existing or hereafter arising, contingent or liquidated, including
without limitation, liabilities of IPC with respect to the Business and of the
Business for the periods prior to the Effective Date and the Closing Date. (the
"Assumed Liabilities").
SECTION 2. EXCLUDED ASSETS AND LIABILITIES. Excluded from this transfer
and the assignment and assumption by AAC are any assets and liabilities of IPC
as reflected on Exhibit B attached hereto ("Excluded Assets and Liabilities").
SECTION 3. CONSIDERATION FOR CAPITAL CONTRIBUTION. In exchange for the
capital contribution by IPC, Aero shall:
(i) issue to IPC 720,000 duly authorized and issued units of Class B
Preferred Membership Interest in Aero International, L.L.C. having an
aggregate face amount of Nine Hundred Thousand and No/100 ($9,000,000.00)
Dollars, described on Exhibit C attached hereto.
(ii) pay to IPC cash in the amount of Two Million and No/100
($2,000,000.00) Dollars.
(iii) assume the obligation of IPC to the National Bank of Canada in the
amount of Four Million Four Hundred Seventy-Nine Thousand Four Hundred
Seventy-Four and 23/100 ($4,479,474.23) Dollars as of May 31, 1998.
(iv) assume the obligation of IPC to Foster & Foster in the amount of One
Million Four Hundred Thousand and No/100 ($1,400,000.00) Dollars, which
obligation has been discounted by the obligee to One Million One Hundred
Ninety-Five Thousand and No/100 ($1,195,000.00) Dollars pursuant to a
letter from Foster & Foster dated May , 1998 as amended by a letter dated
June , 1998.
(v) assume all of the other Assumed Liabilities.
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SECTION 4. ADJUSTMENTS. The operation of IPC's business and related
income and expenses up to the close of business on the Effective Date shall be
for the account of IPC and thereafter for the account of AAC. Expenses,
including but not limited to utilities, personal property taxes, rents, real
property taxes, wages, vacation pay, payroll taxes, and fringe benefits of
employees of IPC, shall be prorated between IPC and AAC as of the close of
business on the Effective Date, the proration to be made and paid, insofar as
reasonably possible, on the Closing Date, with settlement of any remaining items
to be made within ninety (90) days following the Closing Date.
SECTION 5. The parties to this Agreement shall agree on the allocation of
the Assets and the units to be transferred hereunder so that filings with the
Internal Revenue Service by or with respect to each party to this Agreement
shall be consistent with one another.
SECTION 6. IPC'S REPRESENTATIONS AND WARRANTIES. IPC represents and
warrants to AAC as follows:
6.1 Corporate Existence. IPC is now, and on the Effective Date was and on
the Closing Date will be a corporation duly organized and validly existing and
in good standing under the laws of the State of Alabama. IPC has all requisite
corporate power and authority to own, operate and/or lease the Assets, as the
case may be, and to carry on its business as now being conducted.
6.2 Authorization. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the board of directors and
shareholders of IPC, and this Agreement constitutes a valid and binding
Agreement of IPC in accordance with its terms.
6.3 Financial Statements. Attached hereto as Exhibit D are IPC's audited
financial statements for the years ended December 31, 1995, 1996 and 1997
(combined with Mobile Pulley Marine Services, Inc.), and unaudited proforma
financial statements for the five (5) month period ended May 31, 1998
("Financial Statements"). The Financial Statements are in accordance with the
books and records of IPC and are true, correct, and complete; fairly present
financial conditions of IPC at the dates of such Financial Statements and the
results of its operations for the periods then ended; and were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods. Except as described in this Agreement,
since May 31, 1998 there has been no material adverse change in the financial
condition of IPC.
6.4 Title to Assets. IPC holds good and marketable title to the Assets,
free and clear of restrictions on or conditions to transfer or assignment, and
free and clear of liens, pledges, charges, or encumbrances.
6.5 Litigation. IPC has no knowledge of any claim, litigation,
proceeding, or investigation pending or threatened against IPC that might result
in any material adverse change in the Business or condition of Assets being
transferred under this Agreement.
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6.6 Taxes. To the best of IPC's knowledge, all federal, state and local
tax returns of IPC required by applicable law to be filed have been duly filed,
and all federal, state, and local taxes, assessments and other governmental
charges or levies upon IPC or its income, property and assets, affecting or
relating to the Business or the Assets, which are due and payable have been paid
except any such nonpayment which is the subject of a bona fide dispute by
appropriate proceedings and for which adequate reserves have been established
and are reflected in the Financial Statements.
6.7 Material Adverse Change. To the best of IPC's knowledge, since the
date of the most recent Financial Statements furnished herewith (i) no change in
the Business, Assets, Liabilities, condition (financial or otherwise), results
of operations or business prospects of the Business has occurred that has had,
or may have, a materially adverse effect, and (ii) no event has occurred or
failed to occur which has had, or may have, a materially adverse effect.
6.8 ERISA. Each of the employee benefit plans maintained by IPC for
employees of the Business is in substantial compliance with ERISA, and IPC has
not received any notice asserting that any such benefit plan is not in
compliance with ERISA. No material liability to the Pension Benefit Guaranty
Corporation or to any multi-employer plan has been, or is expected by IPC to be,
incurred by IPC in connection with the Business.
6.9 Government Approvals; Compliance with Law. IPC (i) has all
governmental approvals required of it to carry on the Business, including
permits relating to federal, state and local environmental laws, ordinances and
regulations required by any applicable law for it to conduct the Business, each
of which is in full force and effect, is final and not subject to review on
appeal and is not the subject of any pending or, to the knowledge of IPC,
threatened proceeding, and (ii) is in compliance with all laws and governmental
requirements applicable to the Business, including but not limited to all
environmental laws and occupational health and safety laws appplicable to the
Business, except those which would not have a material adverse effect on the
Business or the Assets.
6.10 Receivables. All accounts receivable forming part of the Assets (i)
are owed to IPC and represent bona fide transactions arising out of the ordinary
course of business and not requiring any further action to make them due and
payable; (ii) are not unpaid more than 120 days after the date of the original
invoice unless set forth in writing by IPC to AAC; (iii) are valid, legally
enforceable obligations of the respective account debtors and not subject to any
present or contigent offset, deduction or counterclaim, dispute or other defense
on the part of such account debtor; and (iv) are not subject to any liens other
than the lien of National Canada Finance Corporation in connection with IPC's
revolving credit facility.
6.11 Plant and Equipment. The buildings, plants, structures and equipment
included in the Assets are structurally sound, are in good operating condition
and repair, and are adequate for the uses to which they are being put, and none
of such buildings, plants, structures or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The building, plants, structures and equipment
included in the Assets are sufficient for the continued conduct of the Business
after the Closing in substantially the same manner as conducted prior to the
Closing.
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6.12 Insurance. All policies of insurance with respect to the Business or
the Assets are listed in Schedule 6.12 attached hereto and made a part hereof
and are in full force and effect and shall remain in full force and effect as of
the Closing. All such policies provide coverage on an "occurrence" basis rather
than on a "claims made" basis.
6.13 Employment Agreements. Except as to Hannan Hairston, Stuart Box and
Albert Savage III, no employment contract or material consulting agreement is
currently in effect with any employee of the Business that is not terminable at
will (other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions).
6.14 Labor Relations; Compliance. IPC is in compliance in all respects
with all laws relating to employment, wages hours, benefits, collective
bargaining, and plant closing with respect to the Business. IPC is not liable
for the payment of any compensation, damages, taxes, fines, penalties, or other
amounts for any failure to comply with any of the foregoing.
SECTION 7. REPRESENTATIONS OF AERO. Aero represents and warrants as
follows:
7.1 Corporate Existence. Aero is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Louisiana. Aero has all requisite limited liability company power and authority
to enter into this Agreement and perform its obligations hereunder.
7.2 Authorization. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the members of Aero, and
this Agreement constitutes a valid and binding agreement of Aero in accordance
with its terms.
7.3 Issuance of Preferred Interest. The units of Class B Preferred
Membership Interest to be issued in accordance with this Agreement shall, at the
time of the Closing, be duly authorized and validly issued by Aero.
SECTION 8. REPRESENTATIONS OF AAC. AAC represents and warrants as
follows:
8.1 Corporate Existence. AAC is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Louisiana. AAC has all requisite limited liability company power and authority
to enter into this Agreement and perform its obligations hereunder.
8.2 Authorization. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the members of AAC, and this
Agreement constitutes a valid and binding Agreement of AAC in accordance with
its terms.
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SECTION 9. COVENANTS OF IPC.
9.1 Access to Premises and Information. At reasonable times prior to the
Effective Date and Closing Date, IPC will provide AAC and its representatives
with reasonable access during business hours to the assets, titles, contracts,
and records of IPC and furnish such additional information concerning IPC's
business as AAC from time to time may reasonably request.
9.2 Change of Name. IPC will take all action necessary or appropriate to
permit AAC to legally commence use of the trade name of "Mobile Pulley & Machine
Works" on the Effective Date and Closing Date.
9.3 Conditions and Best Efforts. IPC will use its best efforts to
effectuate the transactions contemplated by this Agreement and to fulfill all
the conditions of the obligations of IPC under this Agreement, and will do all
acts and things as may be required to carry out its obligations under this
Agreement and to consummate and complete this Agreement.
SECTION 10. COVENANTS OF AAC AND AERO.
10.1 Conditions and Best Efforts. AAC and Aero, respectively will each
use its best efforts to effectuate the transactions contemplated by this
Agreement and to fulfill all the conditions of AAC's obligations under this
Agreement, and shall do all acts and things as may be required to carry out
their respective obligations and to consummate this Agreement.
SECTION 11. CONDITIONS PRECEDENT TO AAC'S AND AERO'S OBLIGATIONS. The
obligation of AAC to acquire the Assets and assume the Assumed Liabilities and
of Aero to deliver a certificate of ownership of the Class B Preferred
Membership Interest described in Section 3 is subject to the fulfillment, prior
to or at the Closing Date, of each of the following conditions, any one or
portion of which may be waived in writing by AAC and Aero:
11.1 Representations, Warranties, and Covenants of IPC. All
representations and warranties made in this Agreement by IPC shall be true as of
the Effective Date and Closing Date as fully as though such representations and
warranties had been made on and as of the Effective Date and Closing Date, and,
as of the Effective Date and Closing Date, IPC shall not have violated or shall
not have failed to perform in accordance with any covenant contained in this
Agreement.
11.2 Conditions of the Business. There shall have been no material
adverse change in the manner of operation of IPC's business prior to the
Effective Date and Closing Date.
11.3 No Suits or Actions. At the Effective Date and Closing Date, no
suit, action, or other proceeding shall have been threatened or instituted to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the
contemplated transactions.
11.4 Delivery of Assets. The obligations of IPC described in Subsection
17.2 shall have been fulfilled.
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SECTION 12. CONDITIONS PRECEDENT TO OBLIGATIONS OF IPC. The obligations of
IPC to consummate the transactions contemplated by this Agreement are subject
to the fulfillment, prior to or at the Effective Date and Closing Date, of each
of the following conditions, any one or a portion of which may be waived in
writing by IPC;
12.1 Representations, Warranties and Covenants of AAC. All
representations and warranties made in this Agreement by AAC and Aero shall be
true as of the Effective Date and Closing Date as fully as though such
representations and warranties had been made on and as of the Effective Date and
Closing Date, and neither AAC nor Aero shall have violated or shall not have
failed to perform in accordance with any covenant contained in this Agreement.
12.2 Delivery of Consideration. The obligations of AAC and Aero described
in Subsection 17.3 shall have been fulfilled.
SECTION 13. AAC'S AND AERO'S ACCEPTANCE. AAC and Aero represent and
acknowledge that they have entered into this Agreement on the basis of their own
examination, personal knowledge, and opinion of the value of the Business. AAC
and Aero have not relied on any representations made by IPC other than those
specified in this Agreement. AAC and Aero further acknowledge that IPC has not
made any agreement or promise to repair or improve any of the real property,
leasehold improvements, equipment, or other personal property being transferred
under this Agreement, and that AAC takes all such property in the condition
existing on the date of this Agreement, except as otherwise provided in this
Agreement.
SECTION 14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Agreement shall survive the Closing
of this Agreement.
SECTION 15. IPC'S INDEMNIFICATION. IPC acknowledges that all events with
respect to the Business from the close of business on, and after the Effective
Date are, have been, and shall be for the account of Aero and AAC. IPC hereby
agrees to indemnify and hold Aero and AAC, their successors, and assigns
harmless from and against any and all claims, liabilities, and obligations of
every kind and description, contingent or otherwise, arising out of or related
to the operation of the Business prior to the close of Business on the Effective
Date, except for claims, liabilities, and obligations of IPC expressly assumed
by Aero and AAC under this Agreement or paid by insurance maintained by IPC or
AAC.
SECTION 16. AERO'S AND AAC'S INDEMNIFICATION. Aero and AAC acknowledge
that all events with respect to the Business from the close of business on and
after the Effective Date are, have been, and shall be for the account of Aero
and AAC. Aero and AAC agree to defend, indemnify, and hold harmless IPC from
and against any and all claims, liabilities, and obligations of every kind and
description arising out of or related to the operation of the Business on and
following the Effective Date (except, as to events between the Effective Date
and the Closing, those arising out of the wanton or intentional act of IPC) or
arising out of AAC's or Aero's failure to perform obligations of IPC assigned to
and assumed by AAC or Aero pursuant to this Agreement.
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SECTION 17. CLOSING.
17.1 Time and Place. This Agreement shall be closed at the offices of
Adams and Reese, L.L.P., One St. Louis Centre, Suite 4500, Mobile, Alabama at
8:30 a.m. on , 1998, or at such other time as the parties may agree in
writing. If Closing has not occurred on or prior to August 31, 1998, then any
party may elect to terminate this Agreement. If, however, the Closing has not
occurred because of a breach of contract by one or more parties, the breaching
party or parties shall remain liable for breach of contract.
17.2 Obligations of IPC at the Closing. At the Closing and
coincidentally with the performance by AAC and Aero of their obligations
described in Section 17.3, IPC shall deliver to AAC and Aero the following:
(a) Executed original counterpart of an Assignment and Assumption
Agreement conveying all IPC's right, title and interest to the Assets;
(b) Executed original Warranty Deed conveying all IPC's right, title
and interest to all real property of the Business; and
(c) Certified copy of resolution of IPC's Board of Directors
authorizing the transfer of the Assets and the consummation of the transaction
contemplated by this Agreement.
17.3 Obligations of AAC and Aero at the Closing. At the Closing and
coincidentally with the performance by IPC of its obligations described in
Section 17.2:
(a) Aero shall execute and deliver a certificate of ownership of
720,000 units of Class B Preferred Membership Interest in Aero described in
Section 3 (the "Preferred Membership Interest Certificate");
(b) Aero shall deliver to IPC the cash sum as set forth in Section 3;
(c) AAC shall execute and deliver an original counterpart of the
Assignment and Assumption Agreement; and
(d) AAC and Aero shall each deliver a certified copy of unanimous
consent of all its members authorizing the transfer of the Assets, the issuance
of the Preferred Membership Interest Certificate and the consummation of the
transactions contemplated by this Agreement.
SECTION 18. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
18.1 Books and Records. This transfer includes the books of account and
records of IPC's business. However, IPC or its agents shall have access to such
books and records and may make copies thereof. AAC will exercise reasonable care
in the safekeeping of such records. IPC shall retain its general ledger but
shall make it available for inspection by AAC from time to time upon reasonable
request.
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SECTION 19. MISCELLANEOUS PROVISIONS.
19.1 Effective Date. The Effective Date of this Agreement shall be May
31, 1998. All parties have agreed to this Effective Date, in part to avoid
post-closing adjustments necessary to accommodate the period after the effect of
the Financial Statements.
19.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by a written agreement
signed by all of the parties hereto.
19.3 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Alabama.
19.4 Titles and Captions. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor affect the interpretation of this Agreement.
19.5 Pronouns and Plurals. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
19.6 Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement. Any
amendments to this Agreement must be in writing and signed by the party against
whom enforcement of that amendment is sought.
19.7 Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
19.8 Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purpose of the Agreement.
19.9 Counterparts. This Agreement may be executed in several counterparts
and all so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not signatories to the original or the
same counterpart.
19.10 Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
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19.11 Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
AMERICAN AERO CRANES, L.L.C. IPC INDUSTRIES, INC.
a Louisiana limited liability company an Alabama corporation
By: /s/ W. Steven McKenzie By: /s/ Clifton C. Inge, Jr.
---------------------- ------------------------
W. Steven McKenzie Clifton C. Inge, Jr.
President and CEO Chairman and CEO
AERO INTERNATIONAL, L.L.C.
a Louisiana limited liability company
By: /s/ Byron A. Adams, Jr.
-----------------------
Byron A. Adams, Jr.
Executive Vice President
Attached Exhibits: A - Assets
B - Excluded Assets and Liabilities
C - Preferred Interest Designation
D - Financial Statements
Attached Schedules: 6.12 Insurance Certificates
Aero Roll-Up/IPC Sale Docs/Capital Cont Agree for IPC
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EXHIBIT 10(f)
CAPITAL CONTRIBUTION AGREEMENT
This Capital Contribution Agreement is entered into this 30th day of June,
1998 by and among MOBILE PULLEY MARINE SERVICES, INC., an Alabama corporation
("MPMS") and AMERICAN AERO CRANES, L.L.C., a Louisiana limited liability company
("AAC") and AERO INTERNATIONAL, L.L.C., a Louisiana limited liability company
("Aero").
WHEREAS, MPMS owns equipment, inventories, contract rights, leasehold
interests, and miscellaneous assets used in connection with the operation of
MPMS's business (the "Business"); and
WHEREAS, MPMS wishes to acquire a preferred membership interest in Aero; and
WHEREAS, the parties have agreed that if MPMS will contribute the Business to
Aero as a capital contribution in Aero, then Aero will issue Class B Preferred
Membership Interest units to MPMS and shall pay other valuable consideration
including cash and the assumption of liabilities; and
WHEREAS, Aero is the parent company of AAC, and Aero wishes for AAC to take
title to the assets contributed and to assume the aforementioned liabilities.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. ASSETS TRANSFERRED; LIABILITIES ASSUMED.
1.1 Assets Transferred. MPMS agrees to transfer to AAC, as a capital
contribution to Aero, and AAC agrees to acquire from MPMS, on the terms and
conditions set forth in this Agreement, MPMS's entire right, title and interest
in, to and under the Business, as a going concern, including all of the assets
owned or used by MPMS in connection with or arising out of the Business of every
type and description, tangible and intangible, wherever located and whether or
not reflected on the books and records of MPMS (all of the assets, properties,
rights and business being hereinafter sometimes collectively referred to as the
"Assets"), including, but not limited to,
(i) All equipment relating to the Business, including the equipment
set forth on Exhibit A;
(ii) All inventory relating to the Business, including the inventory
set forth on Exhibit A;
(iii) All accounts and notes receivable relating to the Business,
including the accounts receivable set forth on Exhibit A;
(iv) All real property of the Business;
(v) All leasehold interests on real or personal property;
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(vi) All proprietary information of the Business;
(vii) The benefit of all contracts, unfulfilled or outstanding
purchase orders, sales contracts, labor and employee benefit
plans, agency agreements, pricing agreements, other commitments
and engagements to which MPMS is entitled on the Effective Date
(herein defined) and that relate to the Business;
(viii) All cash and cash equivalents; and
(ix) Any goodwill associated with the Business.
1.2 Liabilities Assumed. Except for the Excluded Liabilities pursuant to
Section 2 hereof, AAC shall accept the assignment and assume responsibility of
the Business and all of its liabilities, debts and obligations, whether known or
unknown, now existing or hereafter arising, contingent or liquidated, including
without limitation, liabilities of MPMS with respect to the Business and of the
Business for the periods prior to the Effective Date and the Closing Date (the
"Assumed Liabilities").
SECTION 2. EXCLUDED ASSETS AND LIABILITIES. Excluded from this transfer and
the assignment and assumption by AAC are any assets and liabilities of MPMS
reflected on Exhibit B attached hereto. ("Excluded Assets and Liabilities").
SECTION 3. CONSIDERATION FOR CAPITAL CONTRIBUTION. In exchange for the
capital contribution by MPMS, Aero shall:
(i) issue to MPMS 240,000 duly authorized and issued units of Class B
Preferred Membership Interest Units in Aero International, L.L.C.
having an aggregate face amount of Three Million and No/100
($3,000,000.00) Dollars, described on Exhibit C attached hereto.
(ii) pay to MPMS cash in the amount of One Million and No/100
($1,000,000.00) Dollars.
(iii) assume the obligation of MPMS to the National Bank of Canada in
the amount of Two Million Two Hundred Forty-Two Thousand Four
Hundred Sixty-Seven and 61/100 ($2,242,467.61) Dollars as of
May 31, 1998.
(iv) assume all of the other Assumed Liabilities.
SECTION 4. ADJUSTMENTS. The operation of MPMS's business and related income
and expenses up to the close of business on the Effective Date shall be for the
account of MPMS and thereafter for the account of AAC. Expenses, including but
not limited to utilities, personal property taxes, rents, real property taxes,
wages, vacation pay, payroll taxes, and fringe benefits of employees of MPMS,
shall be prorated between MPMS and AAC as of the close of business
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on the Effective Date, the proration to be made and paid, insofar as reasonably
possible, on the Closing Date, with settlement of any remaining items to be made
within ninety (90) days following the Closing Date.
SECTION 5. The parties to this Agreement shall agree to allocate the Assets
and Units to be transferred hereunder so that filings with the Internal Revenue
Service by or with respect to each party to this Agreement shall be consistent
with one another.
SECTION 6. MPMS'S REPRESENTATIONS AND WARRANTIES. MPMS represents and
warrants to AAC as follows:
6.1 Corporate Existence. MPMS is now and on the Effective Date was and on
Closing Date will be a corporation duly organized and validly existing and in
good standing under the laws of the State of Alabama. MPMS has all requisite
corporate power and authority to own, operate and/or lease the Assets, as the
case may be, and to carry on its business as now being conducted.
6.2 Authorization. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the board of directors and
shareholders of MPMS, and this Agreement constitutes a valid and binding
Agreement of MPMS in accordance with its terms.
6.3 Financial Statements. Attached hereto as Exhibit D are MPMS's audited
financial statements for the years ended December 31, 1995, 1996 and 1997
(combined with Mobile Pulley and Machine Works, a Division of IPC Industries,
Inc.), and unaudited proforma financial statements for the five (5) month period
ended May 31, 1998 ("Financial Statements"). The Financial Statements are in
accordance with the books and records of MPMS and are true, correct, and
complete; fairly present financial conditions of MPMS and include the
Liabilities at the dates of such Financial Statements and the results of its
operations for the periods then ended; and were prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior accounting periods. Except as described in this Agreement, since May 31,
1998 there has been no material adverse change in the financial condition of
MPMS.
6.4 Title to Assets. MPMS holds good and marketable title to the Assets,
free and clear of restrictions on or conditions to transfer or assignment, and
free and clear of liens, pledges, charges, or encumbrances.
6.5 Litigation. MPMS has no knowledge of any claim, litigation, proceeding,
or investigation pending or threatened against MPMS that might result in any
material adverse change in the Business or condition of Assets being transferred
under this Agreement.
6.6 Taxes. To the best of MPMS's knowledge, all federal, state and local tax
returns of MPMS required by applicable law to be filed have been duly filed, and
all federal, state, and local taxes, assessments and other governmental charges
or levies upon MPMS or its income, property and assets, affecting or relating to
the Business or the Assets, which are due and payable
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have been paid except any such nonpayment which is the subject of a bona fide
dispute by appropriate proceedings and for which adequate reserves have been
established and are reflected in the Financial Statements.
6.7 Material Adverse Change. To the best of MPMS's knowledge, since the date
of the most recent Financial Statements furnished herewith (i) no change in the
business, Assets, Liabilities, condition (financial or otherwise), results of
operations or business prospects of the Business has occurred that has had, or
may have, a materially adverse effect, and (ii) no event has occurred or failed
to occur which has had, or may have, a materially adverse effect.
6.8 ERISA. Each of the employee benefit plans maintained by MPMS for
employees of the Business is in substantial compliance with ERISA, and MPMS has
not received any notice asserting that any such benefit plan is not in
compliance with ERISA. No material liability to the Pension Benefit Guaranty
Corporation or to any multi-employer plan has been, or is expected by MPMS to
be, incurred by MPMS in connection with the Business.
6.9 Government Approvals; Compliance with Law. MPMS (i) has all governmental
approvals required of it to carry on the Business, including permits relating to
federal, state and local environmental laws, ordinances and regulations required
by any applicable law for it to conduct the Business, each of which is in full
force and effect, is final and not subject to review on appeal and is not the
subject of any pending or, to the knowledge of MPMS, threatened proceeding, and
(ii) is in compliance with all laws nad governmental requirements applicable to
the Business, including but not limited to all environmental laws and
occupational health and safety laws appplicable to the Business, except those
which would not have a material adverse effect on the Business or the Assets.
6.10 Receivables. All accounts receivable forming part of the Assets (i) are
owed to MPMS and represent bona fide transactions arising out of the ordinary
course of business and not requiring any further action to make them due and
payable; (ii) are not unpaid more than 120 days after the date of the original
invoice unless set forth in writing by MPMS to AAC; (iii) are valid, legally
enforceable obligations of the respective account debtors and not subject to any
present or contigent offset, deduction or counterclaim, dispute or other defense
on the part of such account debtor; and (iv) are not subject to any liens other
than the lien of National Canada Finance Corp. in connection with MPMS's
revolving credit facility.
6.11 Plant and Equipment. The buildings, plants, structures and equipment
included in the Assets are structurally sound, are in good operating condition
and repair, and are adequate for the uses to which they are being put, and none
of such buildings, plants, structures or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The building, plants, structures and equipment
included in the Assets are sufficient for the continued conduct of the Business
after the Closing in substantially the same manner as conducted prior to the
Closing.
6.12 Insurance. All policies of insurance with respect to the Business or
the Assets are listed in Schedule 6.12 attached hereto and made a part hereof
and are in full force and effect
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and shall remain in full force and effect as of the Closing. All such policies
provide coverage on an "occurrence" basis rather than on a "claims made" basis.
6.13 Employment Agreements. No employment contract or material consulting
agreement is currently in effect with any employee of the Business that is not
terminable at will (other than agreements with the sole purpose of providing for
the confidentiality of proprietary information or assignment of inventions).
6.14 Labor Relations; Compliance. MPMS is in compliance in all respects with
all laws relating to employment, wages hours, benefits, collective bargaining,
and plant closing with respect to the Business. MPMS is not liable for the
payment of any compensation, damages, taxes, fines, penalties, or other amounts
for any failure to comply with any of the foregoing.
SECTION 7. REPRESENTATIONS OF AERO. Aero represents and warrants as follows:
7.1 Corporate Existence. Aero is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Louisiana. Aero has all requisite limited liability company power and authority
to enter into this Agreement and perform its obligations hereunder.
7.2 Authorization. The execution, delivery, and performance of this
Agreement has been duly authorized and approved by the members of Aero, and this
Agreement constitutes a valid and binding agreement of Aero in accordance with
its terms.
7.3 Issuance of Preferred Interest. The units of Class B Preferred
Membership Interest to be issued in accordance with this Agreement shall, at the
time of the Closing, be duly authorized and validly issued by Aero.
SECTION 8. REPRESENTATIONS OF AAC. AAC represents and warrants as follows:
8.1 Corporate Existence. AAC is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of Louisiana.
AAC has all requisite limited liability company power and authority to enter
into this Agreement and perform its obligations hereunder.
8.2 Authorization. The execution, delivery, and performance of this
Agreement has been duly authorized and approved by the members of AAC, and this
Agreement constitutes a valid and binding Agreement of AAC in accordance with
its terms.
SECTION 9. COVENANTS OF MPMS.
9.1 Access to Premises and Information. At reasonable times prior to the
Effective Date and Closing Date, MPMS will provide AAC and its representatives
with reasonable access during business hours to the assets, titles, contracts,
and records of MPMS and furnish such
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additional information concerning MPMS's business as AAC from time to time may
reasonably request.
9.2 Change of Name. MPMS will take all action necessary or appropriate to
permit AAC to legally commence use of MPMS's name on the Effective Date and
Closing Date.
9.3 Conditions and Best Efforts. MPMS will use its best efforts to
effectuate the transactions contemplated by this Agreement and to fulfill all
the conditions of the obligations of MPMS under this Agreement, and will do all
acts and things as may be required to carry out its obligations under this
Agreement and to consummate and complete this Agreement.
SECTION 10. COVENANTS OF AAC AND AERO.
10.1 Conditions and Best Efforts. AAC and Aero, respectively, will each use
its best efforts to effectuate the transactions contemplated by this Agreement
and to fulfill all the conditions of their respective obligations under this
Agreement, and shall do all acts and things as may be required to carry out
their respective obligations and to consummate this Agreement.
SECTION 11. CONDITIONS PRECEDENT TO AAC'S AND AERO'S OBLIGATIONS. The
obligation of AAC to acquire the Assets and assume the Assumed Liabilities and
of Aero to deliver a certificate of ownership of the Class B Preferred
Membership Interest described in Section 3 is subject to the fulfillment, prior
to or at the Closing Date, of each of the following conditions, any one or
portion of which may be waived in writing by AAC and Aero:
11.1 Representations, Warranties, and Covenants of MPMS. All
representations and warranties made in this Agreement by MPMS shall be true as
of the Effective Date and Closing Date as fully as though such representations
and warranties had been made on and as of the Effective Date and Closing Date,
and MPMS shall not have violated or shall not have failed to perform in
accordance with any covenant contained in this Agreement.
11.2 Conditions of the Business. There shall have been no material adverse
change in the manner of operation of MPMS's business prior to the Effective Date
and Closing Date.
11.3 No Suits or Actions. At the Effective Date and Closing Date, no suit,
action, or other proceeding shall have been threatened or instituted to
restrain, enjoin, or otherwise prevent the consummation of this Agreement or the
contemplated transactions.
11.4 Delivery of Assets. The obligations of IPC described in Subsection 17.2
shall have been fulfilled.
SECTION 12. CONDITIONS PRECEDENT TO OBLIGATIONS OF MPMS. The obligations of
MPMS to consummate the transactions contemplated by this Agreement are subject
to the fulfillment, prior to or at the Effective Date and Closing Date, of each
of the following conditions, any one or a portion of which may be waived in
writing by MPMS;
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12.1 Representations, Warranties. and Covenants of AAC. All representations
and warranties made in this Agreement by AAC and Aero shall be true as of the
Effective Date and Closing Date as fully as though such representations and
warranties had been made on and as of the Effective Date and Closing Date, and
neither AAC nor Aero have violated or shall not have failed to perform in
accordance with any covenant contained in this Agreement.
12.2 Delivery of Consideration. The obligations of AAC and Aero described in
Subsection 17.3 shall have been fulfilled.
SECTION 13. AAC'S AND AERO'S ACCEPTANCE. AAC and Aero represents and
acknowledge that they have entered into this Agreement on the basis of their own
examination, personal knowledge, and opinion of the value of the Business. AAC
and Aero have not relied on any representations made by MPMS other than those
specified in this Agreement. AAC and Aero further acknowledge that MPMS has not
made any agreement or promise to repair or improve any of the leasehold
improvements, equipment, or other personal property being transferred under this
Agreement, and that AAC takes all such property in the condition existing on the
date of this Agreement, except as otherwise provided in this Agreement.
SECTION 14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement shall survive the Closing of this
Agreement.
SECTION 15. MPMS'S INDEMNIFICATION. MPMS acknowledges that all events
with respect to the Business from the close of business on and after the
Effective Date and, have been and shall be for the account of Aero and AAC.
MPMS hereby agrees to indemnify and hold Aero and AAC, its successors, and
assigns harmless from and against any and all claims, liabilities, and
obligations of every kind and description, contingent or otherwise, arising out
of or related to the operation of the Business prior to the close of business on
the day of the Effective Date, except for claims, liabilities, and obligations
of MPMS expressly assumed by Aero and AAC under this Agreement or paid by
insurance maintained by MPMS or AAC.
SECTION 16. AERO'S AND AAC'S INDEMNIFICATION. Aero and AAC acknowledge
that all events with respect to the Business from the close of business on and
after the Effective Date are, have been, and shall be for the account of Aero
and AAC. Aero and AAC hereby agree to defend, indemnify, and hold harmless MPMS
and their successor from and against any and all claims, liabilities, and
obligations of every kind and description arising out of or related to the
operation of the Business following Closing (except, as to events between the
Effective Date and the Closing, those arising out of the wanton or intentional
acts of MPMS) or arising out of AAC's or Aero's failure to perform obligations
of MPMS assigned to and assumed by AAC or Aero pursuant to this Agreement.
SECTION 17. CLOSING.
17.1 Time and Place. This Agreement shall be closed at the offices of Adams
and Reese, L.L.P., One St. Louis Centre, Suite 4500, Mobile, Alabama at 8:30
a.m. on June 30, 1998, or at such other time as the parties may agree in
writing. If Closing has not occurred on or prior to August 31, 1998, then any
party may elect to terminate this Agreement. If, however, the
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Closing has not occurred because of a breach of contract by one or more parties,
the breaching party or parties shall remain liable for breach of contract.
17.2 Obligations of MPMS at the Closing. At the Closing and coincidentally
with the performance by AAC and Aero of their obligations described in Section
17.3, MPMS shall deliver to AAC and Aero the following:
(a) Executed original counterpart of an Assignment and Assumption
Agreement conveying all MPMS's right, title and interest to the Assets;
(b) Certified copy of resolution of MPMS's Board of Directors
authorizing the transfer of the Assets and the consummation of the transaction
contemplated by this Agreement; and
17.3 Obligations of AAC and Aero at the Closing. At the Closing and
coincidentally with the performance by MPMS of its obligations described in
Section 17.2:
(a) Aero shall execute and deliver a certificate of ownership of
240,000 units of Class B Preferred Membership Interest in Aero described in
Section 3 (the "Preferred Membership Interest Certificate").
(b) Aero shall deliver to MPMS the cash sum as set forth in Section 3.
(c) AAC and Aero shall each deliver a certified copy of unanimous
consent of all its members authorizing the transfer of the Assets, the issuance
of the Preferred Membership Interest Certificate and the consummation of the
transactions contemplated by this Agreement.
(d) AAC shall execute and deliver an original counterpart of the
Assignment and Assumption Agreement.
SECTION 18. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
18.1 Books and Records. This transfer includes the books of account and
records of MPMS's business. However, MPMS or its agents shall have access to
such books and records and may make copies thereof. AAC will exercise reasonable
care in the safekeeping of such records. MPMS shall retain its general ledger
but shall make it available for inspection by AAC from time to time upon
reasonable request.
SECTION 19. MISCELLANEOUS PROVISIONS.
19.1 Effective Date. The Effective Date of this Agreement shall be May 31,
1998. All parties have agreed to this Effective Date, in part to avoid post-
closing adjustments necessary to accommodate the period after the effect of the
Financial Statements.
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19.2 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified, or supplemented only by a written agreement signed by
all of the parties hereto.
19.3 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Alabama.
19.4 Titles and Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor affect the interpretation of this Agreement.
19.5 Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
19.6 Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement. Any
amendments to this Agreement must be in writing and signed by the party against
whom enforcement of that amendment is sought.
19.7 Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
19.8 Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purpose of the Agreement.
19.9 Counterparts. This Agreement may be executed in several counterparts
and all so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not signatories to the original or the
same counterpart.
19.10 Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
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19.11 Savings Clause. If any provision of this Agreement, or the application
of such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall not be
affected thereby.
AMERICAN AERO CRANES, L.L.C. MOBILE PULLEY MARINE SERVICES,
a Louisiana limited liability company INC., an Alabama corporation
By: /s/ W. Steven McKenzie By: /s/ Clifton C. Inge, Jr.
---------------------- ------------------------
W. Steven McKenzie Clifton C. Inge, Jr.
President and CEO Chairman and CEO
AERO INTERNATIONAL, L.L.C.
a Louisiana limited liability company
By: /s/ Byron A. Adams, Jr.
-----------------------
Byron A. Adams, Jr.
Executive Vice President
Attached Exhibits: A - Assets
B - Excluded Assets and Liabilities
C - Preferred Interest Designation
D - Financial Statements
Attached Schedules: 6.12 Insurance Certificates
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EXHIBIT 10(g)
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made as of November 17, 1998, by
and between Offshore Tool & Energy Corporation, a Delaware corporation (the
"Corporation"), and McGowin I. Patrick, Jr. ("Indemnitee").
In consideration of Indemnitee's continued service after the date hereof,
the Corporation and Indemnitee do hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of the
Corporation for so long as he is elected or appointed or until such earlier time
as he tenders his resignation in writing.
2. DEFINITIONS. As used in this Agreement:
(a) The term "Expenses" shall have the meaning set forth in the
Corporation's Bylaws.
(b) The term "Claim" shall have the meaning set forth in the Corporation's
Bylaws.
(c) The term "Determining Body" shall have the meaning set forth in the
Corporation's Bylaws.
(d) The term "Standard of Conduct" shall have the meaning set forth in
Section 9(b) of the Corporation's Bylaws.
3. MAINTENANCE OF INSURANCE AND SELF-INSURANCE.
(a) The Corporation represents that it presently maintains in force and
effect the following policies (the "Insurance Policies") of directors and
officers liability insurance ("D&O Insurance"):
Insurer Policy No. Coverage
------- ---------- --------
Lloyd's of London MC92638 $5,000,000
Subject only to the provisions of Section 3(b) hereof, the Corporation hereby
agrees that so long as Indemnitee shall continue to serve as a director (or
shall continue at the request of the Corporation to serve in any capacity
referred to in Section 4(a) hereof) and thereafter so long as Indemnitee shall
be subject to any possible Claim, the Corporation shall use its best efforts to
purchase and maintain in effect for the benefit of Indemnitee one or more valid
and enforceable policy or policies of D&O Insurance providing, in all respects,
coverage at least comparable to that currently provided pursuant to the
Insurance Policies.
(b) The Corporation shall not be required to purchase and maintain the
Insurance Policies in effect if D&O Insurance is not reasonably available or if,
in the reasonable business judgment of the then directors of the Corporation,
either (i) the premium cost for such insurance is excessive in light of the
amount of coverage or (ii) the coverage provided by such insurance is so limited
by exclusions, retentions, deductibles or otherwise that there is insufficient
benefit from such insurance.
(c) If the Corporation does not purchase and maintain in effect the
Insurance Policies pursuant to the provisions of Section 3(b) hereof, the
Corporation agrees to hold harmless and indemnify Indemnitee to the full extent
of the coverage that would otherwise have been provided for the benefit of
Indemnitee pursuant to the Insurance Policies.
<PAGE>
4. ADDITIONAL INDEMNITY.
(a) To the extent any Expenses incurred by Indemnitee are in excess of the
amounts reimbursed or indemnified pursuant to the provisions of Section 3
hereof, the Corporation shall indemnify and hold harmless Indemnitee against any
such Expenses actually and reasonably incurred, as they are incurred, in
connection with any Claim against Indemnitee (whether as a subject of or party
to, or a proposed or threatened subject of or party to, the Claim) or in which
Indemnitee is involved solely as a witness or person required to give evidence,
by reason of his position
(i) as a director of the Corporation,
(ii) as a director or officer of any subsidiary of the Corporation or as a
fiduciary with respect to any employee benefit plan of the Corporation, or
(iii) as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other for profit or not for profit entity
or enterprise, if such position is or was held at the request of the
Corporation, whether relating to service in such position before or after the
effective date of this Agreement, if (A) the Indemnitee is successful in his
defense of the Claim on the merits or otherwise or (B) the Indemnitee has been
found by the Determining Body to have met the Standard of Conduct; provided that
no indemnification shall be made in respect of any Claim as to which Indemnitee
shall have been adjudged in a final payment to be liable to the Corporation
unless, and only to the extent that, the court in which such Claim was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Expenses as the court shall deem
proper; provided further that, if the Claim involves Indemnitee by reason of his
or her position with an entity or enterprise described in clause (ii) or (iii)
of this Section 4(a) and if Indemnitee may be entitled to indemnification with
respect to such Claim from such entity or enterprise, Indemnitee shall be
entitled to indemnification hereunder only (x) if he or she has applied to such
entity or enterprise for indemnification with respect to the Claim and (y) to
the extent that indemnification to which he or she would be entitled hereunder
but for this proviso exceeds the indemnification paid by such other entity or
enterprise; and provided further that this Section 4(a) shall not be effective
with respect to an action or claim (other than an action or claim under Section
9.2 of the Corporation's Bylaws or an action or claim to enforce the provisions
of this Agreement) commenced by Indemnitee against the Corporation or by
Indemnitee as a derivative action by or in the right of the Corporation that has
not been authorized by the Board of Directors of the Corporation.
(b) The procedures for notification and determination of Claims, settlement
and defense of Claims, advancement of Expenses by the Corporation and
confidentiality of this Agreement shall be governed in all respects by Sections
9(b) through 9(l) of the Bylaws of the Corporation as in effect on the date of
this Agreement.
5. ENFORCEMENT.
(a) The rights provided by this Agreement shall be enforceable by
Indemnitee in any court of competent jurisdiction.
(b) If Indemnitee seeks a judicial adjudication of his rights under, or to
recover damages for breach of, this Agreement, Indemnitee shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation
against, any and all Expenses actually and reasonably incurred by him in
connection with such proceeding, but only if he prevails therein. If it shall
be determined that Indemnitee is entitled to receive part but not all of the
relief sought, then Indemnitee shall be entitled to be reimbursed for all
Expenses incurred by him in connection with such proceeding if the
indemnification amount to which he is determined to be entitled exceeds 50% of
the amount of his claim. Otherwise, the Expenses incurred by Indemnitee in
connection with such judicial adjudication shall be appropriately pro-rated.
(c) In any judicial proceeding described in this Section 6, the Corporation
shall bear the burden of proving that Indemnitee is not entitled to Expenses
sought with respect to any Claim.
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6. SAVINGS CLAUSE. If any provision of this Agreement is determined by a court
having jurisdiction over the matter to require the Corporation to do or refrain
from doing any act that is in violation of applicable law, the court shall be
empowered to modify or reform such provision so that, as modified or reformed,
such provision provides the maximum indemnification permitted by law and such
provision, as so modified or reformed, and the balance of this Agreement, shall
be applied in accordance with their terms. Without limiting the generality of
the foregoing, if any portion of this Agreement shall be invalidated on any
ground, the Corporation shall nevertheless indemnify Indemnitee to the full
extent permitted by any applicable portion of this Agreement that shall not have
been invalidated and to the full extent permitted by law with respect to that
portion that has been invalidated.
7. NON-EXCLUSIVITY.
(a) The indemnification and payment of Expenses provided by or granted
pursuant to this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee is or may become entitled under any statute, article of
incorporation, bylaw, authorization of shareholders or directors, agreement or
otherwise.
(b) It is the intent of the Corporation by this Agreement to indemnify and
hold harmless Indemnitee to the fullest extent permitted by law, so that if
applicable law would permit the Corporation to provide broader indemnification
rights than are currently permitted, the Corporation shall indemnify and hold
harmless Indemnitee to the fullest extent permitted by applicable law
notwithstanding that the other terms of this Agreement would provide for lesser
indemnification.
8. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall constitute the original.
9. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Indemnitee
and upon the Corporation, its successors and assigns, and shall inure to the
benefit of Indemnitee's heirs, personal representatives, and assigns and to the
benefit of the Corporation, its successors and assigns.
11. AMENDMENT. No amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the Corporation
and Indemnitee. Notwithstanding any amendment or modification to or termination
or cancellation of this Agreement or any portion hereof, Indemnitee shall be
entitled to indemnification in accordance with the provisions hereof with
respect to any acts or omissions of Indemnitee which occur prior to such
amendment, modification, termination or cancellation.
12. GENDER. All pronouns and variations thereof used in this Agreement shall
be deemed to refer to the masculine, feminine or neuter gender, singular or
plural, as the identity of the person, persons, entity or entities refer to may
require.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the date and year first above written.
INDEMNITEE: OFFSHORE TOOL & ENERGY CORPORATION
By:
- ----------------------- ----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT 10(h)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of November
17, 1998, is by and among IPC Industries, Inc., Byron A. Adams, Jr., W. Steven
McKenzie and Thomas W. Pritchard (each a "Holder" and collectively, the
"Holders"); and Offshore Tool & Energy Corporation, a Delaware corporation (the
"Company").
WHEREAS, pursuant to the Agreement and Plan of Share Exchanges dated as of
October 1, 1998 as amended on November 6, 1998 (the "Exchange Agreement") by and
among the Company, International Tool and Supply plc ("ITS"), Aero
International, L.L.C. ("Aero") and certain Aero Holders named therein, the
Company will acquire Aero and substantially all the assets of ITS in exchange
for 50,000,000 shares of the Company's common stock (the "Common Stock"); and
WHEREAS, the Company intends to qualify the Common Stock for admission to
trading on the Alternative Investment Market of the London Stock Exchange; and
WHEREAS, the Company intends to register the Common Stock with the
Securities and Exchange Commission under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), within the period required under
the Exchange Act; and
WHEREAS, under the provisions of the Securities Act of 1933, as amended
(the "Securities Act") and the rules and regulations promulgated thereunder, the
Holders may be limited in the manner of sale of the shares of Common Stock owned
by them in the United States, absent registration under the Securities Act of
the sale of such Common Stock or the availability of exemption from the
registration requirements of the Securities Act; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, "Restricted Stock" shall mean all shares of
Common Stock that were held of record by the Holders immediately after the
Closing of the Exchange Agreement (as defined therein), together with any
securities issued or issuable with respect to any such Restricted Stock by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise
(collectively, "Share Transactions"), that shall be outstanding from time to
time; "Initial Restricted Stock" shall refer to the total number of shares of
Restrictive Stock held of record immediately after the Closing of the Exchange
Agreement, together with such other shares of Common Stock which shall become
Restricted Stock by virtue of any Share Transactions. As to any particular
Restricted Stock, such securities shall cease to be Restricted Stock 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 in accordance with such registration statement, (ii) such securities
shall have been distributed by the Holders to the public pursuant to Rule 144A
(or any successor provision) under the Securities Act, (iii) such securities
shall have been otherwise transferred by the Holders, new certificates
representing the transferred securities not bearing a legend restricting further
transfer shall have been delivered by the Company to the transferees thereof and
subsequent disposition of such securities shall not require registration or
qualification of such securities under the Securities Act or any similar state
law then in force, (iv) such securities shall have ceased to be outstanding, or
(v) the Holders thereof shall agree in writing that such Restricted Stock shall
no longer be Restricted Stock. The terms "Holder" and "Holders" include any
permitted assignee or assignees of any Holder or Holders, and "Majority Holders"
means the majority in number of shares of Restricted Stock to be registered
pursuant to a request for registration under Section 2 or Section 3 of this
Agreement.
<PAGE>
2. DEMAND REGISTRATION.
(A) Request for Registration. Subject to the conditions and limitations
set forth in Section 5 of this Agreement, at any time and from time to time
after [DATE], the Holder or Holders of Restricted Stock holding in the aggregate
fifty percent (50%) of the outstanding shares of Restricted Stock may make a
written request for registration under the Securities Act of all or part of its
or their Restricted Stock pursuant to this Section 2 ("Demand Registration"),
provided that the number of shares of Restricted Stock proposed to be sold or
distributed shall be at least twenty percent (20%) of the number of shares of
Initial Restricted Stock. Such request will specify the aggregate number of
shares of Restricted Stock proposed to be sold or distributed and will also
specify the intended method of disposition thereof. Within ten business days
after receipt of such request, the Company will give written notice of such
registration request to all other Holders of Restricted Stock and include in
such registration all Restricted Stock with respect to which the Company has
received written requests for inclusion therein within fifteen business days
after the receipt by the applicable Holder of the Company's notice. Each such
request will also specify the aggregate number of shares of Restricted Stock to
be registered and the intended method of disposition thereof. No other party
(other than the Company) shall be permitted to offer securities under any such
Demand Registration unless the Majority Holders shall consent thereto in writing
(such other party, a "Permitted Party").
(B) Underwritten Offering; Selection of Underwriters and Counsel. Any
offering of Restricted Stock pursuant to a Demand Registration shall be an
underwritten offering. The Majority Holders will select and obtain the services
of the investment banker or investment bankers and manager or managers that will
administer the offering; provided that such investment bankers shall be approved
by the Company, which approval shall not be unreasonably withheld.
(C) Priority on Demand Registrations. In the event the managing
underwriter or underwriters in an underwritten offering pursuant to a Demand
Registration advise the Company and the Holders in writing that in their opinion
the aggregate number of shares of Common Stock requested to be included in such
offering is so large that it will materially and adversely affect the success of
such offering, the Company will include in such registration only the aggregate
number of shares of Common Stock which in the opinion of such managing
underwriter or underwriters can be sold without any such material adverse
effect, and such number of shares shall be allocated pro rata among the Holders
of Restricted Stock, the Company and any Permitted Parties on the basis of the
number of shares of Common Stock requested by such Holders, the Company and such
Permitted Parties to be included in such registration. If greater than fifty
percent (50%) of the Restricted Stock so requested to be registered is excluded
from the offering based on the provisions of the foregoing sentence, the Holders
shall have the right to an additional Demand Registration under Section 5(A)(i).
3. PIGGYBACK REGISTRATION.
If the Company proposes to file a registration statement under the
Securities Act with respect to a firm commitment underwritten offering of Common
Stock for its own account, or for the account of any of its security holders,
for cash (other than a registration statement on Form S-4 or Form S-8 (or any
successor forms)), then the Company shall in each case given written notice of
such proposed filing to the Holders as soon as practicable (but no later than
ten business days before the filing date), and such notice shall offer such
Holders the opportunity to register such number of shares of Restricted Stock as
each such Holder may request. Each Holder desiring to have Restricted Stock
included in such registration statement shall so advise the Company in writing
within ten business days after the date of the Company's notice, setting forth
the amount of such Holder's Restricted Stock for which registration is
requested. The Company shall, subject to the further provisions of this
Agreement, use its reasonable best efforts to cause the managing underwriter or
underwriters to permit the Holders of the Restricted Stock requested to be
included in the registration for such offering to include such securities in
such offering on the same terms and conditions as the securities of the Company
included therein. The right of each Holder to registration pursuant to this
Section 3 shall, unless the Company otherwise assents, be conditioned upon such
Holder's participation as a seller in such underwriting and its execution of an
underwriting agreement with the managing underwriter or underwriters selected by
the Company. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the Holders of
Restricted Stock that because of the size of the offering which the Holders, the
Company and other persons intend to make, the success of the offering would be
materially and adversely affected by inclusion of the Restricted Stock requested
to be included, then the number
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of shares of Restricted Stock to be offered for the accounts of Holders shall be
reduced pro rata on the basis of the number of shares requested by such Holders
to be offered to the extent necessary to reduce the total amount of Common Stock
to be included in such offering to the amount recommended by such managing
underwriter or underwriters; provided that if Common Stock is also being offered
for the account of other persons or entities (other than pursuant to a Demand
Registration under Section 2), such reduction shall not be made until the number
of shares of Common Stock offered for the account of such other persons or
entities is reduced to zero. Any Restricted Stock excluded from an underwriting
shall be withdrawn from registration and shall not, without the consent of the
Company and the managing underwriter, be transferred in a public distribution or
a sale into the public trading markets prior to the earlier of 120 days (or such
other shorter period of time as the managing underwriter may require) after the
effective date of the registration statement or 180 days after the date the
Holders of such Restricted Stock are notified of such exclusion.
4. REGISTRATION PROCEDURES.
Whenever, pursuant to Section 2 or Section 3, the Holders have requested
that any Restricted Stock be registered, the Company will, subject to the
provisions of Section 5, use all reasonable best efforts to effect the
registration and the sale or distribution of such Restricted Stock in accordance
with the intended method of disposition thereof as promptly as practicable, and
in connection with any such request, the Company shall:
(A) promptly prepare and file with the Securities and Exchange Commission
("SEC") a registration statement on Form S-3, if the Company then qualifies for
the use of such form, and if the Company is not so qualified on any form for
which the Company then qualifies and which form shall be available for the sale
or distribution of such Restricted Stock in accordance with the intended method
of distribution thereof, and use its reasonable best efforts to cause such
registration statement to become effective; provided that if the Board of
Directors of the Company has determined in its good faith judgment that the
filing of such registration statement would materially adversely affect a
pending or proposed public offering of the Company's securities or would
otherwise be significantly disadvantageous to the Company and the Company shall
furnish to Holders making such a request within ten days after of the date of
such request a certificate signed by either the chief executive officer or the
chief financial officer of the Company stating that the Board of Directors has
made such determination, the Company may delay taking any of the actions
required by this Section 4 for a period not to exceed 180 days (provided that
the Company shall be entitled to furnish such a certificate only once in any 12-
month period); and provided further, (i) that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
will furnish to counsel selected by the Majority Holders copies of all such
documents proposed to be filed, which documents will be subject to the review
and comment of such counsel, and (ii) that after the filing of the registration
statement, the Company will promptly notify each selling Holder of any stop
order issued or, to the knowledge of the Company, threatened by the SEC and take
all reasonable actions to prevent the entry of such stop order or to remove it
if entered;
(B) promptly prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until the
distribution of all Restricted Stock covered by such registration statement
shall have terminated, and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period; provided that, with respect to any shelf
registration statement of the Company which shall include Restricted Stock
pursuant to Section 3, the Company's obligations under this Section 4(B) shall
cease on the 91st day after the distribution of all the Common Stock registered
by the Company shall have been terminated;
(C) as soon as reasonably practicable, furnish to such selling Holders
copies of such registration statement as proposed to be filed, and thereafter
furnish to such selling Holders such number of copies of such registration
statement, each amendment and supplement thereto (in each case, if specified by
such Holders, including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such selling Holders may reasonably request in order to facilitate
the disposition of the Restricted Stock owned by such selling Holders;
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(D) with reasonable promptness, use its reasonable best efforts to
register or qualify such Restricted Stock under such other securities or blue
sky laws of such jurisdictions within the United States as any selling Holder
reasonably requests to enable such selling Holder to consummate the disposition
in such jurisdictions of the Restricted Stock owned by such selling Holder;
provided that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subsection (D), or (ii) subject itself to taxation in any such
jurisdiction;
(E) promptly notify each selling Holder of such Restricted Stock, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event known to the Company requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers or recipients of such Restricted Stock,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to each
selling Holder any such supplement or amendment;
(F) if requested by the underwriters for any underwritten offering by a
Holder or Holders pursuant to a registration under Section 2 or Section 3, enter
into an underwriting agreement with such underwriters, which agreement shall be
satisfactory in form and substance to the Majority Holders and certain such
representations and warranties by the Company and such other terms and
conditions as are customarily contained in underwriting agreements.
(G) with reasonable promptness make available for inspection by any
selling Holder, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such selling Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and the properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
investigation, and cause the Company's officers and employees to supply all
information reasonably requested for such purpose by any such Inspector in
connection with such registration statement. Each Inspector that actually
reviews Records supplied by the Company that include information that the
Company identifies, in good faith, to be confidential ("Confidential
Information") shall be required, prior to any such review, to execute an
agreement with the Company providing that such Inspector shall not publicly
disclose any Confidential Information unless such disclosure is required by
applicable law or legal process. Each selling Holder of Restricted Stock agrees
that Confidential Information obtained by it as a result of such inspection
shall not be used by it as the basis for any transactions in securities of the
Company unless and until such information is made generally available to the
public. Each selling Holder of Restricted Stock further agrees that it will,
upon learning that disclosure of Confidential Information is sought in a court
of competent jurisdiction, give notice to the Company and allow the Company, at
its expense to undertake appropriate action to prevent disclosure of the
Confidential Information. Each selling Holder also agrees that the due
diligence investigation made by the Inspectors shall be conducted in a manner
which shall not unreasonably disrupt the operations of the Company or the work
performed by the Company's officers and employees;
(H) in the event such sale is pursuant to an underwritten offering, use
its reasonable efforts to obtain a comfort letter or letters from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters as the managing underwriter
reasonably requests;
(I) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of
twelve months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(J) with reasonable promptness, use its reasonable efforts to cause all
such Restricted Stock to be listed on each securities exchange on which the
Common Stock of the Company is then listed, provided that the applicable listing
requirements are satisfied.
Each selling Holder of Restricted Stock agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
subsection (E) hereof, such selling Holder will forthwith discontinue
disposition of Restricted Stock pursuant to the registration statement covering
such Restricted Stock until such
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selling Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subsection (E) hereof. In the event the Company shall give any
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective pursuant to this Agreement (including
the period referred to in subsection (B)) by the number of days during the
period from and including the date of the giving of such notice pursuant to
subsection (E) hereof to and including the date when each selling Holder of
Restricted Stock covered by such registration statement shall have received the
copies of the supplemented or amended prospectus contemplated by subsection (E)
hereof. Each selling Holder also agrees to notify the Company if any event
relating to such selling Holder occurs which would require the preparation of a
supplement or amendment to the prospectus so that such prospectus will not
contain 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.
5. CONDITIONS AND LIMITATIONS.
(A) The Company's obligations under Section 2 shall be subject to the
following limitations:
(i) except as provided in Section 2(B), the Company shall not be
required to file more than three Demand Registrations. A registration statement
will not count as a Demand Registration until it has become effective, provided
that, in the event one or more selling Holders withdraws his or her request for
a Demand Registration (1) after the filing of the registration statement but
prior to the effectiveness thereof, or (2) prior to the filing of the
registration statement and after thirty business days from the date the Holders
make a written request for a Demand Registration under Section 2(A) (provided
that the Company shall not have exercised its delay rights under Section 4(A)),
and as a result thereof the remaining Restricted Stock subject to the request
for Demand Registration shall fail to constitute at least twenty percent (20%)
of the number of shares of Initial Restricted Stock, such request for Demand
Registration shall count as a Demand Registration under this Section 5(A)(i)
unless the Holders pay and reimburse the Company for all the fees and expenses
incurred by it in connection with such requested registration.
(ii) the Company shall have received the information and documents
specified in Section 6 and each selling Holder shall have observed or performed
its other covenants and conditions contained in Section 6 and Section 7.
(B) The Company's obligation under Section 3 shall be subject to the
limitations and conditions specified in such Section and in this Section 5, and
to the condition that the Company may at any time terminate its proposal to
register its shares and discontinue its efforts to cause a registration
statement for the Company's securities to become or remain effective.
6. INFORMATION FROM AND CERTAIN COVENANTS OF HOLDERS.
Notices and requests delivered to the Company by Holders for whom
Restricted Stock is to be registered pursuant to this Agreement shall contain
such information regarding the Restricted Stock to be so registered, the Holder
and the intended method of disposition of such Restricted Stock as shall
reasonably be required in connection with the action to be taken. Any Holder
whose Restricted Stock is included in a registration statement pursuant to this
Agreement shall execute all consents, powers of attorney, registration
statements and other documents reasonably required to be signed by it in order
to cause such registration statement to become effective. Each selling Holder
covenants that, in disposing of such Holder's shares, such Holder shall comply
with Rules 10b-2, 10b-5 and Regulation M of the SEC adopted pursuant to the
Exchange Act (and any successor rules thereto).
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7. REGISTRATION EXPENSES.
All Registration Expenses (as defined herein) will be borne by the Company.
Underwriting discounts and commissions applicable to the sale of Restricted
Stock shall be borne by the Holder of the Restricted Stock to which such
discount or commission relates, and each selling Holder shall be responsible for
the fees and expenses of any legal counsel, accountants or other agents retained
by such selling Holder and all other out-of-pocket expenses incurred by such
selling Holder in connection with any registration under this Agreement.
As used herein, the term Registration Expenses means all expenses incident
to the Company's performance of or compliance with this Agreement (whether or
not the registration in connection with which such expenses are incurred
ultimately becomes effective), including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Restricted Stock), printing expenses, messenger
and delivery expenses incurred by the Company, internal expenses incurred by the
Company (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed, NASD fees (including filing fees and reasonable fees
and disbursements of counsel in connection with compliance with NASD rules and
regulations), and fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses of any special
audit or comfort letters required by or incident to such performance),
securities act liability insurance (if the Company elects to obtain such
insurance), the reasonable fees and expenses of any special experts retained by
the Company in connection with such registration and the fees and expenses of
other persons retained by the Company in connection with such registration.
8. INDEMNIFICATION.
(A) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each selling Holder, the officers, directors and agents of each of
them and each person, if any, who controls any selling Holder within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of counsel) (i) arising out of or based upon (1) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Restricted Stock or in any
amendment or supplement thereto or in any preliminary prospectus relating to the
Restricted Stock, or (2) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or allegation thereof contained in information furnished
in writing to the Company by such selling Holder, expressed for use in such
registration statement or (ii) arising out of or based upon any violation of any
Federal or state securities laws or rules or regulations thereunder committed by
the Company in connection with the performance of its obligations hereunder.
(B) Indemnification by Selling Holders. Each selling Holder agrees to
indemnify and hold harmless the Company, its officers, directors and agents and
each person (other than a selling Holder), if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of counsel) (i) arising out
of or based upon (1) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Restricted Stock or in any amendment or supplement there to or in any
preliminary prospectus relating to the Restricted Stock, or (2) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) arising out
of or based upon any violation of any Federal or state securities laws or rules
or regulations thereunder committed by such Holder in connection with the
disposition of such Holder's Restricted Stock, provided that such losses,
claims, damages, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or allegation contained in information furnished in
writing to the Company by such selling Holder expressly for use in such
registration statement.
6
<PAGE>
(C) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or any claim shall
be asserted against any indemnified party in respect of which indemnity may be
sought from an indemnifying party, the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such indemnified party, and shall assume the payment of all expenses incurred in
connection with the defense thereof; provided, that the indemnifying party may
require such indemnified party to undertake to reimburse all such fees and
expenses if it is ultimately determined that such indemnified parties not
entitled to indemnification or advancement of expenses hereunder. Such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding and to employ counsel reasonably satisfactory to
such indemnified party, or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and such indemnifying party, and such indemnified party shall have been advised
in writing by counsel that there may be one or more legal defenses available to
such indemnified party which are different from or additional to those available
to the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party; it being understood, however, that the indemnifying
party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses or more than one separate firm of
attorneys (together with appropriate local counsel, subject to the indemnifying
party's approval of counsel, which approval shall not be unreasonably withheld)
at any time for such indemnified party.) The indemnifying party shall not be
liable for any settlement of any such action, claim or proceeding effected
without its written consent (such consent which shall not be unreasonably
withheld), but if settled with its written consent, or if there is a final
judgment for the plaintiff in any such action or proceeding, the indemnifying
party agrees to indemnify and hold harmless such indemnified party from and
against any loss or liability (to the extent stated above) by reason of such
settlement or judgment.
(D) Contribution. If the indemnification provided for in Section 8(A) or
Section 8(B) is unavailable to any indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments, in such proportion
as is appropriate to reflect the relative fault of each such party in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative fault of each such party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The Company and the
Holders agree that it would not be just and equitable if contribution pursuant
to this Section 8(D) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claims. Notwithstanding the
provisions of this Section 8(D), no selling Holder shall be required to
contribute an amount greater than the amount by which the total price at which
the Restricted Stock of such selling Holder was offered to the public exceeds
the amount of any damages which such selling Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE>
9. PUBLICLY AVAILABLE INFORMATION.
The Company shall use its best efforts to file the reports required to be
filed by it under the Exchange Act in a timely manner and, if at any time the
Company is not required to file such reports, it will, upon the request of any
Holder, make publicly available other information so long as necessary to permit
sales of Restricted Stock pursuant to Rule 144. The Company further covenants
that it will take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable such Holder to sell
Restricted Stock without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144. Upon the request of any
holder Restricted Stock, the Company shall deliver to such holder a written
statement as to whether it has complied with such requirements.
10. MISCELLANEOUS.
(A) Remedies. In the event of a breach by the Company or by a Holder of
any of their respective obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(B) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of the Holders of a
majority of the then outstanding Restricted Stock.
(C) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each holder of any Restricted Stock, which is
a "qualified institutional investor" as that term is defined in Section (a)(1)
of Rule 144A under the Securities Act. Notwithstanding the foregoing, no
transferee shall have any of the rights granted under this Agreement until such
transferee shall acknowledge its rights and obligations hereunder by a signed
written statement of such transferee's acceptance of such rights and
obligations.
(D) Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by the laws of the State of Delaware,
without giving effect to the principles thereof relating to conflicts of law.
(E) Notices. Any notice, request, instruction, correspondence or other
documents to be given hereunder by either party to the other (herein
collectively called "Notice") shall be in writing and delivered personally or
mailed, postage prepaid, or by telecopier, as follows:
If to the Company:
Offshore Tool & Energy Corporation
300 St. Francis Street
Mobile, Alabama 36602
Attention: McGowin I. Patrick, Jr.
Telecopier: (334) 432-4472
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IPC Industries, Inc.
or
W. Steven McKenzie
or
Byron Adams, Jr.
to
300 St. Francis Street
Mobile, Alabama 36602
Telecopier: (334) 432-4472
If to Thomas Pritchard
to
400 Poydras Street
Suite 2140
New Orleans, Louisiana 70130
Telecopier: (504) 529-6055
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telecopier shall be effective upon actual receipt if
received during the recipient's normal business hours, or at the beginning of
the recipient's next business day after receipt if not received during the
recipient's normal business hours. Any party may change any address to which
Notice is to be given to it by giving Notice as provided above of such change of
address.
(H) Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
(I) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(J) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
November 17, 1998.
OFFSHORE TOOL & ENERGY CORPORATION
By: /s/ McGowin I. Patrick, Jr.
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
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IPC INDUSTRIES, INC.
By: /s/ McGowin I. Patrick, Jr.
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
/s/ W. Steven McKenzie
------------------------------------
W. Steven McKenzie
/s/ Byron A. Adams, Jr.
------------------------------------
Byron A. Adams, Jr.
/s/ Thomas W. Pritchard
------------------------------------
Thomas W. Pritchard
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<PAGE>
EXHIBIT 10(i)
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of November
17, 1998, by and among Offshore Tool & Energy Corporation, a Delaware
corporation (the "Company"), and Jefferies & Company, Inc. ("Jefferies").
W I T N E S S E T H:
WHEREAS, in connection with that certain Agreement and Share Exchange dated
as of October 1, 1998, as amended as of November 6, 1998, by and among the
Company and certain other parties, the Company has granted to Jefferies a
warrant to purchase 3,000,000 shares of Common Stock (the "Warrant Shares") at
an exercise price of $1.26 per share; and
WHEREAS, the Company has agreed to grant certain registration rights to
Jefferies with respect to the Warrant Shares;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions.
As used herein, the following terms have the indicated meanings, unless the
context otherwise requires:
"Act" means the Securities Act of 1933, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, $0.01 par value, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a holder of Registrable Securities or any permitted
transferee thereof who owns Registrable Securities.
"Registrable Securities" means the Warrant Shares and any Common Stock or
other securities issued or issuable by the Company with respect to the Warrant
Shares by way of a stock dividend or other distribution or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or reorganization. Any Registrable Securities will cease to be such when (i) a
registration statement covering such Registrable Securities has been declared
effective by the Securities and Exchange Commission and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, (ii) such Registrable Securities may be distributed to the public
pursuant to Rule 144 (or any similar provision then in force) under the Act or
(iii) the Company has delivered a new certificate or other evidence of ownership
for such
<PAGE>
Registrable Securities not bearing the legend required pursuant to the Series B
Warrant Certificate regarding the Warrant Shares and such Registrable Securities
may be resold to the public without restriction under the Act in accordance with
Rule 144(k).
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
2. Piggy-Back Registration.
(a) If the Company proposes to file a registration statement under the Act
with respect to an underwritten offering by the Company of Common Stock for cash
(other than (i) a registration statement on Form S-4 or S-8 (or any substitute
form for comparable purposes that may be adopted by the Commission), (ii) a
registration statement filed in connection with an exchange offer or an offering
of securities solely to the Company's existing security holders, (iii) in
connection with the registration statement that is on a form pursuant to which
an offering of the Registrable Securities cannot be registered or (iv) pursuant
to Article 3 hereof), then the Company shall in each case give written notice of
such proposed filing to the Holders at least 30 days before the anticipated
filing date, and such notice shall offer the Holders the opportunity to register
such number of Registrable Securities as each such Holder may request. Upon the
written request of any Holder received by the Company within 15 business days
after the date of the Company's delivery of its notice to the Holders of its
intention to file such a registration statement, the Company shall, subject to
the conditions and in accordance with the procedures set forth herein, use its
reasonable best efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit the Registrable Securities requested by
the Holder to be included in the registration statement for such offering on the
same terms and conditions as any similar securities of the Company included
therein (a "Piggy-Back Registration"). Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering indicates in writing to
the Holders who have requested that their Registrable Shares be included in such
offering, its reasonable belief that because of the size of the offering
intended to be made, the inclusion of the Registrable Securities requested to be
included might reasonably be expected to jeopardize the success of the offering
of the securities of the Company to be offered and sold by the Company for its
own account, then the amount of securities to be offered for the account of the
Holders shall be reduced on a pro rata basis with all sellers (whether or not
such sellers are Holders) other than the Company to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter or underwriters. The Company
will bear all Registration Expenses (as hereinafter defined) in connection with
a Piggy-Back Registration.
(b) The Company may, without the consent of any Selling Holder, withdraw
any registration statement prior to the effectiveness thereof and abandon any
proposed offering initiated by the Company, notwithstanding the request of a
Holder to participate therein in accordance with this Section 2, if the Company
determines that such action is in the best interests of the Company.
(c) Notwithstanding anything contained herein to the contrary, the Company
will have no obligation under this Section 2 to register any Registrable
Securities unless at least 100,000 shares (as adjusted for stock splits, stock
dividends or similar transaction) of Registrable Securities in the aggregate are
requested to be included in such offering.
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<PAGE>
(d) The right of a Holder to register shares under this Section 2 shall be
conditioned on such Holder's participation as a seller in the underwritten
offering and its execution of an underwriting agreement with the managing
underwriter or underwriters selected by the Company.
3. Demand Registration Rights.
(a) Upon the Company being eligible for filing on Form S-3 or any successor
form, to reflect a sale of Registrable Securities, and if the Holders of at
least 500,000 shares (as adjusted for stock splits, stock dividends or similar
transaction) of the Registrable Securities make a written request to the Company
that the Company effect the registration of such Registrable Securities under
the Act, then the Company shall, within 15 days of the receipt of such request,
give written notice of such request to all other Holders, and such notice shall
offer the Holders the opportunity to register such number of Registrable
Securities as each such Holder may request (a "Demand Registration").
Thereafter, the Company will, as promptly as reasonably practicable prepare and
file with the Commission a registration statement ("Demand Registration
Statement") covering such proposed sale of all such Registrable Shares requested
to be so registered. The Company will bear all Registration Expenses (as
hereinafter defined) in connection with a Demand Registration. The underwriter
or underwriters for a requested registration shall be selected by the consent of
the holders of a majority (by number of shares) of the Registrable Securities
requested to be included in such registration and shall be reasonably acceptable
to the Company.
(b) Subject to paragraph (d) below, the Company will use its reasonable
best efforts to have the Demand Registration Statement declared effective by the
Commission as soon as practicable after the filing thereof and to maintain the
effectiveness thereof for 90 days (or until all Registrable Shares covered
thereby have been sold, if such sales are completed before the end of the 90-day
period).
(c) The Company shall only be required to provide one effective Demand
Registration hereunder.
(d) The Company will be entitled to postpone the filing of the Demand
Registration Statement, and to suspend sales under the Demand Registration
Statement, for: (i) an aggregate number of days not exceeding 90 days, if the
Company determines in its sole discretion that the Demand Registration Statement
or the offering covered thereby would interfere with or require public
disclosure of any financing, acquisition, corporate reorganization or other
transaction involving the Company or any of its subsidiaries; (ii) an aggregate
number of days not exceeding 180 days, if (A) a registration statement was filed
by the Company in connection with an underwritten public offering by the Company
of any securities within the 90 days preceding the date of the request or (B)
the Commission requires such postponement or suspension; provided however, that
in computing the 90-day period for which the Company is required to maintain the
effectiveness of the Demand Registration Statement, the period of any such
suspension shall not be included. The Company shall give prompt written notice
to the Selling Holders of any such postponement or suspension and shall likewise
give prompt written notice to the Selling Holders of termination of such
postponement or suspension. The Selling Holders hereby agree to postpone the
sale of any Registrable Shares pursuant to the Demand Registration Statement
during any suspension of sales of the Common Stock thereunder by the Company.
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<PAGE>
4. Restrictions on Public Sale by Holder of Registrable Securities.
To the extent not inconsistent with applicable law, each Holder whose
Registrable Securities are included in a registration statement pursuant to
Section 2 or 3 agrees not to effect any public sale or distribution of the
security being registered or a similar security of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the Act, during the 90-day period
(or such shorter period as may be required by the Company or the managing
underwriter or underwriters with respect to any officer or director or
shareholder of the Company) beginning on the effective date of a registration
statement (except, in each case, as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
5. Registration Procedures.
Whenever the Holders have requested that any Registrable Securities be
included in a registration pursuant to Section 2 or 3 hereof, the Company shall
(unless such registration statement is not filed or is withdrawn) use its
reasonable best efforts to effect the registration as soon as reasonably
practicable, and in connection with any such request, the Company shall (unless
such registration statement is not filed or is withdrawn):
(a) (i) prior to filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to each Selling Holder and
counsel selected by each Selling Holder copies of all such documents
proposed to be filed, which documents will be subject to the review of such
counsel, (ii) furnish to each Selling Holder, prior to filing a
registration statement, copies of such registration statement as proposed
to be filed, and thereafter furnish to each Selling Holder such number of
copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as any Selling Holder may reasonably
require in order to facilitate the disposition of the Registrable
Securities owned by the Selling Holder, and (iii) after the filing of the
registration statement, promptly notify each Selling Holder of Registrable
Securities covered by such registration statement of any stop order issued
or threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as each Selling Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the Selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by the Selling Holder;
provided, however, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (b), (ii) subject itself to
taxation in any such jurisdiction where it is not then so subject or (iii)
consent to general service of process in any such jurisdiction;
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<PAGE>
(c) use its reasonable best efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Selling Holder thereof to
consummate the disposition of such Registrable Securities;
(d) notify the Selling Holder, at any time when a prospectus relating
thereto is required to be delivered under the Act, of the occurrence of an
event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading and promptly make available to the Selling Holder any such
supplement or amendment;
(e) enter into or arrange for the furnishing of customary agreements
and documents (including an underwriting agreement in customary form) and
take such other actions as are reasonably required in order to facilitate
the offering of such Registrable Securities;
(f) make available for inspection by each Selling Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other professional retained by
the Selling Holder or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's and its subsidiaries' officers,
directors and employees to supply all information reasonably requested by
any such Inspector in connection with such registration statement. Each
Selling Holder agrees that information obtained by it as a result of such
inspections that is material and non-public shall be kept confidential and
shall not be used by it as the basis for any market transactions in
securities of the Company unless and until such is made generally available
to the public. The Selling Holder further agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential;
(g) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act; and
(h) use its reasonable efforts to cause all such Registrable
Securities to be quoted on the Nasdaq National Market, if the Common Stock
is then so quoted, or to be listed on any securities exchange, including
the Alternative Investment Market of the London Stock Exchange ("AIM") on
which the Common Stock is then listed.
5
<PAGE>
The Company may require the Selling Holder as to which any registration is
being effected to furnish to the Company such information regarding the Selling
Holder and the distribution of such Registrable Securities as the Company may
from time to time reasonably request in writing and such other information as
may be legally required in connection with such registration.
In no event shall the Company be required to amend any registration
statement filed pursuant to this Agreement after it has become effective or to
amend or supplement any prospectus to permit the continued disposition of shares
of Common Stock owned by a Selling Holder registered under any such registration
statement beyond the period during which the Company is required to maintain the
effectiveness thereof pursuant to the terms of this Agreement.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(d)
hereof, the Selling Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Selling Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 5(d) hereof, and, if so directed
by the Company, the Selling Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in the Selling
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. Each Selling Holder also agrees
to notify the Company of any event relating to the Selling Holder that occurs
that would require the preparation of a supplement or amendment to the
prospectus so that such prospectus will not contain 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.
6. Registration Expenses.
All expenses incident to the Company's performance of or compliance with
this Agreement, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws (including fees
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), rating agency fees, printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing of the securities to be registered on the Nasdaq Market System and all
securities exchanges on which similar securities issued by the Company are then
quoted or listed, and fees and disbursements of counsel for the Company and its
independent certified public accountants (including the expenses of any special
audit or comfort letters required by or incident to such performance),
securities act liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained by the Company
in connection with such registration, and fees and expenses of other persons
retained by the Company, in connection with each registration hereunder (but not
including any underwriting discounts or commissions attributable to the sale of
Registrable Securities (which are hereinafter referred to as "Selling
Expenses")) and the reasonable fees and expenses of one counsel for the Selling
Holders, (collectively, the "Registration Expenses") will be borne by the
Company in the event of a registration of Registrable Securities pursuant to
Section 2 or 3 hereof. All Selling Expenses shall be borne solely by the
Selling Holders.
6
<PAGE>
7. Indemnification; Contribution.
(a) Indemnification by the Company. To the extent permitted by applicable
law, the Company agrees to indemnify and hold harmless each Selling Holder, its
officers, directors, partners and agents and each person, if any, who controls a
Selling Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages (whether in
contract, tort or otherwise), liabilities and expenses (including reasonable
costs of investigation) whatsoever (as incurred or suffered) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Selling Holder or on
behalf of such Selling Holder expressly for use therein and provided that with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of the
prospectus was not sent or given to the person asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation of the sale
of the Registrable Securities concerned to such person if it is determined that
the Company had previously provided such Selling Holder with such current copy
of the prospectus, it was the responsibility of such Selling Holder to provide
such person with such current copy of the prospectus and such current copy of
the prospectus would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The Company also agrees to indemnify any
underwriters of the Registrable Securities, their officers, partners and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of the Selling Holder provided in this
Section 7 or such other indemnification customarily obtained by underwriters at
the time of offering.
(b) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
a Selling Holder (or its officers, directors, partners, attorneys or agents) or
any person controlling such Selling Holder in respect of which indemnity may be
sought from the Company, the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Selling Holder, and
shall assume the payment of all expenses. Each Selling Holder or any
controlling person of a Selling Holder shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Selling Holder
or such controlling person unless (i) the Company has agreed to pay such fees
and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Selling Holder or such
controlling person and the Company, and the Selling Holder or such controlling
person shall have been advised by counsel that there may be one or more legal
defenses available to such Selling Holder or such controlling person which are
different from or additional to those available to the Company (in which case,
if such Selling Holder or such controlling person notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding
7
<PAGE>
on behalf of such Selling Holder or such controlling person) or (iii) the use of
counsel chosen by the Company to represent the Selling Holder would present such
counsel with a conflict of interest or (iv) the Company shall not have employed
counsel reasonably satisfactory to the Selling Holder to represent the Selling
Holder within a reasonable time after notice of the institution of such action;
it being understood, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for each Selling Holder, which firm shall be designated in writing by such
Selling Holder). The Company shall not be liable for any settlement of any such
action or proceeding effected without the Company's written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to indemnify and
hold harmless each Selling Holder and controlling person from and against any
loss or liability (to the extent stated above) by reason of such settlement or
judgment. The Company shall not, without the prior written consent of the
Selling Holder, settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the Selling Holders are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each Selling Holder from all liability arising out of
such claim, action, suit or proceeding.
(c) Indemnification by Holder of Registrable Securities. Each Selling
Holder agrees to indemnify and hold harmless the Company, its directors and
officers and each person, if any, who controls the Company within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Selling Holder, but
only with respect to information furnished in writing by the Selling Holder or
on the Selling Holder's behalf expressly for use in any registration statement
or prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. In case any action or
proceeding shall be brought against the Company or its directors or officers, or
any such controlling person, in respect of which indemnity may be sought against
a Selling Holder, such Selling Holder shall have the rights and duties given to
the Company, and the Company or its directors or officers or such controlling
person shall have the rights and duties given to a Selling Holder, by the
preceding paragraph. The Selling Holder also agrees that it will enter into an
indemnity agreement to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 7(c). Notwithstanding
the foregoing, the liability of a Selling Holder pursuant to this Section 7(c)
shall not exceed the amount of the aggregate proceeds of the Registrable
Securities of the Selling Holder.
(d) Contribution. If the indemnification provided for in this Section 7 is
unavailable to the Company or a Selling Holder in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) as between the
Company and such Selling Holder on the one hand and the underwriters on the
other, in such proportion as is appropriate to reflect the relative benefits
received by the Company and a Selling Holder on the one hand and the
8
<PAGE>
underwriters on the other from the offering of the Registrable Securities, or if
such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and such Selling Holder on the one hand and of the
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations and (ii) as between the Company, on
the one hand, and a Selling Holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of such Selling
Holder in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and a Selling Holder on the one hand and the underwriters on the other
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and such Selling Holder bear to the total
underwriting discounts and commissions received by the underwriters, in each
case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company and such Selling Holder on the one hand and of the
underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and such Selling Holder or by the underwriters. The
relative fault of the Company on the one hand and of such Selling Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and each Selling Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and a Selling Holder
shall not be required to contribute any amount in excess of the amount of the
total price at which the Registrable Securities of the Selling Holder were
offered to the public. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(e) Indemnification Payments. The indemnification and contribution
required by this Section 7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability are incurred.
9
<PAGE>
8. Participation in Underwritten Registrations.
No person may participate in any underwritten registration hereunder unless
such person (a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, custody agreements, indemnities, underwriting agreements and
other documents reasonably required by the Company or managing underwriter under
the terms of such underwriting arrangements and this Agreement.
9. Rule 144 and Reports.
The Company shall timely file the reports required to be filed by it under
the Securities Act and the Exchange Act (including but not limited to the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
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 Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule of 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.
10. Miscellaneous.
(a) Binding Effect. Unless otherwise provided herein, the provisions of
this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs and legal representatives and permitted
transferees, successors and assigns. The rights and obligations of a Holder
hereunder cannot be assigned or transferred without the prior written consent of
the Company except by will or intestacy or by operation of law.
(b) Amendment. This Agreement may be amended or terminated only by a
written instrument signed by the Company and each of the Holders.
(c) Applicable Law. The internal laws of the State of New York (without
regard to choice of law provisions thereof) shall govern the interpretation,
validity and performance of the terms of this Agreement.
(d) Notices. All notices provided for herein shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by registered
or certified mail, postage prepaid:
10
<PAGE>
(i) if to the Company, to:
Offshore Tool & Energy Corporation
300 St. Francis Street
Mobile, Alabama 36602
Attention: McGowan I. Patrick, Jr.
with a copy to:
Adams and Reese, L.L.P.
4500 One Shell Square
New Orleans, Louisiana 70139
Attention: Harry M. Zimmerman, Jr.
(ii) if to Jefferies & Company, Inc.:
Jefferies & Company, Inc.
11100 Santa Monica Boulevard, Suite 1000
Los Angeles, California 90025
Attention: Jerry M. Gluck
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Attention: T. Mark Kelly
(iii) if to the Holders, initially to the respective addresses set
forth on Exhibit A hereto, and thereafter at such other address of which
notice is given in accordance with the provisions of this Section 10(d).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one instrument.
(f) Severability. 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 of this Agreement shall remain in full force and effect.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
OFFSHORE TOOL & ENERGY CORPORATION
By /s/ McGowin I. Patrick, Jr.
------------------------------------
Name:
Title:
JEFFERIES & COMPANY, INC.
By /s/
------------------------------------
Name:
Title:
12
<PAGE>
EXHIBIT 10(j)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Employment Agreement") is made as of the 17th
day of November, 1998 ("Effective Date"), by and between Offshore Tool & Energy
Corporation, a Delaware corporation ("Company"), and McGowin I. Patrick, Jr.
("Employee").
IN CONSIDERATION of the mutual agreements of the parties contained herein,
Company and Employee hereby agree as follows:
1. Employment. Company agrees to employ Employee and Employee accepts
employment with Company commencing on the effective date. Employee's employment
will be terminable by either party at will with or without cause. The
obligations of Company and Employee set forth in this Agreement regarding
termination will survive the termination of Employee's employment, regardless of
cause.
2. Duties. Employee will be employed as and perform the duties of
President and Chief Operating Officer with Company, consistent with his training
and experience. Employee agrees that to the best of his ability and experience,
he will at all times consciously perform all of the duties and obligations
assigned to him under the terms of this Agreement. Employee's office will be
located at Company's home offices in Mobile, Alabama. Employee's duties will
include reasonable travel to Company's other offices, if any, and to consult
with Company's other officers and employees subject to reasonable advance
notice.
3. Full Time Employment. Employee's employment will be on a full time
basis including devoting substantially all of his work time in the performance
of his responsibilities as Chief Operating Officer.
4. Salary. Employee's salary, commencing on the Effective Date, will be
$200,000 per year, payable monthly, subject to any annual increases as may be
determined by the Compensation Committee of the Board of Directors of the
Company ("Compensation Committee"). Employee will also be eligible for a
monthly bonus in accordance with the guidelines outlined in Company's Corporate
Compensation Structure, attached hereto as Exhibit "A", provided that such
guidelines shall be subject to modification by the Compensation Committee on an
annual basis.
5. Employee Benefits. Employee will be entitled to insurance, vacation or
other benefits commensurate with his position in accordance with Company's
standard policies in effect from time to time. Additionally, Employee will
receive stock grants and options as shall be determined by the Compensation
Committee.
6. Reimbursement for Business Expenses. Company will, in accordance with
its policies in effect from time to time, reimburse Employee for all reasonable
business expenses incurred by Employee in connection with the performance of his
duties under this Agreement, including, without limitation, reasonable
expenditures for business entertainment and travel, upon submission of the
required documentation.
7. Term. The term of the Employment Agreement shall be for one year
following the Effective Date; provided that, this Employment Agreement shall be
automatically renewed annually for additional one year terms on each anniversary
date of the Effective Date, unless Company shall give written notice to the
Employee that this Employment Agreement shall not be so renewed not less than 90
days prior to the applicable anniversary date of this Employment Agreement.
8. Termination.
(a) For Cause. Company may terminate Employee's employment at any time for
"cause" effective immediately upon written notice to Employee, without prejudice
to any other remedy which Company may be entitled to at law, in equity, or under
this Agreement. As used in this paragraph 8(a), "cause" will mean actions
involving willful misconduct, gross negligence or consistent dereliction or
disregard of duties including, but not limited to, any crime or act of fraud or
dishonesty against Company, the commission of a felony, or the disregard of the
policies of Company or its subsidiaries or related entities so as to cause loss,
damage or injury to the property,
<PAGE>
reputation or employees of Company. In the event of termination for cause,
Employee will receive salary, benefits, and reimbursement of business expenses
accrued until the date of termination; all other compensation and benefits from
and after the date of termination under this Agreement will cease (except those
benefits that must be continued pursuant to applicable law) and Company will
have no obligation to pay any severance pay whatsoever.
(b) Upon Death or Disability. Company may terminate Employee's employment
upon written notice if Employee dies or suffers any mental or physical
disability preventing the substantial performance of his duties under this
Agreement for a period of three consecutive months.
(c) Termination by Company other than for Cause. In the event termination
of Employee for any reason other than cause, death, or disability, and
notwithstanding the provisions of paragraph 7, Company shall be required to give
written notice no later than one year prior to the effective date of such
termination, or in lieu thereof, pay one year's annual salary in a single lump
sum payment ("Severance Payment"), in which event termination shall be effective
immediately; provided that, it shall be a condition to the entitlement and
receipt by the Employee of the Severance Payment that Employee execute and
deliver to Company the Separation and Release Agreement in the form attached
hereto as Exhibit "B", and that Employee shall not revoke such agreement with
the period provided therein.
(d) Termination by Employee for Cause. Employee may, at his option,
terminate this Agreement and Employee's employment hereunder, immediately upon
giving written notice of termination to Company or under this Agreement. For
purposes of this provision, "Cause" for termination by Employee means the
occurrence of any of the following if not corrected with Company within 15 days
of receipt of Employee's specific written demand for correction:
(i) Company's failure to pay salary or any other benefit due to
Employee hereunder;
(ii) Company's failure to pay or reimburse any other sums due Employee
hereunder; or
(iii) Any other material breach of this Agreement by Company.
In the event Employee terminates this Agreement as provided in this
paragraph, then Employee as its sole remedy at law, in equity or under this
Agreement will continue to be paid his salary at the times such payment would
have been due Employee pursuant to this Agreement of the remainder of the term
of his employment under this Agreement.
9. Vesting of Stock Options. All stock options granted to Employee under
Company's Stock Incentive Plan shall provide that any such options shall be
immediately vested and exercisable upon termination of this Agreement under the
provisions of paragraph 8(d).
10. Arbitration. Except as otherwise mandated by law, any dispute under
this Agreement shall be submitted to binding arbitration in Mobile, Alabama,
under the auspices of, and pursuant to the rules of, the American Arbitration
Association as then in effect, or such other procedures as the parties may agree
to at the time, before a single arbitrator. Any award issued as a result of
such arbitration shall be final and binding between the parties, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought.
2
<PAGE>
11. Miscellaneous.
(a) Notices. Any and all notices permitted or required under this
Agreement must be writing. Notices will be deemed given (i) when received, (ii)
one day after have been sent by commercial overnight courier with written
verification of receipt, or (iii) five days after having been sent by registered
or certified mail from a location on the United States mainland, return receipt
requested, postage prepaid, whichever occurs first, at the addresses set forth
below or at any new address, notice of which has been given under this Section:
If to Company: Offshore Tool & Energy Corporation
300 St. Francis Street
Mobile, Alabama 36602
If to Employee: McGowin I. Patrick, Jr.
300 St. Francis Street
Mobile, Alabama 36602
(b) Amendments. This Agreement including the Exhibits hereto contains the
entire agreement and may not be changed or modified in whole or in part except
by a writing signed by the party against whom enforcement of the change or
modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by
either Employee or Company, except that the rights and obligations under this
Agreement may be assigned to a corporation which becomes the successor to
Company as a result of a merger or other corporate reorganization which
continues the business of Company, or to any other subsidiary of Company.
(d) Governing Law. This Agreement will be governed by and interpreted
according to the substantive laws of the State of Alabama, without regard to
such state's conflicts laws.
(e) No Waiver. The failure of either party to insist on strict compliance
with the terms of this Agreement will not be deemed to be a waiver of this
Agreement, or of that party's right to require strict compliance with the terms
of this Agreement in any other instance.
(f) Severability. Employee and Company recognize that the limitations
contained herein are reasonably and properly required for the adequate
protection of the interests of Company. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as to best reasonably
reflect the intent of the parties. The parties further agree to replace any
such invalid or unenforceable provisions with valid and enforceable provisions
designed to achieve, to the extent possible, the business purposes and intent of
such unenforceable provisions.
(g) Repayment of Excess Bonus Payments. Employee shall promptly repay the
Company any portion of the aggregate bonuses paid in any fiscal year under
Section 4 that is in excess of the aggregate bonuses payable under Section 4 as
determined on the basis of the annual audit of the Company's financial
statements.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one original.
Any copy of this Agreement with the original signatures of all parties appended
shall constitute an original.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the day and
year first above written.
OFFSHORE TOOL & ENERGY
CORPORATION
By: /s/McGowin I. Patrick, Jr.
------------------------------
Its: President
EMPLOYEE:
/s/ McGowin I. Patrick, Jr.
-----------------------------------
McGowin I. Patrick, Jr.
4
<PAGE>
EXHIBIT 10(k)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Employment Agreement") is made as of the 17th
day of November, 1998, ("Effective Date"), by and between Offshore Tool & Energy
Corporation, a Delaware corporation ("Company"), and Clifton C. Inge, Jr.
("Employee").
IN CONSIDERATION of the mutual agreements of the parties contained herein,
Company and Employee hereby agree as follows:
1. Employment. Company agrees to employ Employee and Employee accepts
employment with Company commencing on the effective date. Employee's employment
will be terminable by either party at will with or without cause. The
obligations of Company and Employee set forth in this Agreement regarding
termination will survive the termination of Employee's employment, regardless of
cause.
2. Duties. Employee will be employed as and perform the duties of Chief
Executive Officer with Company, consistent with his training and experience.
Employee agrees that to the best of his ability and experience, he will at all
times consciously perform all of the duties and obligations assigned to him
under the terms of this Agreement. Employee's office will be located at
Company's home offices in Mobile, Alabama. Employee's duties will include
reasonable travel to Company's other offices, if any, and to consult with
Company's other officers and employees subject to reasonable advance notice.
3. Full Time Employment. Employee's employment will be on a full time
basis including devoting substantially all of his work time in the performance
of his responsibilities as Chief Executive Officer.
4. Salary. Employee's salary, commencing on the Effective Date, will be
$200,000 per year, payable monthly, subject to any annual increases as may be
determined by the Compensation Committee of the Board of Directors of the
Company ("Compensation Committee"). Employee will also be eligible for a
monthly bonus in accordance with the guidelines outlined in the Company's
Corporate Compensation Structure, attached hereto as Exhibit "A", provided that
such guidelines shall be subject to modification by the Compensation Committee
on an annual basis.
5. Employee Benefits. Employee will be entitled to insurance, vacation or
other benefits commensurate with his position in accordance with Company's
standard policies in effect from time to time. Additionally, Employee will
receive stock grants and options as shall be determined by the Compensation
Committee.
6. Reimbursement for Business Expenses. Company will, in accordance with
its policies in effect from time to time, reimburse Employee for all reasonable
business expenses incurred by Employee in connection with the performance of his
duties under this Agreement, including, without limitation, reasonable
expenditures for business entertainment and travel, upon submission of the
required documentation.
7. Term. The term of the Employment Agreement shall be for one year
following the Effective Date; provided that, this Employment Agreement shall be
automatically renewed annually for additional one year terms on each anniversary
date of the Effective Date, unless the Company shall give written notice to the
Employee that this Employment Agreement shall not be so renewed not less than 90
days prior to the applicable anniversary date of this Employment Agreement.
8. Termination.
(a) For Cause. Company may terminate Employee's employment at any time for
"cause" effective immediately upon written notice to Employee, without prejudice
to any other remedy which Company may be entitled to at law, in equity, or under
this Agreement. As used in this paragraph 8(a), "cause" will mean actions
involving willful misconduct, gross negligence or consistent dereliction or
disregard of duties including, but not limited to, any crime or act of fraud or
dishonesty against Company, the commission of a felony, or the disregard of
<PAGE>
the policies of Company or its subsidiaries or related entities so as to cause
loss, damage or injury to the property, reputation or employees of Company. In
the event of termination for cause, Employee will receive salary, benefits, and
reimbursement of business expenses accrued until the date of termination; all
other compensation and benefits from and after the date of termination under
this Agreement will cease (except those benefits that must be continued pursuant
to applicable law) and Company will have no obligation to pay any severance pay
whatsoever.
(b) Upon Death or Disability. Company may terminate Employee's employment
upon written notice if Employee dies or suffers any mental or physical
disability preventing the substantial performance of his duties under this
Agreement for a period of three consecutive months.
(c) Termination by Company other than for Cause. In the event termination
of Employee for any reason other than cause, death, or disability, and
notwithstanding the provisions of paragraph 7, the Company shall be required to
give written notice no later than one year prior to the effective date of such
termination, or in lieu thereof, pay one year's annual salary in a single lump
sum payment ("Severance Payment"), in which event termination shall be effective
immediately; provided that, it shall be a condition to the entitlement and
receipt by the Employee of the Severance Payment that Employee execute and
deliver to Company the Separation and Release Agreement in the form attached
hereto as Exhibit "B", and that Employee shall not revoke such agreement with
the period provided therein.
(d) Termination by Employee for Cause. Employee may, at his option,
terminate this Agreement and Employee's employment hereunder, immediately upon
giving written notice of termination to Company or under this Agreement. For
purposes of this provision, "Cause" for termination by Employee means the
occurrence of any of the following if not corrected with Company within 15 days
of receipt of Employee's specific written demand for correction:
(i) Company's failure to pay salary or any other benefit due to
Employee hereunder;
(ii) Company's failure to pay or reimburse any other sums due Employee
hereunder; or
(iii) Any other material breach of this Agreement by Company.
In the event Employee terminates this Agreement as provided in this
paragraph, then Employee as its sole remedy at law, in equity or under this
Agreement will continue to be paid his salary at the times such payment would
have been due Employee pursuant to this Agreement of the remainder of the term
of his employment under this Agreement.
9. Vesting of Stock Options. All stock options granted to Employee under
the Company's Stock Incentive Plan shall provide that any such options shall be
immediately vested and exercisable upon termination of this Agreement under the
provisions of paragraph 8(d).
10. Arbitration. Except as otherwise mandated by law, any dispute under
this Agreement shall be submitted to binding arbitration in Mobile, Alabama,
under the auspices of, and pursuant to the rules of, the American Arbitration
Association as then in effect, or such other procedures as the parties may agree
to at the time, before a single arbitrator. Any award issued as a result of
such arbitration shall be final and binding between the parties, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought.
2
<PAGE>
11. Miscellaneous.
(a) Notices. Any and all notices permitted or required under this
Agreement must be writing. Notices will be deemed given (i) when received, (ii)
one day after have been sent by commercial overnight courier with written
verification of receipt, or (iii) five days after having been sent by registered
or certified mail from a location on the United States mainland, return receipt
requested, postage prepaid, whichever occurs first, at the addresses set forth
below or at any new address, notice of which has been given under this Section:
If to Company: Offshore Tool & Energy Corporation
300 St. Francis Street
Mobile, Alabama 36602
If to Employee: Clifton C. Inge, Jr.
300 St. Francis Street
Mobile, Alabama 36602
(b) Amendments. This Agreement including the Exhibits hereto contains the
entire agreement and may not be changed or modified in whole or in part except
by a writing signed by the party against whom enforcement of the change or
modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by
either Employee or Company, except that the rights and obligations under this
Agreement may be assigned to a corporation which becomes the successor to
Company as a result of a merger or other corporate reorganization which
continues the business of Company, or to any other subsidiary of the Company.
(d) Governing Law. This Agreement will be governed by and interpreted
according to the substantive laws of the State of Alabama, without regard to
such state's conflicts laws.
(e) No Waiver. The failure of either party to insist on strict compliance
with the terms of this Agreement will not be deemed to be a waiver of this
Agreement, or of that party's right to require strict compliance with the terms
of this Agreement in any other instance.
(f) Severability. Employee and Company recognize that the limitations
contained herein are reasonably and properly required for the adequate
protection of the interests of Company. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as to best reasonably
reflect the intent of the parties. The parties further agree to replace any
such invalid or unenforceable provisions with valid and enforceable provisions
designed to achieve, to the extent possible, the business purposes and intent of
such unenforceable provisions.
(g) Repayment of Excess Bonus Payments. Employee shall promptly repay the
Company any portion of the aggregate bonuses paid in any fiscal year under
Section 4 that is in excess of the aggregate bonuses payable under Section 4 as
determined on the basis of the annual audit of the Company's financial
statements.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one original.
Any copy of this Agreement with the original signatures of all parties appended
shall constitute an original.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the day and
year first above written.
OFFSHORE TOOL & ENERGY
CORPORATION
By: /s/ McGowin I. Patrick, Jr.
---------------------------
Its: President
EMPLOYEE:
/s/ Clifton C. Inge, Jr.
------------------------
Clifton C. Inge, Jr.
4
<PAGE>
EXHIBIT 10(l)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Employment Agreement") is made as of the 17th
day of November, 1998 ("Effective Date"), by and between Offshore Tool & Energy
Corporation, a Delaware corporation ("Company"), and Byron A. Adams, Jr.
("Employee").
IN CONSIDERATION of the mutual agreements of the parties contained herein,
Company and Employee hereby agree as follows:
1. Employment. Company agrees to employ Employee and Employee accepts
employment with Company commencing on the effective date. Employee's employment
will be terminable by either party at will with or without cause. The
obligations of Company and Employee set forth in this Agreement regarding
termination will survive the termination of Employee's employment, regardless of
cause.
2. Duties. Employee will be employed as and perform the duties of
Executive Vice President/Business Development with Company, consistent with his
training and experience. Employee agrees that to the best of his ability and
experience, he will at all times consciously perform all of the duties and
obligations assigned to him under the terms of this Agreement. Employee's
office will be located at Company's home offices in Mobile, Alabama. Employee's
duties will include reasonable travel to Company's other offices, if any, and to
consult with Company's other officers and employees subject to reasonable
advance notice.
3. Full Time Employment. Employee's employment will be on a full time
basis including devoting substantially all of his work time in the performance
of his responsibilities as Executive Vice President/Business Development.
4. Salary. Employee's salary, commencing on the Effective Date, will be
$200,000 per year, payable monthly, subject to any annual increases as may be
determined by the Compensation Committee of the Board of Directors of the
Company ("Compensation Committee"). Employee will also be eligible for a
monthly bonus in accordance with the guidelines outlined in the Company's
Corporate Compensation Structure, attached hereto as Exhibit "A", provided that
such guidelines shall be subject to modification by the Compensation Committee
on an annual basis.
5. Employee Benefits. Employee will be entitled to insurance, vacation or
other benefits commensurate with his position in accordance with Company's
standard policies in effect from time to time. Additionally, Employee will
receive stock grants and options as shall be determined by the Compensation
Committee.
6. Reimbursement for Business Expenses. Company will, in accordance with
its policies in effect from time to time, reimburse Employee for all reasonable
business expenses incurred by Employee in connection with the performance of his
duties under this Agreement, including, without limitation, reasonable
expenditures for business entertainment and travel, upon submission of the
required documentation.
7. Term. The term of the Employment Agreement shall be for one year
following the Effective Date; provided that, this Employment Agreement shall be
automatically renewed annually for additional one year terms on each anniversary
date of the Effective Date, unless the Company shall give written notice to the
Employee that this Employment Agreement shall not be so renewed not less than 90
days prior to the applicable anniversary date of this Employment Agreement.
8. Termination.
(a) For Cause. Company may terminate Employee's employment at any time for
"cause" effective immediately upon written notice to Employee, without prejudice
to any other remedy which Company may be entitled to at law, in equity, or under
this Agreement. As used in this paragraph 8(a), "cause" will mean actions
involving willful misconduct, gross negligence or consistent dereliction or
disregard of duties including, but not
<PAGE>
limited to, any crime or act of fraud or dishonesty against Company, the
commission of a felony, or the disregard of the policies of Company or its
subsidiaries or related entities so as to cause loss, damage or injury to the
property, reputation or employees of Company. In the event of termination for
cause, Employee will receive salary, benefits, and reimbursement of business
expenses accrued until the date of termination; all other compensation and
benefits from and after the date of termination under this Agreement will cease
(except those benefits that must be continued pursuant to applicable law) and
Company will have no obligation to pay any severance pay whatsoever.
(b) Upon Death or Disability. Company may terminate Employee's employment
upon written notice if Employee dies or suffers any mental or physical
disability preventing the substantial performance of his duties under this
Agreement for a period of three consecutive months.
(c) Termination by Company other than for Cause. In the event termination
of Employee for any reason other than cause, death, or disability, and
notwithstanding the provisions of paragraph 7, Company shall be required to give
written notice no later than one year prior to the effective date of such
termination, or in lieu thereof, pay one year's annual salary in a single lump
sum payment ("Severance Payment"), in which event termination shall be effective
immediately; provided that, it shall be a condition to the entitlement and
receipt by the Employee of the Severance Payment that Employee execute and
deliver to Company the Separation and Release Agreement in the form attached
hereto as Exhibit "B", and that Employee shall not revoke such agreement with
the period provided therein.
(d) Termination by Employee for Cause. Employee may, at his option,
terminate this Agreement and Employee's employment hereunder, immediately upon
giving written notice of termination to Company or under this Agreement. For
purposes of this provision, "Cause" for termination by Employee means the
occurrence of any of the following if not corrected with Company within 15 days
of receipt of Employee's specific written demand for correction:
(i) Company's failure to pay salary or any other benefit due to
Employee hereunder;
(ii) Company's failure to pay or reimburse any other sums due Employee
hereunder; or
(iii) Any other material breach of this Agreement by Company.
In the event Employee terminates this Agreement as provided in this
paragraph, then Employee as its sole remedy at law, in equity or under this
Agreement will continue to be paid his salary at the times such payment would
have been due Employee pursuant to this Agreement of the remainder of the term
of his employment under this Agreement.
9. Voting of Stock Options. All stock options granted to Employee under
the Company's Stock Incentive Plan shall provide that any such options shall be
immediately vested and exercisable upon termination of this Agreement under the
provisions of paragraph 8(d).
10. Arbitration. Except as otherwise mandated by law, any dispute under
this Agreement shall be submitted to binding arbitration in Mobile, Alabama,
under the auspices of, and pursuant to the rules of, the American Arbitration
Association as then in effect, or such other procedures as the parties may agree
to at the time, before a single arbitrator. Any award issued as a result of
such arbitration shall be final and binding between the parties, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought.
2
<PAGE>
11. Miscellaneous.
(a) Notices. Any and all notices permitted or required under this
Agreement must be writing. Notices will be deemed given (i) when received, (ii)
one day after have been sent by commercial overnight courier with written
verification of receipt, or (iii) five days after having been sent by registered
or certified mail from a location on the United States mainland, return receipt
requested, postage prepaid, whichever occurs first, at the addresses set forth
below or at any new address, notice of which has been given under this Section:
If to Company: Offshore Tool & Energy Corporation
300 St. Francis Street
Mobile, Alabama 36602
If to Employee: Byron A. Adams, Jr.
300 St. Francis Street
Mobile, Alabama 36602
(b) Amendments. This Agreement including the Exhibits hereto contains the
entire agreement and may not be changed or modified in whole or in part except
by a writing signed by the party against whom enforcement of the change or
modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by
either Employee or Company, except that the rights and obligations under this
Agreement may be assigned to a corporation which becomes the successor to
Company as a result of a merger or other corporate reorganization which
continues the business of Company, or to any other subsidiary of Company.
(d) Governing Law. This Agreement will be governed by and interpreted
according to the substantive laws of the State of Alabama, without regard to
such state's conflicts laws.
(e) No Waiver. The failure of either party to insist on strict compliance
with the terms of this Agreement will not be deemed to be a waiver of this
Agreement, or of that party's right to require strict compliance with the terms
of this Agreement in any other instance.
(f) Severability. Employee and Company recognize that the limitations
contained herein are reasonably and properly required for the adequate
protection of the interests of Company. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as to best reasonably
reflect the intent of the parties. The parties further agree to replace any
such invalid or unenforceable provisions with valid and enforceable provisions
designed to achieve, to the extent possible, the business purposes and intent of
such unenforceable provisions.
(g) Repayment of Excess Bonus Payments. Employee shall promptly repay the
Company any portion of the aggregate bonuses paid in any fiscal year under
Section 4 that is in excess of the aggregate bonuses payable under Section 4 as
determined on the basis of the annual audit of the Company's financial
statements.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one original.
Any copy of this Agreement with the original signatures of all parties appended
shall constitute an original.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the day and
year first above written.
OFFSHORE TOOL & ENERGY
CORPORATION
By: /s/McGowin I. Patrick, Jr.
--------------------------
Its: President
EMPLOYEE:
/s/ Byron A. Adams, Jr.
-------------------------------
Byron A. Adams, Jr.
4
<PAGE>
EXHIBIT 10(m)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Employment Agreement") is made as of the 17th
day of November, 1998 ("Effective Date"), by and between Offshore Tool & Energy
Corporation, a Delaware corporation ("Company"), and W. Steven McKenzie
("Employee").
IN CONSIDERATION of the mutual agreements of the parties contained herein,
Company and Employee hereby agree as follows:
1. Employment. Company agrees to employ Employee and Employee accepts
employment with Company commencing on the effective date. Employee's employment
will be terminable by either party at will with or without cause. The
obligations of Company and Employee set forth in this Agreement regarding
termination will survive the termination of Employee's employment, regardless of
cause.
2. Duties. Employee will be employed as and perform the duties of
Executive Vice President/Operations with Company, consistent with his training
and experience. Employee agrees that to the best of his ability and experience,
he will at all times consciously perform all of the duties and obligations
assigned to him under the terms of this Agreement. Employee's office will be
located at Company's home offices in Mobile, Alabama. Employee's duties will
include reasonable travel to Company's other offices, if any, and to consult
with Company's other officers and employees subject to reasonable advance
notice.
3. Full Time Employment. Employee's employment will be on a full time
basis including devoting substantially all of his work time in the performance
of his responsibilities as Executive Vice President/Operations.
4. Salary. Employee's salary, commencing on the Effective Date, will be
$200,000 per year, payable monthly, subject to any annual increases as may be
determined by the Compensation Committee of the Board of Directors of the
Company ("Compensation Committee"). Employee will also be eligible for a
monthly bonus in accordance with the guidelines outlined in the Company's
Corporate Compensation Structure, attached hereto as Exhibit "A", provided that
such guidelines shall be subject to modification by the Compensation Committee
on an annual basis.
5. Employee Benefits. Employee will be entitled to insurance, vacation or
other benefits commensurate with his position in accordance with Company's
standard policies in effect from time to time. Additionally, Employee will
receive stock grants and options as shall be determined by the Compensation
Committee.
6. Reimbursement for Business Expenses. Company will, in accordance with
its policies in effect from time to time, reimburse Employee for all reasonable
business expenses incurred by Employee in connection with the performance of his
duties under this Agreement, including, without limitation, reasonable
expenditures for business entertainment and travel, upon submission of the
required documentation.
7. Term. The term of the Employment Agreement shall be for one year
following the Effective Date; provided that, this Employment Agreement shall be
automatically renewed annually for additional one year terms on each anniversary
date of the Effective Date, unless the Company shall give written notice to the
Employee that this Employment Agreement shall not be so renewed not less than 90
days prior to applicable anniversary date of this Employment Agreement.
8. Termination.
(a) For Cause. Company may terminate Employee's employment at any time for
"cause" effective immediately upon written notice to Employee, without prejudice
to any other remedy which Company may be entitled to at law, in equity, or under
this Agreement. As used in this paragraph 8(a), "cause" will mean actions
involving willful misconduct, gross negligence or consistent dereliction or
disregard of duties including, but not limited to, any crime or act of fraud or
dishonesty against Company, the commission of a felony, or the disregard of
<PAGE>
the policies of Company or its subsidiaries or related entities so as to cause
loss, damage or injury to the property, reputation or employees of Company. In
the event of termination for cause, Employee will receive salary, benefits, and
reimbursement of business expenses accrued until the date of termination; all
other compensation and benefits from and after the date of termination under
this Agreement will cease (except those benefits that must be continued pursuant
to applicable law) and Company will have no obligation to pay any severance pay
whatsoever.
(b) Upon Death or Disability. Company may terminate Employee's employment
upon written notice if Employee dies or suffers any mental or physical
disability preventing the substantial performance of his duties under this
Agreement for a period of three consecutive months.
(c) Termination by Company other than for Cause. In the event termination
of Employee for any reason other than cause, death, or disability, and
notwithstanding the provisions of paragraph 7, Company shall be required to give
written notice no later than one year prior to the effective date of such
termination, or in lieu thereof, pay one year's annual salary in a single lump
sum payment ("Severance Payment"), in which event termination shall be effective
immediately; provided that, it shall be a condition to the entitlement and
receipt by the Employee of the Severance Payment that Employee execute and
deliver to Company the Separation and Release Agreement in the form attached
hereto as Exhibit "B", and that Employee shall not revoke such agreement with
the period provided therein.
(d) Termination by Employee for Cause. Employee may, at his option,
terminate this Agreement and Employee's employment hereunder, immediately upon
giving written notice of termination to Company or under this Agreement. For
purposes of this provision, "Cause" for termination by Employee means the
occurrence of any of the following if not corrected with Company within 15 days
of receipt of Employee's specific written demand for correction:
(i) Company's failure to pay salary or any other benefit due to
Employee hereunder;
(ii) Company's failure to pay or reimburse any other sums due Employee
hereunder; or
(iii) Any other material breach of this Agreement by Company.
In the event Employee terminates this Agreement as provided in this
paragraph, then Employee as its sole remedy at law, in equity or under this
Agreement will continue to be paid his salary at the times such payment would
have been due Employee pursuant to this Agreement of the remainder of the term
of his employment under this Agreement.
9. Voting of Stock Options. All stock options granted to Employee under
the Company's Stock Incentive Plan shall provide that any such options shall be
immediately vested and exercisable upon termination of this Agreement under the
provisions of paragraph 8(d).
10. Arbitration. Except as otherwise mandated by law, any dispute under
this Agreement shall be submitted to binding arbitration in Mobile, Alabama,
under the auspices of, and pursuant to the rules of, the American Arbitration
Association as then in effect, or such other procedures as the parties may agree
to at the time, before a single arbitrator. Any award issued as a result of
such arbitration shall be final and binding between the parties, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought.
2
<PAGE>
11. Miscellaneous.
(a) Notices. Any and all notices permitted or required under this
Agreement must be writing. Notices will be deemed given (i) when received, (ii)
one day after have been sent by commercial overnight courier with written
verification of receipt, or (iii) five days after having been sent by registered
or certified mail from a location on the United States mainland, return receipt
requested, postage prepaid, whichever occurs first, at the addresses set forth
below or at any new address, notice of which has been given under this Section:
If to Company: Offshore Tool & Energy Corporation
300 St. Francis Street
Mobile, Alabama 36602
If to Employee: W. Steven McKenzie
300 St. Francis Street
Mobile, Alabama 36602
(b) Amendments. This Agreement including the Exhibits hereto contains the
entire agreement and may not be changed or modified in whole or in part except
by a writing signed by the party against whom enforcement of the change or
modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by
either Employee or Company, except that the rights and obligations under this
Agreement may be assigned to a corporation which becomes the successor to
Company as a result of a merger or other corporate reorganization which
continues the business of Company, or to any other subsidiary of Company.
(d) Governing Law. This Agreement will be governed by and interpreted
according to the substantive laws of the State of Alabama, without regard to
such state's conflicts laws.
(e) No Waiver. The failure of either party to insist on strict compliance
with the terms of this Agreement will not be deemed to be a waiver of this
Agreement, or of that party's right to require strict compliance with the terms
of this Agreement in any other instance.
(f) Severability. Employee and Company recognize that the limitations
contained herein are reasonably and properly required for the adequate
protection of the interests of Company. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as to best reasonably
reflect the intent of the parties. The parties further agree to replace any
such invalid or unenforceable provisions with valid and enforceable provisions
designed to achieve, to the extent possible, the business purposes and intent of
such unenforceable provisions.
(g) Repayment of Excess Bonus Payments. Employee shall promptly repay the
Company any portion of the aggregate bonuses paid in any fiscal year under
Section 4 that is in excess of the aggregate bonuses payable under Section 4 as
determined on the basis of the annual audit of the Company's financial
statements.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one original.
Any copy of this Agreement with the original signatures of all parties appended
shall constitute an original.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement is made and effective as of the day and
year first above written.
OFFSHORE TOOL & SUPPLY
CORPORATION
By: /s/ McGowin I. Patrick, Jr.
---------------------------
Its: President
EMPLOYEE:
/s/ W. Steven McKenzie
--------------------------------
W. Steven McKenzie
4
<PAGE>
EXHIBIT 10(n)
OFFSHORE TOOL & ENERGY CORPORATION
STOCK INCENTIVE PLAN
ARTICLE I
GENERAL PROVISIONS
1.1 PURPOSE. The purposes of the Offshore Tool & Energy Corporation Stock
Incentive Plan (the "Plan") are to advance the best interests of Offshore Tool &
Energy Corporation and its subsidiaries (collectively, "the Company"), and to
attract, retain, and motivate officers, directors who are also employees of the
Company, key management employees, and persons affiliated with the Company (the
"Eligible Participants"), by providing incentives relating to the common stock
of the Company (the "Common Stock"). Pursuant to the Plan, the Company may
grant non-qualified Common Stock options ("Non-Qualified Options"), incentive
Common Stock options ("ISO Options") (collectively, the "Options"), Common Stock
Appreciation Rights, Restricted Common Stock, Performance Awards, Dividend
Equivalent Rights, and other awards, or any combination thereof (collectively,
including the Options, the "Incentives"). The ISO Options are intended to be
qualified pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"); and the Non-Qualified Options are intended to be non-
qualified common stock options as described in Sections 83 and 421 of the Code.
As used in the Plan, the term "subsidiary" means any corporation of which the
Company owns (directly or indirectly), within the meaning of Section 425(f) of
the Code, 50% or more of the total combined voting power of all classes of
common stock.
1.2 GENERAL. The terms and provisions of this Article I shall be applicable to
all Incentives, or any combination thereof unless the context herein clearly
indicates to the contrary.
1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board of
Directors of the Company. The Board of Directors may designate and appoint a
committee (the "Compensation Committee") which shall be (i) constituted so as to
permit the Plan to comply with Rule 16b-3 of the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and (ii) constituted solely of outside directors, within the
meaning of Section 162(m) of the Code ("Section 162(m)"). All references herein
to the "Board" shall mean the Board of Directors and shall include the
Committee, if one is appointed. References to the "Board of Directors" shall
not include the Committee. The Board shall have the power where consistent with
the general purpose and intent of the Plan to (i) modify the requirements of the
Plan to conform with the law or to meet special circumstances not anticipated or
covered in the Plan, (ii) establish policies and (iii) adopt rules and
regulations and prescribe forms for carrying out the purposes and provisions of
the Plan, including the form of any Non-Qualified Option or ISO Option
agreements ("Option Agreements"). Unless otherwise provided in the Plan, the
Board shall have the authority to interpret and construe the Plan and determine
all questions arising under the Plan and any agreement made pursuant to the
Plan. Any interpretation, decision or determination made by the Board shall be
final, binding and conclusive. A majority of the Board shall constitute a
quorum and an act of the majority of the members present at any meeting at which
a quorum is present shall be the act of the Board. With respect to grants of
Incentives to Eligible Participants who are not subject to Section 16 of the
1934 Act or Section 162(m), the Board may delegate to appropriate personnel of
the Company its authority to designate participants, to determine the size and
type of Incentives to be received by those participants and to determine or
modify performance objectives for those participants.
1.4 COMMON STOCK SUBJECT TO THE PLAN. The maximum number of shares of Common
Stock that may be issued pursuant to Incentives under this Plan shall not exceed
5,000,000 shares and the maximum number of shares with respect to which
Incentives may be granted to a single participant in one calendar year may not
exceed 500,000 shares, unless such maximum amounts shall be increased or
decreased by reason of changes in capitalization of the Company as hereinafter
provided. The Common Stock issued pursuant to the Plan may be authorized but
unissued Common Stock, or may be issued Common Stock which has been reacquired
by the Company.
To the extent that any Incentive under this Plan shall be forfeited, shall
expire or be canceled, in whole or in part, then the number of shares of Common
Stock covered by the Incentive so forfeited, expired or canceled may again be
awarded pursuant to the provisions of this Plan. Incentives that may be
satisfied either by the issuance of
<PAGE>
Common Stock or by cash or other consideration shall be counted against the
maximum number of shares of Common Stock that may be issued under this Plan,
even though the Incentive is ultimately satisfied by the payment of
consideration other than Common Stock, as, for example, an Option granted in
tandem with a Stock Appreciation Right (as defined in Section 4.1) that is
settled by a cash payment of the appreciation. However, an Incentive will not
reduce the number of shares of Common Stock that may be issued pursuant to this
Plan if the settlement of the Incentive would not require the issuance of
Shares, as, for example, a Stock Appreciation Right that can be satisfied only
by the payment of cash.
1.5 PARTICIPATION IN THE PLAN. The Board shall determine from time to time
those Eligible Participants who are to be granted Incentives.
1.6 DETERMINATION OF FAIR MARKET VALUE. As used in the Plan, "fair market
value" shall mean on any particular day (i) if the Common Stock is listed on an
established exchange or any automated quotation system that provides sale
quotations, the closing sale price for a share of the Common Stock on such
exchange or quotation system on the applicable date; (ii) if the Common Stock is
not listed on any exchange or quotation system, but bid and asked prices are
quoted and published, the mean between the quoted bid and asked prices on the
applicable date, and if bid and asked prices are not available on such day, on
the next preceding day on which such prices were available; and (iii) if the
Common Stock is not regularly quoted, the "fair market value" of a share of
Common Stock on the applicable date as established by the Board of Directors in
good faith.
1.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) The Board of Directors may increase or decrease the number of shares of
Common Stock specified in Section 1.4, and may adjust the number of shares of
Common Stock (including the shares of another issuer) covered by each
outstanding Incentive, and the exercise price, as the Board of Directors, in its
sole discretion exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Eligible Participants that
might result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company.
(b) Subject to any required action by shareholders, if the Company shall be
the surviving corporation in any merger or consolidation, each outstanding
Option shall pertain to and apply to the securities to which a holder of the
number of shares of Common Stock subject to the Option would have been entitled.
(c) In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of par value into the same
number of shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common Stock within the
meaning of this Plan.
Except as hereinbefore expressly provided in this Plan, any person to whom
an Incentive is granted shall have no rights by reason of any subdivision or
consolidation of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, reorganization, merger, or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or exercise price of shares of Common
Stock subject to an Incentive.
The grant of an Incentive pursuant to this Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell or transfer all or any part of
its business or assets.
1.8 AMENDMENT AND TERMINATION OF THE PLAN. The Plan may be altered, changed,
modified, amended or terminated by written amendment approved by the Board of
Directors; provided, that no action of the Board of Directors may, without the
approval of the shareholders of the Company, withdraw the administration of the
Plan from the Board. Except as provided in this Article I, no amendment,
modification or termination of the Plan shall in
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any manner adversely affect any Incentive previously granted under the Plan
without the consent of the affected Eligible Participant.
1.9 EFFECTIVE DATE. The Plan shall be effective ____________.
1.10 SECURITIES AND LAW REQUIREMENTS.
(a) Legality of Issuance. No Common Stock shall be issued upon the
exercise of any Option unless and until the Board has determined that:
(i) The Company and the Eligible Participant have taken all actions
required to register the Common Stock under the Securities Act of 1933, as
amended (the "Act"), or to perfect an exemption from registration requirements
of the Act, or have determined that the registration requirements of the Act do
not apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on
which the Common Stock is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or foreign
law has been satisfied.
(b) Restrictions on Transfer; Representations of Eligible Participant;
Legends. Regardless of whether the offering and sale of Common Stock under the
Plan have been registered under the Act or have been registered or qualified
under the securities laws of any state, the Company may impose restrictions
and/or prohibitions upon the sale, pledge, or other transfer of such Common
Stock (including the placement of appropriate legends on Common Stock
certificates) if, in the judgment of the Company and its counsel, such
restrictions and/or prohibitions are necessary or desirable to achieve
compliance with the provisions of the Act, the securities laws of any state, or
any other law or rule, including rules of accounting. If the offering and/or
sale of Common Stock under the Plan is not registered under the Act and the
Company determines that the registration requirements of the Act apply but an
exemption is available which requires an investment representation or other
representation, the Eligible Participant shall be required, as a condition to
acquiring such Common Stock, to represent that such Common Stock is being
acquired for investment, and not with a view to the sale or distribution
thereof, except in compliance with the Act, and to make such other
representations as are deemed necessary or appropriate by the Company and its
counsel. Common Stock certificates evidencing Common Stock acquired pursuant to
an unregistered transaction to which the Act applies shall bear a restrictive
legend as may be required or deemed advisable under the Plan or the provisions
of any applicable law. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 1.10 shall be
conclusive and binding on all persons.
(c) Registration or Qualification of Securities. The Company may, but
shall not be obligated to, register or qualify the offering or sale of Common
Stock pursuant to this Plan under the Act or any other applicable law.
(d) Exchange of Certificates. If, in the opinion of the Company and its
counsel, any legend placed on a Common Stock certificate representing shares of
Common Stock issued pursuant to the Plan is no longer required, the holder of
such certificate shall be entitled to exchange such certificate for a
certificate representing the same number of shares of Common Stock but lacking
such legend.
1.11 SEPARATE CERTIFICATE. Separate certificates representing the Common Stock
of the Company to be delivered to an Eligible Participant upon the exercise of
any Option will be issued to such Eligible Participant.
1.12 PAYMENT FOR COMMON STOCK. Payment for shares of Common Stock purchased
under this Plan shall be made in full and in cash or check made payable to the
Company. However, the Board in its discretion may allow payment for shares of
Common Stock purchased under this Plan to be made in Common Stock of the Company
or a combination of cash and Common Stock of the Company. Further, the Non-
Qualified Option Agreement may provide for a "cashless exercise" of Common Stock
options pursuant to procedures established by the Board. In the
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event that Common Stock of the Company is utilized in consideration for the
purchase of Common Stock upon the exercise of an Option, then, such Common Stock
shall be valued at the "fair market value" as defined in Section 1.6 of the
Plan.
1.13 INCURRENCE OF DISABILITY. An Eligible Participant shall be deemed to have
terminated employment or consulting and incurred a disability ("Disability") if
such Eligible Participant suffers a physical or mental condition which (i)
satisfies the definition of "total disability" in the disability policy or plan
provided by the Company covering the Eligible Participant; or (ii) if no such
policy or plan is then covering the Eligible Participant, in the judgment of the
Board, totally and permanently prevents an Eligible Participant from engaging in
any substantial gainful employment or consulting with the Company.
1.14 NON-QUALIFIED STOCK OPTIONS AND ISO OPTIONS GRANTED SEPARATELY. Since the
Board is authorized to grant Non-Qualified Options and ISO Options to Eligible
Participants, the grant thereof and Option Agreements relating thereto will be
made separately and totally independent of each other. Except as it relates to
the total number of shares of Common Stock which may be issued under the Plan,
the grant or exercise of a Non-Qualified Option shall in no manner affect the
grant and exercise of any ISO Options. Similarly, the grant and exercise of any
ISO Option shall in no manner affect the grant and exercise of a Non-Qualified
Option.
1.15 GRANTS OF OPTIONS AND OPTION AGREEMENTS. Each Non-Qualified Option and/or
ISO Option granted under this Plan shall be evidenced by a written Option
Agreement with respect to such Option effective on the date of grant and
executed by the Company and the Eligible Participant. Each Option granted
hereunder shall contain such terms, restrictions and conditions as the Board may
determine, which terms, restrictions and conditions may or may not be the same
in each case.
1.16 OTHER INCENTIVES. The Board may, in addition to Options, grant to any
Eligible Participant other Incentives including, but not limited to, Common
Stock Appreciation Rights, Restricted Common Stock, Performance Awards, Dividend
Equivalent Rights, Interest Equivalents, and other awards, or any combination
thereof which shall be evidenced by a written Agreement effective on the date of
grant and executed by the Company and the Eligible Participant.
1.17 NON-TRANSFERABILITY OF INCENTIVES. Any Incentive granted shall not be
transferable otherwise than by will, by the laws of descent and distribution or
pursuant to a domestic relations order, as defined in the Code, if permitted by
the Board and so provided in the Incentive agreement or an amendment thereto,
except that Options only may be transferred, if permitted by the Board and so
provided in the Option Agreement or an amendment thereto, (i) to Immediate
Family Members, (ii) to a partnership in which Immediate Family Members, or
entities in which Immediate Family Members are the sole owners, members or
beneficiaries, as appropriate, are the sole partners, (iii) to a limited
liability company in which Immediate Family Members, or entities in which
Immediate Family Members are the sole owners, members or beneficiaries, as
appropriate, are the sole members, or (iv) to a trust for the sole benefit of
Immediate Family Members. "Immediate Family Members" shall be defined as the
spouse and natural or adopted children or grandchildren of the participant and
their spouses. To the extent that an ISO Option is permitted to be transferred
during the lifetime of the participant, it shall be treated thereafter as a Non-
Qualified Stock Option. Specifically (but without limiting the generality of
the foregoing), the Incentive may not be assigned, transferred (except as
provided above), pledged or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition of an Incentive contrary to the provisions hereof shall be null and
void and without effect.
1.18 ADDITIONAL DOCUMENTS ON DEATH. No transfer of an Incentive by an Eligible
Participant by will or the laws of descent and distribution shall be effective
to bind the Company unless the Company shall have been furnished with written
notice and such other evidence as the Board may deem necessary to establish the
validity of the transfer and the acceptance by the successor to the Incentive of
the terms and conditions of such Incentive.
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1.19 COMMON SHAREHOLDERS' RIGHTS. No Eligible Participant shall have a right as
a shareholder of the Company with respect to any shares of Common Stock subject
to an Option prior to the purchase of such shares of Common Stock by exercise of
the Option.
1.20 REPURCHASE OF OPTIONS. Upon approval of the Board, the Company may
repurchase a previously granted Option from a participant by mutual agreement
before such Option has been exercised by payment to the participant of the
amount per share by which: (i) the "fair market value" (as defined in Section
1.6) of the Common Stock subject to the option on the business day immediately
preceding the date of purchase exceeds (ii) the exercise price.
1.21 DEFERRAL PERMITTED. Payment of cash or distribution of any shares of
Common Stock to which a participant is entitled under any Incentive shall be
made as provided in the Incentive agreement. Payment may be deferred at the
option of the participant if provided in the Incentive agreement.
1.22 CHANGE OF CONTROL.
(a) Subject to the provisions of paragraph (b) of this Section 1.22, in the
event of a Change of Control as hereinafter defined, all outstanding Incentives
shall immediately vest and become exercisable.
(b) In the event of a Change of Control, the Board, in its discretion may
act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Eligible Participants and
which may vary among Options held by any individual Eligible Participant: (i)
determine a specified date (before or after such Change of Control) after which
all unexercised Options and all rights of Eligible Participants thereunder shall
terminate, (ii) require the mandatory surrender to the Company by selected
Eligible Participants of some or all of the outstanding Options held by such
Eligible Participants (irrespective of whether such Options are then exercisable
under the provisions of the Plan) as of a date, before or after such Change of
Control, specified by the Board, in which event the Board shall thereupon cancel
such Options and the Company shall pay to each Eligible Participant an amount of
cash per share equal to the excess, if any, of the Change of Control value of
the shares subject to such Option over the exercise price(s) under such Options
for such shares, (iii) make such adjustments to Options then outstanding as the
Board deems appropriate to reflect such Change of Control (provided, however,
that the Board may determine in its sole discretion that no adjustment is
necessary to Options then outstanding) or (iv) provide that thereafter upon any
exercise of an Option theretofore granted the Eligible Participant shall be
entitled to purchase under such Option, in lieu of the number of shares of
Common Stock then covered by such Option the number and class of shares of
Common Stock or other securities or property (including, without limitation,
cash) to which the Eligible Participant would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution the Eligible Participant has been the holder of record of
the number of shares of Common Stock then covered by such Option. The provisions
contained in this paragraph shall not terminate any rights of the Eligible
Participant to further payments pursuant to any other agreement with the Company
following a Change of Control.
(c) All conditions and/or restrictions relating to the continued
performance of services and/or the achievement of management objectives, if any,
with respect to the exercisability or full entitlement to an Incentive shall
immediately lapse upon a Change in Control.
(d) For purposes of this Plan, "Change of Control" means the occurrence of
any of the following events: (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 other than a previously wholly-owned subsidiary of the
Company), (ii) the Company sells, leases or exchanges all or substantially all
of its assets to any other person or entity (other than a wholly-owned
subsidiary of the Company), (iii) the Company is to be dissolved and liquidated,
(iv) any person or entity, including a "group" as contemplated by Section
13(d)(3) of the 1934 Act, 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 Common Stock (based upon voting power), or (v) as a result
of or in connection with a contested election of directors, the persons who were
directors of the Company before such election, together with their nominees,
shall cease to constitute a majority of the Board.
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1.23 NON-QUALIFYING OPTIONS. Notwithstanding anything to the contrary contained
in this Plan, with respect to all or any portion of any Option granted under the
Plan not qualifying as an "incentive common stock option" under Section 422 of
the Code, such Option shall be considered as a Non-Qualified Option granted
under this Plan for all purposes.
1.24 TAX STATUS. The Board shall take all appropriate steps at the time of the
grant of Options or the exercise of Options, or both, consistent with such
Options' status for federal income tax purposes (including but not limited to,
designating whether such Option is considered a Non-Qualified Option or an ISO
Option).
ARTICLE II
TERMS OF NON-QUALIFIED OPTIONS AND EXERCISE
2.1 TERMS OF NON-QUALIFIED OPTIONS. The Board shall have the discretion to fix
the period during which any Non-Qualified Option may be exercised (the "Option
Period"), provided that no Non-Qualified Option may be exercised more than ten
(10) years after the Date of Grant. Each Non-Qualified Option shall be
evidenced by a Non-Qualified Option Agreement in such form and containing such
provisions not inconsistent with the provisions of the Plan as the Board shall
approve. Each Non-Qualified Option Agreement shall specify the effect of
termination of employment or consulting on the exercisability of Non-Qualified
Options.
2.2 OPTION PRICE. The option price ("Option Price") for shares of Common
Stock subject to Non-Qualified Options shall be determined by the Board, but in
no event shall such Option Price be less than the "fair market value" of the
Common Stock on the date of grant.
2.3 ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTIONS ON RETIREMENT, DEATH,
DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. All Non-Qualified Options which are
not exercisable as of the date of termination of an Eligible Participant's
employment or consulting shall expire as of such date, provided, however, the
Board, in its sole discretion, may permit any Eligible Participant whose
employment or consulting with the Company terminates, for any cause whatsoever,
to exercise, at any time, any or all Non-Qualified Options previously granted to
such Eligible Participant notwithstanding that such Non-Qualified Options have
not yet vested, in whole or in part, as of the date of termination of such
Eligible Participant's employment or consulting.
2.4 NUMBER OF NON-QUALIFIED OPTIONS GRANTED. The Board shall determine the
number of Non-Qualified Options which are to be granted to each Eligible
Participant. In making such determinations, the Board may obtain the advice and
recommendation of the officers of the Company which have supervisory authority
over each such Eligible Participant. The granting of a Non-Qualified Option
under the Plan shall not affect any outstanding Non-Qualified Option previously
granted to an Eligible Participant under the Plan.
2.5 NOTICE TO EXERCISE STOCK OPTION. Upon exercise of a Non-Qualified Option,
an Eligible Participant shall give written notice to the Secretary of the
Company, or other officer designated by the Board at the Company's principal
office. No Common Stock shall be issued to any Eligible Participant until the
Company receives full payment for the Common Stock purchased, if applicable, and
any required withholding for federal, state or local taxes.
ARTICLE III
GRANTING OF ISO OPTIONS
3.1 LIMITATIONS ON GRANTEES. ISO Options may be granted only to officers and
other key management employees of the Company and any of its subsidiaries. No
ISO Options shall be granted to any person who is not eligible to receive
incentive common stock options as provided in Section 422 of the Code. No ISO
Options shall be granted to any key management employee if, immediately before
the grant of an ISO Option, such officer or
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employee owns more than 10% of the total combined voting power of all classes of
Common Stock of the Company or its subsidiaries (as determined in accordance
with the Common Stock attribution rules contained in Section 425(d) of the
Code); provided that, the preceding clause shall not apply if at the time the
ISO Option is granted, the ISO Price is at least 110 percent of the "fair market
value" of the Common Stock subject to the ISO Option, and such ISO Option by its
terms is not exercisable after the expiration of five (5) years from the date
such ISO Option is granted.
3.2 TERMS OF ISO OPTIONS. The Board shall have the discretion to fix the period
during which any ISO Option may be exercised (the "ISO Period"), provided that
no ISO Option may be exercised more than ten (10) years after the Date of Grant.
No ISO Option shall be exercisable after the expiration of its ISO Period. Each
ISO Option shall be evidenced by an ISO Option Agreement in such form and
containing such provisions not inconsistent with the provisions of the Plan as
the Board shall approve, including provisions to qualify an ISO Option under
Section 422 of the Code. Each ISO Option Agreement shall specify the effect of
termination of employment or consulting on the exercisability of ISO Options.
3.3 ISO OPTION PRICE. The option price for shares of Common Stock subject to
an ISO Option (the "ISO Price") shall be determined by the Board, but in no
event shall such ISO Price be less than the "fair market value" of the Common
Stock on the date of grant.
3.4 ANNUAL ISO OPTION LIMITATION. The aggregate "fair market value"
(determined as of the time the ISO Option is granted) of the Common Stock with
respect to which ISO Options are exercisable for the first time by any Eligible
Participant during any calendar year (under all "incentive Common Stock option"
plans qualified under Section 422 of the Code sponsored by the Company) shall
not exceed $100,000.
3.5 ACCELERATION OF OTHERWISE UNEXERCISABLE ISO OPTION ON RETIREMENT, DEATH,
DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. All ISO Options which are not
exercisable as of the date of termination of an Eligible Participant's
employment, shall expire as of such date; provided, however, the Board, in its
sole discretion, may permit any Eligible Participant whose employment with the
Company terminates, for any cause whatsoever, to exercise, at any time within
the ISO Period, any or all ISO Options previously granted to such Eligible
Participant notwithstanding that such ISO Options have not yet vested, in whole
or in part, as of the date of the termination of such Eligible Participant's
employment.
3.6 NUMBER OF ISO OPTIONS GRANTED. Subject to the applicable limitations
contained in the Plan, the Board shall determine the number of ISO Options which
are to be granted to each Eligible Participant. In making such determinations,
the Board shall obtain the advice and recommendation of the officers of the
Company. The granting of an ISO Option under the Plan shall not affect any
outstanding ISO Option previously granted to an Eligible Participant under the
Plan.
3.7 NOTICE TO EXERCISE ISO OPTION. Upon exercise of an ISO Option, an Eligible
Participant shall give written notice to the Secretary of the Company, or other
officer designated by the Board at the Company's principal office. No Common
Stock shall be issued to any Eligible Participant until the Company receives
full payment for the Common Stock purchased.
ARTICLE IV
GRANTING OF OTHER AWARDS
4.1 STOCK APPRECIATION RIGHTS. The Board may grant Stock Appreciation Rights
("SAR") to any Eligible Participant, either as a separate award or in connection
with an Option. SARs shall be subject to such terms and conditions as the Board
may impose. The grant of the SAR may provide that the holder may be paid for
the value of the SAR either in cash or in shares of Common Stock, or a
combination thereof. In the event of the exercise of a SAR payable in Common
Stock, the holder of the SAR shall receive that number of whole shares of Common
Stock having an aggregate "fair market value" on the date of exercise equal to
the value obtained by multiplying (i) the difference between the "fair market
value" of a share on the date of exercise over the "fair market value" on the
date of grant (or other value specified in the agreement granting the SAR) by
(ii) the number of shares as to which the
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SAR is exercised. If a SAR is granted in tandem with a Common Stock Option,
there shall be surrendered and canceled from the option at the time of exercise
of the SAR, in lieu of exercise under the option, that number of shares as shall
equal the number of shares as to which the SAR shall have been exercised.
However, notwithstanding the foregoing, the Board, in its sole discretion, may
place a ceiling on the amount payable upon exercise of a SAR, but any such
limitation shall be specified at the time that the SAR is granted. Any valid
exercise of a SAR is conditioned on the payment to the Company in cash of any
amount that the Company may be required to withhold for federal, state or local
taxes.
4.2 RESTRICTED COMMON STOCK.
(a) The Board may grant restricted Common Stock ("Restricted Common Stock")
to any Eligible Participant, for no cash consideration, for such minimum
consideration as may be required by applicable law, or for such other
consideration as may be specified by the grant. The terms and conditions of
Restricted Common Stock shall be specified by the grant. The Board, in its sole
discretion, shall determine what rights, if any, the person to whom the
Restricted Common Stock is granted shall have in the Restricted Common Stock
during the restriction period and the restrictions applicable to the restricted
stock, including whether the holder of the Restricted Common Stock shall have
the right to vote the shares and receive all dividends and other distributions
applicable to the shares. The Board shall determine when the restrictions shall
lapse or expire and the conditions, if any, under which the Restricted Common
Stock will be forfeited or sold back to the Company. Each grant of Restricted
Common Stock may have different restrictions and conditions. The Board, in its
discretion, may prospectively change the restriction period and the restrictions
applicable to any particular grant of Restricted Common Stock. Restricted
Common Stock may not be disposed of by the recipient until the restrictions
specified in the grant expire.
(b) Any Restricted Common Stock issued hereunder may be evidenced in such
manner as the Board, in its sole discretion, shall deem appropriate, including,
without limitation, book-entry registration or issuance of a Common Stock
certificate or certificates. In the event any Common Stock certificate is
issued in respect of shares of Restricted Common Stock awarded hereunder, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such Restricted Stock. The Company may retain, at its option, the
physical custody of the Restricted Common Stock during the restriction period or
require that the Restricted Common Stock be placed in an escrow or trust, along
with a Common Stock power endorsed in blank, until all restrictions are removed
or expire.
4.3 PERFORMANCE AWARDS.
(a) The Board may grant Performance Awards to any Eligible Participant, for
no cash consideration, for such minimum consideration as may be required by
applicable law, or for such other consideration as may be specified at the time
of the grant. A Performance Award will be paid, vested or otherwise deliverable
solely upon the attainment of one or more pre-established, objective performance
goals established by the Board prior to (i) ninety (90) days after the
commencement of the period of service to which the performance goals relate and
(ii) the lapse of twenty-five percent (25%) of the period of service, and in any
event while the outcome is substantially uncertain. The other terms and
conditions of Performance Awards shall be specified at the time of the grant and
may include provisions establishing the performance period, the performance
criteria to be achieved during a performance period, and the maximum or minimum
settlement values. Each Performance Award shall have its own terms and
conditions. If the Board determines, in its sole discretion, that the
established performance measures or objectives are no longer suitable because of
a change in the Company's business, operations, corporate structure, or for
other reasons that the Board deems satisfactory, the Board may modify the
performance measures or objectives and/or the performance period.
(b) Performance Awards may be valued by reference to the "fair market
value" of the Common Stock or according to any formula or method deemed
appropriate by the Board, in its sole discretion, including, but not limited to,
achievement of specific financial, production, sales or cost performance
objectives that the Board believes to be relevant to the Company's business
and/or remaining in the employ of the Company for a specified period of time.
Performance Awards may be paid in cash, shares, or other consideration, or any
combination thereof. If payable in Common Stock, the consideration for the
issuance of the Common Stock may be the achievement of the performance objective
established at the time of the grant of the Performance Award. Performance
Awards may be
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payable in a single payment or in installments and may be payable at a specified
date or dates or upon attaining the performance objective. The extent to which
any applicable performance objective has been achieved shall be conclusively
determined by the Board.
4.4 DIVIDEND EQUIVALENT RIGHTS AND INTEREST EQUIVALENTS.
(a) The board may grant a Dividend Equivalent Right ("DER") to any Eligible
Participant, either as a component of another grant or as a separate grant. The
terms and conditions of the DER shall be specified by the grant. Dividend
equivalents credited to the holder of a DER may be paid currently or may be
deemed to be reinvested in additional shares of Common Stock (which may
thereafter accrue additional dividend equivalents). Any such reinvestment shall
be at the "fair market value" of the Common Stock at the time thereof. DERs may
be settled in cash or shares of Common Stock, or a combination thereof, in a
single payment or in installments. A DER granted as a component of another
grant may provide that such DER shall be settled upon exercise, settlement, or
payment of, or lapse of restrictions on, such other grant, and that such DER
shall expire or be forfeited or annulled under the same conditions as such other
grant. A DER granted as a component of another grant may also contain terms and
conditions different from such other grant.
(b) Any grant of a DER that is settled in whole or in part in cash on a
deferred basis may provide for interest equivalents to be credited with respect
to such cash payment. Interest equivalents may be compounded and shall be paid
upon such terms and conditions as may be specified by the grant.
4.5 OTHER AWARDS. The Board may grant to any eligible person other forms of
awards based upon, payable in, or otherwise related to, in whole or in part,
shares of Common Stock if the Board determines that such other form of award is
consistent with the purposes and restrictions of this program. The terms and
conditions of such other form of award shall be specified by the grant. Such
awards may be granted for no cash consideration, for such minimum consideration
as may be required by applicable law, or for such other consideration as may be
specified by the grant.
ARTICLE V
MISCELLANEOUS
5.1 NO RIGHT TO A GRANT. Neither the adoption of the Plan by the Company nor
any action of the Board shall be deemed to give an Eligible Participant any
right to be granted an Incentive or any of the rights hereunder.
5.2 NO EMPLOYMENT RIGHTS CONFERRED. Nothing in the Plan or in any Incentive
which relates to the Plan shall confer upon any Eligible Participant any right
to continue in the employ as an employee or consultant of the Company, or
interfere in any way with the right of the Company to terminate his or her
employment or consulting arrangement at any time.
5.3 RULE 16B-3. It is intended that the Plan and any grant of Incentives made
to a person subject to Section 16 of the 1934 Act shall meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such grant would
disqualify the Plan or such grant under, or would otherwise not comply with,
Rule 16b-3, such provision or grant shall be construed or deemed amended to
conform to Rule 16b-3.
5.4 GOVERNING LAW. This Plan shall be construed in accordance with the laws of
the State of Delaware.
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EXHIBIT 10(O)
LEASE AGREEMENT
between
THE INDUSTRIAL DEVELOPMENT BOARD OF
MOBILE COUNTY
and
AERO INTERNATIONAL, L.L.C.
Dated as of July 1, 1998
---------------------------------
Relating to
$2,000,000
THE INDUSTRIAL DEVELOPMENT BOARD
OF MOBILE COUNTY
INDUSTRIAL DEVELOPMENT REVENUE BONDS
(AMERICAN AERO CRANES PROJECT)
Series 1998
This instrument prepared by:
R. Preston Bolt, Jr.
HAND ARENDALL, L. L. C.
Post Office Box 123
Mobile, Alabama 36601
<PAGE>
TABLE OF CONTENTS
to
LEASE AGREEMENT
between
THE INDUSTRIAL DEVELOPMENT BOARD
OF MOBILE COUNTY
and
AERO INTERNATIONAL, L.L.C.
Page
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ARTICLE I DEFINITIONS AND USE OF PHRASES.................................... 1
Section 1.1 Definitions............................................... 1
Section 1.2 Definitions Contained in the Indenture.................... 6
Section 1.3 Use of Phrases............................................ 6
ARTICLE II REPRESENTATIONS AND WARRANTIES................................... 7
Section 2.1 Representations by the Issuer............................. 7
Section 2.2 Representations and Warranties by the Lessee.............. 8
ARTICLE III DEMISING CLAUSES................................................ 9
Section 3.1 Demising Clauses.......................................... 9
ARTICLE IV CONCERNING THE PROJECT WORK; ISSUANCE OF THE BONDS............... 10
Section 4.1 Performance of the Project Work........................... 10
Section 4.2 Agreement to Issue Bonds and Security Therefor............ 11
Section 4.3. Disbursement of Moneys from Construction Fund............. 11
Section 4.4. No Warranty of Suitability by the Issuer; Lessee Required
to Make Arrangements for Payment of Project Costs....... 11
Section 4.5 Issuer to Pursue Rights against Suppliers and
Contractors, etc........................................ 12
Section 4.6 Certification of Completion Date.......................... 12
Section 4.7 Supplemental Agreement on Completion...................... 13
ARTICLE V DURATION OF TERM AND RENTAL PROVISIONS............................ 13
Section 5.1 Duration of Term.......................................... 13
Section 5.2 Rental Provisions......................................... 13
Section 5.3 Miscellaneous Additional Rent............................. 14
Section 5.4 Obligation of Lessee Unconditional........................ 15
ARTICLE VI PROVISIONS CONCERNING MAINTENANCE, ADDITIONS,REMOVAL OF PROJECT
EQUIPMENT,INSURANCE AND TAXES............................................. 15
Section 6.1 Maintenance, Additions, Alterations, Improvements
and Modifications....................................... 15
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Section 6.2 Removal of Project Equipment.............................. 17
Section 6.3 Taxes, Other Governmental Charges and Utility Charges..... 18
Section 6.4 Insurance With Respect to the Project..................... 18
Section 6.5 Effect of Mortgage........................................ 19
ARTICLE VII PROVISIONS RESPECTING DAMAGE, DESTRUCTION AND CONDEMNATION...... 19
Section 7.1 Damage and Destruction Provisions......................... 19
Section 7.2 Condemnation Provisions................................... 20
Section 7.3 Condemnation of Lessee-Owned Property..................... 21
Section 7.4 Cooperation of the Issuer in the Conduct of Condemnation
Proceedings............................................. 21
Section 7.5 Cooperation of the Issuer with Respect to Restoration of
the Project in the Event of Casualty or Condemnation.... 21
Section 7.6 Provisions Relating to the Incurring of Certain Expenses
after Indebtedness Paid................................. 21
ARTICLE VIII PARTICULAR COVENANTS OF THE LESSEE............................. 22
Section 8.1 General Covenants......................................... 22
Section 8.2 Release and Indemnification Covenants..................... 22
Section 8.3 Inspection of Project..................................... 23
Section 8.4 Agreement to Maintain Existence........................... 23
Section 8.5 Qualification in Alabama.................................. 24
Section 8.6 Covenant to Operate....................................... 24
Section 8.7 Covenants Concerning the Tax-Exempt Nature of the
Interest Income on the Bonds............................ 24
ARTICLE IX CERTAIN PROVISIONS RELATING TO ASSIGNMENT SUBLEASING AND
MORTGAGING AND TO THE BONDS............................................... 25
Section 9.1 Provisions Relating to Assignment and Subleasing
by Lessee............................................... 25
Section 9.2 References to Bonds Ineffective after Indebtedness Paid... 26
Section 9.3 Disposition of Trust Fund Moneys after Full Payment
of Indebtedness......................................... 26
ARTICLE X EVENTS OF DEFAULT AND REMEDIES.................................... 27
Section 10.1 Events of Default Defined................................. 27
Section 10.2 Remedies on Default....................................... 27
Section 10.3 No Remedy Exclusive....................................... 28
Section 10.4 Agreement to Pay Attorneys' Fees.......................... 28
Section 10.5 No Additional Waiver Implied by One Waiver................ 28
ARTICLE XI OPTIONS.......................................................... 29
Section 11.1 Options to Terminate the Lease during Lease Term.......... 29
Section 11.2 Option to Purchase........................................ 29
Section 11.3 Options - In General...................................... 30
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ARTICLE XII MISCELLANEOUS................................................... 30
Section 12.1 Covenant of Quiet Enjoyment Surrender..................... 30
Section 12.2 The Lease to be a Net Lease............................... 30
Section 12.3 Statement of Intention Regarding Certain Tax Matters...... 30
Section 12.4 Notices................................................... 30
Section 12.6 Certain Prior and Contemporaneous Agreements Cancelled.... 32
Section 12.7 Limited Liability of Issuer............................... 32
Section 12.8 Binding Effect............................................ 32
Section 12.9 Severability.............................................. 33
Section 12.10 Article and Section Captions.............................. 33
Section 12.11 Governing Law............................................. 33
EXHIBIT "A" - PROJECT SITE
EXHIBIT "B" - PROJECT EQUIPMENT
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This LEASE AGREEMENT between THE INDUSTRIAL DEVELOPMENT BOARD OF MOBILE
COUNTY, a public corporation organized and existing under the laws of the State
of Alabama, party of the first part (herein called the "Issuer"), and AERO
INTERNATIONAL, L.L.C., a limited liability company organized and existing under
the laws of the State of Louisiana and qualified to do business in the State of
Alabama, party of the second part (together herein called the "Lessee"),
W I T N E S S E T H
That in consideration of the respective representations and agreements
hereinafter contained, the Issuer and the Lessee agree as follows (provided that
in the performance of the agreements of the Issuer herein contained, any
obligation it may thereby incur for the payment of money shall not be a general
debt on its part but shall be payable by it solely out of the rents, revenues
and receipts derived from this Lease, the proceeds of the sale of the Bonds
referred to in Section 4.2 and any other rents, revenues and receipts arising
out of or in connection with its ownership of the Project as hereinafter
defined):
ARTICLE I
DEFINITIONS AND USE OF PHRASES
Section 1.1 Definitions. The following words and phrases and others
evidently intended as the equivalent thereof shall, in the absence of clear
implication herein otherwise, be given the following respective interpretations
in this Lease Agreement:
"Act" means the statutes codified as Code of Alabama 1975, Title 11,
Sections 11-20-30, et seq., as amended and supplemented and at the time in force
and effect.
"Affiliate" means any person, firm or corporation controlling, controlled
by or under common control with the Lessee.
"Authorized Issuer Representative" shall mean the Chairman or Vice-Chairman
of the Board of Directors or the Secretary or Treasurer of the Board of
Directors or any other officer or agent of the Issuer authorized by the Board of
Directors to act as "Authorized Issuer Representative" for purposes of this
Indenture and the Lease Agreement without further action by the said Board of
Directors.
"Authorized Lessee Representative" means the person or persons at the time
designated as such by written certificate furnished to the Issuer and the
Trustee, containing the specimen signature or signatures of such person or
persons and signed on behalf of the Lessee.
"Basic Rent" or "Basic Rental Payments" means (i) the moneys payable by the
Lessee pursuant to the provisions of Section 5.2 hereof, and (ii) any other
moneys payable by the Lessee hereunder to provide for the payment of the
principal of and the interest and premium (if any) on the Bonds (other than the
aforesaid moneys payable pursuant to Section 5.2 hereof).
"Bond Fund" means the Bond Fund created in Section 8.01 of the Indenture.
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"Bond Guaranty" means the Guaranty Agreement, dated July 1, 1998, from the
Lessee to the Trustee.
"Bond Resolution" means the Resolution of the Issuer authorizing the
issuance of the Bonds and the execution and delivery of the Financing Documents.
"Bonds" means the Issuer's Industrial Development Revenue Bonds (American
Aero Cranes Project), Series 1998, issued under the Indenture.
"Building" or "Buildings" means the building or buildings and all related
improvements that are now or hereinafter located on the Project Site, as such
building or buildings and related improvements may at any time exist.
"Code" means the Internal Revenue Code of 1986, as amended and at the time
in force and effect.
"Completion Date" means the date on which the completion of the Project
Work and the satisfaction of the other conditions referred to in Section 4.6
hereof are certified to the Trustee and the Issuer in accordance with the
provisions of said Section 4.6
"Construction Fund" means the fund created in Section 7.03 of the
Indenture.
"Counsel" means any attorney duly admitted to practice before the highest
court of any state of the United States of America or of the District of
Columbia (including any officer or full-time employee of the Issuer, the Lessee
or an Affiliate who is so admitted to practice), it being understood that
"Counsel" may also mean a firm of attorneys any of whose members is so admitted
to practice.
"Credit Agent" means National Canada Finance Corp., as agent for the
lenders under the Credit Agreement.
"Credit Agreement" means the Loan Agreement, dated June 30, 1998, between
the Lessee, its parent company, the Credit Agent and certain lenders as therein
described.
"Credit Obligor" means National Bank of Canada, a Canadian banking
institution having its principal office in New York, New York, in its role as
issuer of the Letter of Credit.
"Eminent Domain", when used herein with reference to any taking of
property, means the power (actual or claimed) of any governmental authority or
any person, firm or corporation acting under governmental authority (actual or
claimed) to take such property, and for purposes of this Lease Agreement, a
taking of property under the exercise of the power of Eminent Domain shall
include a conveyance made, or a use granted or taken, under either the threat or
the fact of the exercise of governmental authority.
"Event of Default" means an "Event of Default" as specified in Section
10.1.
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"Financing Documents" means this Lease Agreement, the Indenture, the Bond
Guaranty, the Letter of Credit, the Credit Agreement, the Mortgage, and the
Remarketing Agent Agreement, as all of such documents shall be amended from time
to time.
"Fully Paid", (i) when used with respect to Indenture Indebtedness, shall
have the meaning stated in Section 16.01 of the Indenture, and (ii) when used
with respect to Credit Obligor Indebtedness, shall mean that all indebtedness or
obligations of the Lessee under the Credit Agreement have been paid in full.
"Indenture" means the Trust Indenture between the Issuer and SunTrust Bank,
Nashville, N.A., as Trustee, dated as of July 1, 1998, under which the Bonds are
authorized to be issued, as said Trust Indenture now exists and as it may
hereafter be supplemented and amended.
"Independent Alabama Counsel" means an attorney (or firm of attorneys) who
is duly admitted to practice before the highest court in the State of Alabama
and who is not an officer or fulltime employee of the Issuer, the Lessee or an
Affiliate.
"Independent Appraiser" means a person, firm or corporation that is not
regularly employed or retained by the Issuer, the Lessee or an Affiliate, that
has no other material connection with the Issuer, the Lessee or an Affiliate,
and that is regularly engaged in the business of appraising real or personal
property (as appropriate to the property being appraised or valued) and
otherwise competent to determine the value of the property in question.
"Independent Counsel" means an attorney (or firm of attorneys) who is duly
admitted to practice before the highest court of any state of the United States
of America or the District of Columbia and who is not an officer or full-time
employee of the Issuer, the Lessee or an Affiliate.
"Independent Engineer" means an engineer or engineering firm that is
licensed to engage in the independent practice of engineering under the laws of
the State of Alabama, that is not regularly employed or retained by the Issuer,
the Lessee or an Affiliate, and that has no other material connection with the
Issuer, the Lessee or an Affiliate.
"Issuer" means (i) the party of the first part hereto and its successors
and assigns, and (ii) any public corporation resulting from or surviving any
consolidation or merger to which it or its successors may be a party.
"Lease" or "this Lease Agreement" means this Lease Agreement as it now
exists and as it may from time to time be modified, supplemented or amended as
permitted by Article 14 of the Indenture.
"Lease Term" means the duration of the leasehold estate granted in Section
5.1 hereof.
"Letter of Credit" means the initial Letter of Credit delivered to the
Trustee on the date of delivery of the Bonds, and, unless the context of use
indicates another or different meaning or intent, any Substitute Letter of
Credit accepted by the Trustee under the terms of the Indenture.
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"Mortgage" shall mean the Mortgage and the Commercial Security Agreement,
each dated July 1, 1998, executed by the Lessee and the Issuer in favor of the
Credit Obligor in order to secure the Lessee's obligations under the Credit
Agreement.
"Net Condemnation Award" means the total amount received as compensation
for any part of the Project taken under the exercise of the power of Eminent
Domain plus damages to any part of the Project not taken (including any
compensation referable to the interest of the Lessee in the part of the Project
taken and as damages to the interest of the Lessee in any part thereof not
taken, but not including any compensation belonging to the Lessee pursuant to
the provisions of Section 7.3 hereof) which compensation shall consist, to the
extent payable to the Issuer, of (i) all awards received pursuant to
administrative or judicial proceedings conducted in connection with the exercise
of the power of Eminent Domain, plus (ii) all amounts received as the result of
any settlement of compensation claims (whether in whole or in part) negotiated
with the condemning authority, less (iii) all attorneys' fees and other expenses
incurred in connection with the receipt of such compensation, including
attorneys' fees and expenses relating to such administrative or judicial
proceedings and to such settlement negotiations (other than any that may be paid
directly by the Lessee).
"Net Insurance Proceeds" means the total insurance proceeds recovered by
the Issuer, the Lessee and/or the Trustee on account of any damage to or
destruction of the Project or any part thereof, less all expenses (including
attorneys' fees and any extraordinary expenses of the Trustee) incurred in the
collection of such proceeds.
"Owner" shall mean the owner or owners of the Bonds as determined in
accordance with the Indenture.
"Payment in Full" means that such indebtedness has been paid in full or
duly provided for pursuant to the applicable provisions of the Indenture or the
Bond Resolution, and that the lien of such Indenture and the Mortgage has been
cancelled, satisfied and discharged in accordance with the applicable provisions
thereof.
"Permitted Encumbrances" means, as of any particular time, (i) liens for ad
valorem taxes and general and special assessments not then delinquent, (ii) the
Lease and the Indenture, (iii) utility, access, drainage and other easements and
rights-of-way, mineral rights, restrictions and exceptions, none of the
foregoing of which, individually or in the aggregate, materially interfere with
or impair the use of the Project for the purpose for which it was acquired or is
held by the Issuer, (iv) any inchoate mechanic's, materialmen's, supplier's or
vendor's lien or other right to a purchase money security interest if payment is
not yet due and payable under the contract giving rise to such lien or right,
(v) such other minor defects, irregularities, encumbrances, easements, rights-
of-way and clouds on title (including zoning and other similar restrictions and
regulations) as in the written opinion of Independent Alabama Counsel delivered
to the Trustee customarily exist with respect to properties similar in character
to the Project and do not in the aggregate materially impair the title of the
Issuer to the Project or the use of the Project for the purpose for which it was
acquired or is held by the Issuer and (vi) any encumbrances, easements, rights-
of-way and clouds on title relating to the Statutory Warranty Deed from the
Lessee to the Issuer dated July 27, 1997.
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"Project" means the Project Site, the Building and the Project Equipment as
they may at any time exist, and all other property and rights of every kind that
are or become subject to the demise of the Lease.
"Project Costs" means (i) all costs and expenses incurred in connection
with the preparation of the Project Site, (ii) all costs and expenses incurred
in connection with the planning, development and design of the improvements and
additions to the Building, including the costs of preliminary investigations,
surveys, estimates and plans and specifications, (iii) all costs and expenses of
constructing the improvements and additions to the Building, including the cost
to the Lessee of supervising construction, payments to contractors and
materialmen and fees for professional or other specialized services, (iv) all
costs and expenses of acquiring the Project Equipment, (v) the costs of contract
bonds and of insurance of all kinds which may be necessary or desirable in
connection with the Project Work and which are not paid by any contractor or
otherwise provided for, (vi) all expenses incurred in connection with the
issuance and sale of the Bonds, including (without limitation) all legal,
accounting, financial, underwriting, printing, recording and filing fees and
expenses and the initial charge of the Trustee, but no more than two percent
(2%) of the proceeds of the Bonds shall be used for such costs of issuance and
sale, (vii) the initial credit enhancement fees of the Credit Obligor, (viii)
the charges of the Trustee for the disbursement of moneys from the Construction
Fund, (ix) all other costs incurred in connection with the Project Work deemed
necessary or desirable by the Lessee, and (x) the reimbursement to the Lessee of
all amounts paid directly by the Lessee in respect of any of the aforesaid costs
and expenses and of all amounts advanced by the Lessee to the Issuer for the
payment of such costs and expenses.
"Project Equipment" means all items (whether or not fixtures) of machinery,
equipment or other personal property (i) the costs of which, in whole or in
part, have been or are to be paid by the Issuer out of the proceeds of any of
the Bonds, (ii) which are not part of the regular and permanent heating,
ventilating, air conditioning, electrical, fire protection or plumbing system of
the Building and (iii) which, although physically attached (by bolting, welding
or otherwise) to the Project Realty, can be severed and removed from the Project
Realty without material damage either to the Project Realty or to such items of
machinery, equipment or other personal property. As used herein, the term
"Project Equipment" also includes all items (whether or not fixtures) of
machinery, equipment or other personal property that are acquired by the Issuer
in substitution for or replacement of property theretofore constituting part of
the Project Equipment and that, under the provisions of this Lease Agreement,
are to constitute part of the Project Equipment. As of the delivery of this
Lease Agreement, the Project Equipment is expected to consist of those items
(whether or not fixtures) of machinery, equipment or other personal property
that are generally described in Exhibit B attached hereto and made a part
hereof.
"Project Realty" means the Project Site and the Building, as they may at
any time exist, and all other property and rights of every kind constituting
real property that are or become subject to the demise of the Lease.
"Project Site" means the parcel of land specifically described in Section
3.1 of this Lease Agreement.
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"Project Work" means (i) the planning, design and construction and
renovation of the building or buildings and all related improvements that are
now or hereafter located on the real property described on Exhibit A to this
Lease, as such building or buildings and related improvements may at any time
exist, and (ii) the planning, design and acquisition of the additions to the
Project Equipment and the installation thereof in or about any such buildings or
improvements.
"Trustee" means the Trustee at the time serving as such under the
Indenture.
"United States Corporation" means a corporation organized under the laws of
the United States of America, one of the states thereof or the District of
Columbia.
Section 1.2 Definitions Contained in the Indenture. Unless the context
clearly indicates a different meaning, other words, terms or phrases which are
not defined in this Lease Agreement but which are defined in the Indenture shall
have the meanings respectively given them in the Indenture.
Section 1.3 Use of Phrases. "Herein," "hereby," "hereunder," "hereof,"
"hereinbefore," "hereinafter" and other equivalent words refer to this Lease
Agreement as an entirety and not solely to the particular portion in which any
such word is used. The definitions set forth in Section 1.1 hereof include both
singular and plural. Whenever used herein, any pronoun shall be deemed to
include both singular and plural and to cover all genders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations by the Issuer. The Issuer makes the following
representations as the basis for the undertakings on its part herein contained:
(a) The Issuer is duly incorporated under the provisions of the Act, as
now existing, by Certificate of Incorporation duly filed for record in the
Office of the Judge of Probate of Mobile County, Alabama, the said Certificate
of Incorporation has not been revoked and is in full force and effect; and the
Issuer is not in default under any of the provisions contained in said
Certificate of Incorporation or in its Bylaws or in the laws of the State of
Alabama.
(b) The Issuer is the owner of the Project Site, subject only to Permitted
Encumbrances.
(c) The Project Site is located wholly within the County of Mobile,
Alabama.
(d) The Issuer was induced to enter this undertaking by the promise of the
Lessee to acquire, renovate, construct and install the Project in Mobile County,
Alabama. The Project constitutes a "project" within the meaning of the Act.
(e) The Issuer has found and hereby declares that the issuance of the
Bonds and the use of the proceeds of the Project, and the leasing of the Project
to the Lessee and the sale of the Project to the
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Lessee at the expiration or sooner termination of the Lease Term is in
furtherance of the public purposes for which the Issuer was created.
(f) The Issuer is not subject to any charter, by-law or contractual
limitation or provision of any nature whatsoever which in any way limits,
restricts or prevents the Issuer from entering into this Lease or performing any
of its obligations hereunder.
(g) Notwithstanding anything contained herein to the contrary, the Bonds
shall be limited obligations of the Issuer payable by it solely out of the
rental payments and other payments to be received by the Issuer under this Lease
and shall not be deemed to constitute a debt, liability or obligation of or
pledge of the faith and credit of the County of Mobile, Alabama or the State of
Alabama or any political subdivision thereof and neither the faith and credit of
the County of Mobile, Alabama or the State of Alabama or any political
subdivision thereof is pledged to the payment of the principal of or the
interest on the Bonds.
(h) To accomplish the foregoing, the Issuer proposes to issue its Series
1998 Bonds in the principal amount of up to $2,000,000 as provided in the Bond
Resolution and the Indenture, following the execution and delivery of this
Lease. The date, denominations, interest rate or rates, maturity dates,
redemption provisions and other pertinent provisions with respect to the Bonds
are set forth in the Bond Resolution and the Indenture and by this reference
thereto they are incorporated herein.
(i) By resolution duly adopted February 18, 1998, the Issuer took official
action providing for the acquisition, renovation, construction and installation
and leasing of the Project and the financing of the Project through the issuance
of the Bonds, and said resolution is in full force and effect.
(j) The Bonds are to be issued under and secured by the Indenture.
Pursuant to the Mortgage, the Issuer's right, title, interest and remedies in
this Lease and the rents, revenues, receipts and other payments arising out of
or in connection with the Issuer's ownership of the Project have been assigned
and mortgaged to the Credit Agent.
Section 2.2 Representations and Warranties by the Lessee. The Lessee
makes the following representations and warranties:
(a) The Lessee has power to enter into, and to perform and observe the
agreements and covenants on its part contained in, this Lease Agreement.
(b) Neither the execution and delivery of this Lease Agreement, the
consummation of the transactions contemplated hereby, nor the fulfillment of or
compliance with the terms and conditions hereof, conflicts or will conflict
with, or results or will result in a breach of, any of the terms, conditions or
provisions of any agreement, instrument or court or other governmental order to
which the Lessee is now a party or by which it is bound, or constitutes or will
constitute a default under any of the foregoing.
(c) The Project will constitute a "Project" within the meaning of the Act,
as now existing.
(d) The Issuer is the owner of the Project Site, subject only to Permitted
Encumbrances.
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(e) The Project Site is located wholly within the now existing boundaries
of Mobile County, Alabama and not within the corporate limits of any
municipality.
(f) Neither the acquisition by the Issuer of the Project Site, the
renovation and construction of the Building nor the acquisition of the Project
Equipment was commenced prior to February 18, 1998, the date on which the
resolution referred to in Section 2.1(i) hereof was delivered on behalf of the
parties thereto.
(g) The undertakings by the Issuer (i) to carry out the Project Work, and
(ii) to make available the Project, for the use and occupancy of the Lessee
pursuant to this Lease Agreement, have induced the Lessee to undertake its
operations in the State of Alabama.
(h) All permits, licenses and governmental approvals necessary to be
obtained prior to commencement of construction of the Project Work have been
obtained.
(i) There has been no material adverse change in the financial condition
or operation of the Lessee which has not previously been reflected in any
financial statements furnished by the Lessee to the Issuer.
ARTICLE III
DEMISING CLAUSES
Section 3.1 Demising Clauses. For and during the Lease Term, the Issuer
hereby demises and leases to the Lessee, subject to Permitted Encumbrances, and
the Lessee hereby rents from the Issuer, subject to Permitted Encumbrances, the
following described properties and related rights:
I
The real property identified on Exhibit A, which is attached hereto and
made a part hereof as though fully set out herein.
II
Also, the Building and all other buildings, structures and other
improvements constituting real property now or hereafter situated on the Project
Site, all permits, easements, licenses, rights-of-way, contracts, leases,
privileges, immunities and hereditaments pertaining or applicable to the Project
Site and all fixtures now or hereafter owned by the Issuer and installed on the
Project Site or in the Building or in any of such other buildings, structures
and improvements now or hereafter located on the Project Site, it being the
intention hereof that all property, rights and privileges hereafter acquired for
use as a part of or in connection with or as an improvement to the Project Site
shall be as fully covered hereby as if such property, rights and privileges were
now owned by the Issuer and were specifically described herein.
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III
Also, all items (whether or not fixtures) of machinery, equipment and other
tangible personal property that at any time, under the provisions of the Lease,
constitute the Project Equipment, including, without limitation, the Project
Equipment generally described in Exhibit B attached hereto and made a part
hereof and as the same may hereafter be supplemented and amended, excluding,
however, any equipment or other personal property that, under the provisions of
this Lease, is, or is to become (prior to the termination of the Lease), the
sole property of the Lessee or third parties.
ARTICLE IV
CONCERNING THE PROJECT WORK;
ISSUANCE OF THE BONDS
Section 4.1 Performance of the Project Work. The Issuer and the Lessee
will complete as promptly as practicable:
(a) the acquisition of the Project Site;
(b) the acquisition, construction and renovation of the Building as
directed by the Lessee; and
(c) the acquisition and installation, in or about the Building and wholly
within the boundaries of the Project Site, of the items of machinery, equipment
and other personal property comprising the Project Equipment.
The Issuer and the Lessee will use their best efforts to complete the Project
Work, or to cause the same to be completed, as promptly as practicable, delays
incident to strikes, riots, acts of God or the public enemy or other acts beyond
the reasonable control of the Issuer or the Lessee only excepted; provided
however, that no liability on the part of the Issuer or any reduction in or
postponement of any rentals payable by the Lessee hereunder shall result from
any delay in the completion of any of the Project Work or from the failure of
such work to be completed in accordance with the plans, specifications and
directions furnished by the Lessee.
The Issuer hereby appoints the Lessee, and more specifically the President,
any Vice-President and their respective designees, to act as agents of the
Issuer for the purpose of taking all actions and doing all things necessary or
convenient to carry out the Project Work. Without limiting the foregoing, each
such agent shall be empowered to act for and on behalf of the Issuer in
connection with the execution and delivery of contracts, purchase orders,
requisitions and any other document or instrument necessary and desirable to
effect the Project Work.
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The Issuer and the Lessee shall each appoint by written instrument an agent
or agents authorized to act for each respectively in any or all matters arising
under this Lease or the Indenture which, by the specific terms of this Lease or
the Indenture, require action by such agents. Each agent so appointed to act
for the Issuer shall be designated an Authorized Issuer Representative, and each
agent so appointed to act for the Lessee shall be designated an Authorized
Lessee Representative. Either the Issuer or the Lessee may from time to time,
by written notice to the other party hereto and to the Trustee, revoke, amend or
otherwise limit the authorization of any agent appointed by it to act on its
behalf or designate another agent or agents to act on its behalf, provided that
with reference to all the foregoing matters there shall be at all times at least
one Authorized Issuer Representative authorized to act on behalf of the Issuer
and at least one Authorized Lessee Representative authorized to act on behalf of
the Lessee.
Section 4.2 Agreement to Issue Bonds and Security Therefor. In order to
finance the Project Costs, the Issuer will, simultaneously with the delivery
hereof, and from time to time thereafter as provided in the Indenture, issue and
sell the Bonds and, as security therefor, execute and deliver the Indenture and
the Mortgage. All the terms and conditions of the Indenture (including, without
limitation, those relating to the amounts and maturity date or dates of the
principal of the Bonds, the interest rate or rates thereof and the provisions
for redemption thereof prior to maturity) are hereby approved by the Lessee, and
to the extent that any provision of the Indenture is relevant to the calculation
of any rent or other amount payable by the Lessee hereunder or to the
determination of any other Bond Resolution and obligation of the Lessee
hereunder, the Lessee hereby agrees that such provision of the Indenture shall
be deemed a part hereof as fully and completely as if set out herein.
Section 4.3. Disbursement of Moneys from Construction Fund. Subject to
the conditions of Section 4.4 hereof, the Issuer will pay, or cause to be paid,
all Project Costs, but such costs shall be paid solely out of the principal
proceeds from the sale of the Bonds, as the same shall be issued from time to
time, income earned from the investment of such proceeds and any other moneys
which the Lessee may cause to be deposited in the Construction Fund. The
Lessee, as agent for the Issuer, will cause such requisitions to be prepared for
approval and execution in accordance with Section 7.03 of the Indenture and
submission to the Trustee as shall be necessary to enable the Trustee to pay,
out of moneys held in the Construction Fund in accordance with the provisions of
Section 7.03 of the Indenture, all the Project Costs.
Section 4.4. No Warranty of Suitability by the Issuer; Lessee Required to
Make Arrangements for Payment of Project Costs. The Lessee recognizes that the
Project Work has been or is to be planned and carried out under its control and
in accordance with its requirements, and the Issuer can, therefore, make no
warranty, either express or implied, or offer any assurances that the Project
resulting from the completion of such work will be suitable for the Lessee's
purposes or needs or that the proceeds derived from the sale of the Bonds,
together with the income (if any) earned from the investment of such proceeds,
will be sufficient to pay in full all the Project Costs. In the event such
proceeds and investment income (if any) are insufficient to pay all the Project
Costs, the Lessee
(a) will itself complete the Project Work as originally planned and will
pay that portion of the Project Costs in excess of such proceeds and investment
income, or
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(b) will pay into the Construction Fund such moneys as are necessary for
the payment of all Project Costs, in which case the Issuer will complete the
Project Work, or
(c) will take action pursuant to both of the courses of action described
in the preceding clauses (a) and (b),
all to the end that all obligations incurred by the Issuer in connection with
the Project Work shall be paid in full. The Lessee shall not, by reason of (1)
its direct payment of any excess Project Costs, (2) its payment of any money
into the Construction Fund for the payment of any such costs or (3) any other
arrangements made by it for the payment of such costs, be entitled to any
reimbursement from the Issuer or to any diminution or postponement of any rent
payable by the Lessee hereunder.
Section 4.5 Issuer to Pursue Rights against Suppliers and Contractors,
etc. In the event of default by any supplier, contractor or subcontractor under
any contract with the Issuer for the performance of the Project Work or any part
thereof, the Issuer will, upon written request made to it by the Lessee,
proceed, either separately or in conjunction with others, to exhaust all
remedies the Issuer may have against such supplier, contractor or subcontractor
so in default and against each surety (if any) for the performance of such
contract, but all actions taken by the Issuer to exhaust such remedies shall be
at the expense of the Lessee. Further, in the event the Issuer proceeds in an
arbitration proceeding or by an action at law or in equity against any such
supplier, contractor, subcontractor or surety pursuant to the provisions of this
section or in the event any such supplier, contractor, subcontractor or surety
brings any such proceeding or action against the Issuer in connection with or
relating to the Project Work, the Issuer will follow all reasonable directions
given to it by the Lessee in connection with such proceeding or action, and the
Lessee shall have full and complete control thereof, including (without
limitation) the right to select Counsel for the Issuer. The net amount
recovered by the Issuer in any such proceeding or action shall be paid into the
Construction Fund or, if such amount is recovered after the Completion Date, to
the Lessee, unless an Event of Default shall have occurred and be continuing, in
which case such amount shall be paid into the Bond Fund.
The Issuer hereby transfers and assigns to the Lessee all the Issuer's
rights and interests in, to and under any maintenance or surety bonds or
warranties respecting quality, durability or workmanship obtained by or vested
in the Issuer in connection with the Project Work, and grants to the Lessee the
right to take action, in the name of either the Issuer or the Lessee, but at the
Lessee's sole cost and expense, for the enforcement of such bonds and
warranties. The net amount recovered in any such action shall be paid into the
Construction Fund or, if such amount is recovered after the Completion Date, to
the Lessee, unless an Event of Default shall have occurred and be continuing, in
which case such amount shall be paid into the Bond Fund.
Section 4.6 Certification of Completion Date. The Completion Date shall
be evidenced to the Trustee and the Issuer by a certificate signed by an
Authorized Lessee Representative stating that:
(a) the construction of the Building improvements, the acquisition and
installation of the Project Equipment and all other Project Work have been
completed in accordance with the applicable plans, specifications and directions
furnished by the Lessee,
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(b) all the Project Costs have been paid in full, except for amounts
retained by the Trustee at the Lessee's direction for any such costs not then
due and payable or the liability for payment of which is being contested or
disputed by the Lessee or by the Issuer at the Lessee's direction, and
(c) the Project, as constructed and improved by the Project Work, is
operational for the purpose for which it was designed.
Section 4.7 Supplemental Agreement on Completion. Upon completion of the
construction of the improvements to the Building and the acquisition and
installation of the additional Project Equipment, if requested by the Lessee or
the Trustee, the Issuer will enter into a supplemental agreement identifying the
items of Project Equipment installed in or about the Building and confirming the
demise thereof to the Lessee hereunder and the subjection thereof to the lien of
the Mortgage. A counterpart thereof shall be furnished to the Trustee.
ARTICLE V
DURATION OF TERM AND RENTAL PROVISIONS
Section 5.1 Duration of Term. The term of this Lease shall begin on the
date of delivery of this Lease Agreement, and subject to the provisions hereof,
shall continue until 11:59 o'clock, P.M., on July 1, 2013.
Section 5.2 Rental Provisions. (a) The Lessee will pay to the Trustee,
for the account of the Issuer, installments of Basic Rent. Each installment of
Basic Rent shall be paid in funds that will be immediately available to the
payee and shall equal the following amounts with respect to the Bonds:
(1) prior to 12:00 o'clock Noon on each Interest Payment Date or
other date on which principal, premium, if any, or interest on
the Bonds is payable, an amount equal to the principal of and
interest on the Bonds payable on such date; and
(2) at or before 10:00 a.m. (Nashville, Tennessee time) on each
Tender Date with respect to the Bonds, an amount equal to the
purchase price of Bonds tendered (or deemed tendered) for
purchase on such Tender Date; provided, however, that any amount
already on the deposit in the Bond Purchase Fund on such Tender
Date that is available for the payment of the purchase price of
such Tendered Bonds shall be credited against the amount of such
Basic Rent payment.
(b) Prior to 10:00 a.m. (New York, New York time) on each Interest Payment
Date or Tender Date with respect to the Bonds, the Trustee shall, without making
any prior claim or demand on the Lessee for Basic Rental Payments with respect
to the purchase price of Bonds, and without taking into account any proceeds
anticipated from the remarketing of Bonds by the Remarketing Agent, make a draw
under the Letter of Credit in an amount equal to (i) the principal of and
interest on the Bonds coming due on such Interest Payment Date, or (ii) the
purchase price of all Bonds to be purchased on
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such Tender Date. The Lessee shall receive a credit against Basic Rental
Payments under subsection (a) of this Section 5.2 for the amount so drawn.
Anything to the contrary contained in this Lease notwithstanding, there
shall be credited against any installment of Basic Rent with respect to the
Bonds due hereunder (including components of principal and interest) any amount
then held in the Bond Fund to the extent that such amount has not theretofore
been credited on a previously due installment of Basic Rent; provided however,
that moneys in the Bond Fund shall not be credited against any such installment
if such moneys are held therein for the future redemption of the Bonds.
Anything to the contrary herein contained notwithstanding, if after the
payment by the Lessee of such installments of Basic Rent as are required to be
paid by it pursuant to any provisions of the Lease the moneys then held by and
available to the Trustee for payment or redemption of the principal of and the
interest and premium (if any) on the Bonds are not sufficient to pay, on the due
date thereof, the principal maturing or required to be redeemed with respect to
the Bonds plus the interest at the applicable rate maturing with respect to the
Bonds, the Lessee will promptly pay to the Trustee (for the account of the
Issuer), such additional Basic Rent as, when added to the aforesaid moneys held
by and available to the Trustee, will equal an amount sufficient to pay the
principal, interest and premium (if any) so maturing or required to be redeemed
with respect to the Bonds.
In the event the due date of any installment of Basic Rent payable
hereunder with respect to the Bonds is not a Business Day such installment shall
be due in immediately available funds on the first Business Day next succeeding
such due date, with the same effect as if made on the original due date.
Section 5.3 Miscellaneous Additional Rent. The Lessee will also pay as
additional rent hereunder (i) the annual fee of the Trustee for the ordinary
services of the Trustee and the Tender Agent rendered and its ordinary expenses
incurred under the Indenture, (ii) the reasonable fees and charges of the
Trustee or Tender Agent as registrar, transfer agent and paying agent with
respect to the Bonds, as well as the fees and charges of any other paying agent
with respect to the Bonds who shall act as such agent in accordance with the
provisions of the Indenture and (iii) the reasonable fees, charges and expenses
of the Trustee for or in connection with necessary extraordinary services
rendered by it and extraordinary expenses incurred by it under the Indenture.
All such fees, charges and expenses shall be paid directly to the Trustee or
Tender Agent for its account upon presentation of its statements therefor.
Section 5.4 Obligation of Lessee Unconditional. The obligation of the
Lessee to pay the Basic Rent, to make all other payments provided for herein and
to perform and observe the other agreements and covenants on its part herein
contained shall be absolute and unconditional, irrespective of any rights of
set-off, recoupment or counterclaim it might otherwise have against the Issuer.
The Lessee will not suspend, discontinue, reduce or defer any such payment or
fail to perform and observe any of its other agreements and covenants contained
herein or (except as expressly authorized herein) terminate the Lease for any
cause, including, without limiting the generality of the foregoing, the failure
of the Issuer to complete the Project Work, any acts or circumstances that may
deprive the Lessee of the use and enjoyment of the Project, failure of
consideration or commercial frustration of purpose, or any damage to or
destruction of the Project or any part thereof, or the taking by eminent domain
of title to or the right to temporary use of all or any part of the Project, or
any change in the tax or other laws of the United States of America, the State
of Alabama or any political or taxing subdivision of either thereof, or any
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change in the cost or availability of raw materials or energy adversely
affecting the profitable operation of the Project by the Lessee, or any failure
of the Issuer to perform and observe any agreement or covenant, whether express
or implied, or any duty, liability or obligation arising out of or connected
with the Lease.
The provisions of the first paragraph of this Section 5.4 shall remain in
effect only so long as any of the Indebtedness remains outstanding and unpaid.
Nothing contained in this Section 5.4 shall be construed to prevent the Lessee,
at its own cost and expense and in its own name or in the name of the Issuer,
from prosecuting or defending any action or proceeding or taking any other
action involving third persons which the Lessee deems reasonably necessary in
order to secure or protect its rights hereunder, including, without limitation,
such actions as may be necessary to insure that the Project Work will be
completed in accordance with the directions and requirements of the Lessee, and
in such event the Issuer will cooperate fully with the Lessee in any such action
or proceeding. Further, nothing contained in this Section 5.4 shall be
construed to release the Issuer from the performance of any of the agreements on
its part herein contained or to preclude the Lessee from instituting such action
against the Issuer as the Lessee may deem necessary to compel such performance,
it being understood and agreed, however, that no such action on the part of the
Lessee shall in any way affect the agreements on the part of the Lessee
contained in the first paragraph of this Section 5.4 or in any way relieve the
Lessee from performing any such agreements.
ARTICLE VI
PROVISIONS CONCERNING MAINTENANCE, ADDITIONS,
REMOVAL OF PROJECT EQUIPMENT,
INSURANCE AND TAXES
Section 6.1 Maintenance, Additions, Alterations, Improvements and
Modifications. The Lessee will, at its own expense, (i) keep the Project in
reasonably safe condition and (ii) subject to the provisions of Section 6.2
hereof, keep all buildings, equipment and other facilities at any time forming
part of the Project in good repair and operating condition (reasonable wear and
tear excepted), making from time to time all necessary and proper repairs
thereto (including, without limitation, exterior and structural repairs);
provided however, that the Lessee shall have no obligation hereunder to repair
or maintain the Project after full payment of the Indebtedness; provided further
that nothing contained in this sentence shall be construed to require the Lessee
to make any repairs that are elsewhere in the Lease expressly required to be
made by the Issuer.
The Lessee may, at its own cost and expense, make, or cause to be made, any
additions, alterations, improvements or modifications to the Project that it may
deem desirable for its business purposes, provided that such additions,
alterations, improvements or modifications do not change the character of the
Project to such extent that it no longer constitutes a "project" under the Act
or significantly impair the value or utility of the Project, and provided
further that, if such additions, alterations, improvements or modifications
affect the structural integrity of any building or other structure forming a
part of the Project, the Lessee furnishes the Issuer and the Trustee a
certificate signed on behalf of the Lessee by an Authorized Lessee
Representative, stating, in either case, that such
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additions, alterations, improvements or modifications will not significantly
impair the value or utility of the Project.
In the event that, after the completion of the Project Work, the Lessee
determines to make, or to cause to be made, any additions, alterations,
improvements or modifications to the Project pursuant to the second paragraph of
this Section 6.1, then the Issuer will execute and deliver, or cause to be
executed and delivered, all contracts, orders, requisitions, instructions and
other written instruments and do, or cause to be done, all other acts that may
be necessary or proper in making such additions, alterations, improvements or
modifications. In no event, however, will the Issuer hereafter enter into any
contract with respect to any such additions, alterations, improvements or
modifications unless there is endorsed thereon a legend indicating that the
Lessee has approved both the form and substance of such contract and such legend
is signed on behalf of the Lessee by an Authorized Lessee Representative. Any
obligation for the payment of money incurred or assumed by the Issuer in
connection with such additions, alterations, improvements or modifications shall
be payable solely out of the proceeds derived by the Issuer from any moneys made
available to the Issuer by the Lessee for such purpose.
The Lessee will not permit any mechanics' or other liens to stand against
the Project for labor, materials, equipment or supplies furnished in connection
with the original acquisition, construction and equipment of the Project or in
connection with any additions, alterations, improvements, modifications, repairs
or renewals that may subsequently be made thereto. The Lessee may however, at
its own expense and in good faith, contest any such mechanics' or other liens
and in the event of any such contest may permit any such liens to remain
unsatisfied and undischarged during the period of such contest and any appeal
therefrom unless by such action the lien of the Indenture to any part of the
Project shall be materially endangered or impaired or any part of the Project
shall be subject to material loss or forfeiture, in either of which events such
mechanics' or other liens shall (unless they are bonded or superseded) be
promptly satisfied.
At any time and from time to time, the Lessee may, at its own cost and
expense, install in the Building or elsewhere on the Project Site any equipment
or other personal property which does not constitute part of the Project
Equipment and which in the Lessee's judgment is necessary or convenient for its
use and occupancy of the Project, provided that the installation of such
equipment or other personal property does not significantly impair the value or
utility of the Project. Any such equipment or personal property owned (or
leased pursuant to any lease contract other than the Lease) by the Lessee may be
removed by the Lessee at any time and from time to time without responsibility
or accountability to the Issuer and the Trustee, but the Lessee shall promptly
repair at its own expense any damage to the Project caused by the removal of any
such equipment or other personal property.
Section 6.2 Removal of Project Equipment. Subject to the Mortgage, the
Lessee may, if no Event of Default shall have occurred and be continuing,
dispose of any item of the Project Equipment, in the normal course of its
business operations, so long as such disposal shall not (i) substantially impair
the operation of the Project as a "project" within the meaning of the Act, or
(ii) materially diminish the value of the Project as it then exists, or, in the
alternative, so long as the Lessee conveys to the Issuer, before or
simultaneously with such removal, other equipment or other personal property not
theretofore constituting part of the Project Equipment and having utility (but
not necessarily the same value or function) in the operation of the Project
equal to or greater than the utility of the item of Project
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Equipment so removed, it being understood that all such substituted equipment or
other personal property shall be free of all liens and encumbrances (other than
Permitted Encumbrances), shall be the sole property of the Issuer, shall be and
become a part of the Project Equipment subject to the demise of the Lease and to
the lien of the Mortgage and shall be held by the Lessee on the same terms and
conditions as the items originally constituting the Project Equipment. Upon the
removal by the Lessee of any item of the Project Equipment from the Project Site
in compliance with the conditions of this Section 6.2, the Issuer will convey
title to such item to the Lessee or its designee by bill of sale or other
appropriate conveyance.
The Lessee shall not, by reason of the removal of any items of the Project
Equipment pursuant to this Section 6.2, or any substitutions made for any items
of the Project Equipment so removed, be entitled to any diminution or abatement
of the Basic Rent or any other rent payable by the Lessee hereunder.
Nothing contained herein shall make subject to this Section or prohibit the
Lessee, at any time during which no Event of Default shall have occurred and be
continuing, from removing from the Project Site any equipment or other personal
property that is owned by it or leased by it from third parties and that does
not constitute part of the Project Equipment; provided however, that if any such
equipment or other personal property owned by the Lessee or leased by it from
third parties is removed from the Project Site prior to full payment of the
Indebtedness, the Lessee will promptly repair at its own expense any damage to
the Project Realty caused by such removal.
Section 6.3 Taxes, Other Governmental Charges and Utility Charges. The
Lessee will pay, as the same respectively become due,
(i) all taxes and governmental charges of any kind including all
penalties, interests and statutory assessments whatsoever that may lawfully
be assessed or levied against or with respect to the Project, including,
without limiting the generality of the foregoing, any taxes levied upon or
with respect to any part of the receipts, income or profits of the Issuer
from the Project and any other taxes levied upon or with respect to the
Project which, if not paid, would become a lien on the Project prior to or
on a parity with the lien of the Mortgage or a charge on the revenues and
receipts therefrom prior to or on a parity with the charge thereon and
pledge and assignment thereof to be created and made in the Indenture and
the Mortgage; and
(ii) all assessments and charges lawfully made by any governmental
body for public improvements that may be secured by a lien on the Project;
provided that with respect to special assessments or other governmental
charges that may lawfully be paid in installments over a period of years,
the Lessee shall be obligated to pay only such installments as are required
to be paid during any period which the Lease shall be in effect;
Provided, that the Lessee shall be entitled to apply for tax abatements as
permitted under Alabama law with respect to the Project. The Issuer will
promptly forward to the Lessee any bills, statements, assessments, notices or
other instruments asserting or otherwise relating to any such taxes, assessments
or charges.
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The Lessee may, at its own expense and in its own name and behalf or in the
name and behalf of the Issuer, in good faith contest any such taxes, assessments
and utility and other charges and, in the event of any such contest, may permit
the taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom unless by such action the title
of the Issuer or the lien of the Indenture or the Mortgage to any portion of the
Project shall be materially endangered or impaired or the Project or any part
thereof shall become subject to material loss or forfeiture, in which event such
taxes, assessments or charges shall (unless they are bonded or are superseded in
a manner satisfactory to the Trustee) be paid prior to their becoming
delinquent. The Issuer will cooperate fully with the Lessee in any such
contest.
The Lessee will also pay, as the same respectively become due, all utility
and other similar charges incurred in the operation, maintenance, use and upkeep
of the Project.
Section 6.4 Insurance With Respect to the Project. The Lessee will, not
later than the date of delivery of this Lease, take out and thereafter
continuously maintain in effect or cause to be taken out and thereafter
continuously maintained in effect, insurance with respect to the Project against
such risks as are customarily insured against by businesses of like size and
type as the Lessee, as may be determined by the Lessee, paying as the same
become due all premiums with respect thereto.
All policies evidencing the insurance required by the terms of the
preceding paragraph shall be taken out and maintained in responsible insurance
companies. All such insurance policies, other than those evidencing insurance
against liability for injury to persons or property of others, shall name as
insureds the Issuer, the Trustee, the Credit Obligor and the Lessee (as their
respective interests shall appear); provided that all losses (including those in
excess of $50,000) may be adjusted by the Lessee, subject, in the case of a
single loss in excess of $50,000, to the approval of the Credit Obligor.
Insurance against liability for injury to persons or property provided by the
Lessee pursuant to this Section 6.4 shall cover the liability, in the several
aspects of the coverage provided, both of the Issuer and the Lessee. All such
policies shall provide that they will not be cancelled or amended without at
least thirty (30) days notice to each of the Issuer, the Credit Obligor and the
Trustee. The Lessee will evidence the existence of such insurance as shall from
time to time be in effect with respect to the Project by furnishing to the
Trustee and the Credit Obligor a certificate or certificates of the respective
insurers providing such insurance. The Lessee shall provide, not later than 30
days prior to any policy expiration, evidence of renewal or replacement
coverage.
Section 6.5 Effect of Mortgage. The provisions and requirements of this
Article VI and of Article VII shall be in addition to the provisions and
requirements of the Mortgage, and not in substitution therefor. So long as the
Mortgage shall remain in force and effect, the requirements of the Mortgage
shall govern the obligations of the parties with respect to the Project to the
extent the same are inconsistent with the provisions of Articles VI and VII.
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ARTICLE VII
PROVISIONS RESPECTING DAMAGE,
DESTRUCTION AND CONDEMNATION
Section 7.1 Damage and Destruction Provisions. If, prior to full payment
of the Indebtedness, the Project is destroyed, in whole or in part, or is
damaged, by fire or other casualty, to such extent that the loss to the Project
resulting therefrom is not greater than $50,000, the Lessee will continue to pay
the rent required to be paid hereunder and will promptly repair, replace or
restore the property destroyed or damaged to substantially the same condition as
prior to the event causing such damage or destruction with such changes,
alterations or modifications (including the substitution and addition of other
property) as will not significantly impair the operating utility of the Project
or change the character thereof to such extent that it will not constitute a
"project" within the meaning of the Act. The Lessee will apply so much as may
be necessary of any Net Insurance Proceeds referable to such damage or
destruction to the payment of the costs of such repair, replacement or
restoration, as well as provide any additional moneys required therefor. Any
preceding provision of this paragraph to the contrary notwithstanding, if the
Lessee exercises its option to prepay Basic Rent granted in Section 11.1 within
45 days of the occurrence of such damage or destruction, the Lessee need not
repair, replace or restore the property damaged or destroyed.
If, prior to full payment of the Indebtedness, the Project is destroyed, in
whole or in part, or is damaged, by fire or other casualty, to such extent that
the loss to the Project resulting therefrom is greater than $50,000, the Lessee
will promptly so notify the Issuer, the Trustee and the Credit Obligor in
writing. If, in such event, the Lessee does not exercise its option to prepay
Basic Rent granted in Section 11.1 hereof within 45 days of the occurrence of
such damage or destruction the Net Insurance Proceeds recovered by the Issuer,
the Lessee, the Credit Obligor and the Trustee on account of such damage or
destruction shall be paid and applied in accordance with the Mortgage.
If the Building or the Project Equipment is destroyed, in whole or in part,
or is damaged after the Indebtedness has been paid in full, neither the Lessee
nor the Issuer shall be obligated to repair, replace or restore the property
damaged or destroyed, and any Net Insurance Proceeds referable to such damage or
destruction shall be paid to the Lessee; provided however, that the Issuer will,
to the extent and in the manner provided in Section 7.5 hereof, cooperate fully
with the Lessee in carrying out such repair, replacement and restoration as the
Lessee may, in its sole discretion, decide to undertake.
All property acquired in connection with the repair, replacement or
restoration of any part of the Project pursuant to the provisions of this
Section 7.1 shall be and become part of the Project subject to the demise hereof
and the lien of the Indenture and shall be held by the Lessee on the same terms
and conditions as the property originally constituting the Project.
Section 7.2 Condemnation Provisions. If prior to payment of the
Indebtedness title to the Project or any part thereof is taken under the
exercise of the power of Eminent Domain and the Lessee does not elect to prepay
Basic Rent as provided in Section 11.1, the entire condemnation award in respect
of such taking [including, without limitation, (i) all amounts received as the
result of any settlement of compensation claims negotiated with the condemning
authority and (ii) any amount awarded as compensation for the interest of the
Lessee in the part of the Project taken and as damages
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to the interest of the Lessee in any part thereof not taken, but not including
any condemnation award belonging to the Lessee pursuant to the provisions of
Section 7.4 hereof] shall be paid in accordance with the Mortgage.
If, after full payment of the Indebtedness, title to less than
substantially all the Project is taken by such exercise of the power of Eminent
Domain, the Lease shall continue in full force and effect, but neither the
Lessee nor the Issuer shall be obligated to correct or ameliorate in any way the
condition of the Project caused by such taking, and the Net Condemnation Award
referable to such taking shall be paid to the Lessee; provided however, that the
Issuer will, to the extent and in the manner provided in Section 7.6 hereof,
cooperate fully with the Lessee in carrying out such work of repairing,
restoring, modifying, relocating or rearranging the Project or in acquiring such
additional property to form part of the Project as the Lessee may, in its sole
discretion, deem necessary or desirable.
Section 7.3 Condemnation of Lessee-Owned Property. The Lessee shall be
entitled to any condemnation award (including all amounts received as the result
of any settlement of compensation claims negotiated with the condemning
authority) or portion thereof made for damages to or the taking of its own
property not included in the Project, including damages for goodwill or loss of
business, but any condemnation award resulting from damages to or the taking of
all or any part of the leasehold estate or other interest of the Lessee in the
Project created by the Lease shall be applied in accordance with the provisions
of Section 7.2 hereof. In the event of any taking which involves both the
Project and property of the Lessee, the Lessee shall be responsible for all
attorney's fees and other expenses properly allocable to the taking of its own
property.
Section 7.4 Cooperation of the Issuer in the Conduct of Condemnation
Proceedings. The Issuer will cooperate fully with the Lessee in the handling
and conduct of any prospective or pending condemnation proceeding with respect
to the Project or any part thereof and will follow all reasonable directions
given to it by the Lessee in connection with such proceeding. In no event will
the Issuer settle, or consent to the settlement of, any prospective or pending
condemnation proceeding with respect to the Project or any part thereof without
the prior written consent of the Lessee.
Section 7.5 Cooperation of the Issuer with Respect to Restoration of the
Project in the Event of Casualty or Condemnation. If, as a result of the taking
of title to less than substantially all the Project or the taking of the
temporary use of all or any part of the Project through the exercise of the
power of Eminent Domain, or if, as a result of any event causing destruction or
damage to the Project or any part thereof, the Lessee determines, in accordance
with any applicable provision of this Article VII, to acquire (by purchase,
construction or otherwise) any additional property to replace any part of the
Project so taken, or to have the Project repaired, replaced, restored, modified,
relocated or rearranged in order to correct or ameliorate any condition caused
by such taking, damage or destruction, as the case may be, then the Issuer will
execute and deliver, or cause to be executed and delivered, all contracts,
orders, requisitions, instructions and other written instruments and do, or
cause to be done, all other acts that may be necessary or proper in carrying out
all such undertakings with respect to the restoration and replacement of the
Project. Any obligation for the payment of money incurred or assumed by the
Issuer in connection with such undertakings shall be payable solely out of any
Net Condemnation Award or Net Insurance Proceeds held by the Trustee or from any
other moneys made available to the Issuer by the Lessee under the provisions of
the Lease.
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Section 7.6 Provisions Relating to the Incurring of Certain Expenses after
Indebtedness Paid. The Issuer will not, at any time after full payment of the
Indebtedness, incur any expenses in connection with the collection of any
insurance proceeds or condemnation award with respect to the Project, or any
part thereof, without the prior written consent of the Lessee.
ARTICLE VIII
PARTICULAR COVENANTS OF THE LESSEE
Section 8.1 General Covenants. The Lessee will, in the use of the Project
and the public ways abutting the Project Site, comply in all material respects
with all valid and applicable laws, ordinances, regulations or orders of all
governmental authorities or agencies; provided however, that the Lessee may in
good faith contest the validity of any such laws, ordinances, regulations or
orders or the application thereof to the Project and in the event of any such
contest defer compliance therewith during the period of such contest and any
appeal from any appealable decision in such contest, unless by such action the
rights or interests of the Issuer, the Trustee or the Credit Obligor with
respect to the Project or any part thereof shall be materially endangered or
impaired. The Lessee shall give prompt notice of any such contest to the
Trustee, the Credit Obligor and the Owners.
Section 8.2 Release and Indemnification Covenants. The Lessee releases
the Issuer (and each director, officer, employee, attorney, consultant and agent
thereof) the Trustee and the Credit Obligor from, and will indemnify and hold
the Issuer (and each director, officer, employee, attorney, consultant and agent
thereof), the Trustee and the Credit Obligor harmless against, any and all
claims and liabilities of any character or nature whatsoever, regardless of by
whom asserted or imposed, and losses of every conceivable kind, character and
nature whatsoever claimed by or on behalf of any person, firm, corporation or
governmental authority, arising out of, resulting from, or in any way connected
with the Project or the issuance and sale of the Bonds, including, without
limiting the generality of the foregoing, (i) liability for loss or damage to
property or any injury to or death of any and all persons that may be occasioned
by any cause whatsoever pertaining to the Project or arising by reason of or in
connection with the occupation or the use thereof or the presence on, in or
about the premises of the Project and (ii) liability arising from or expense
incurred by the Issuer's acquisition, construction, installation, equipping,
owning, leasing and financing of the Project, including without limiting the
generality of the foregoing all causes of action and attorneys' fees and any
other expenses incurred in defending any suits or actions which may arise as a
result of any of the foregoing and (iii) costs and expenses of the Issuer or the
members thereof incurred as a result of carrying out its obligations under this
Lease, the Bond Resolution, the Indenture and the Mortgage; provided however,
that the Lessee shall not be obligated to indemnify any director, officer,
employee, attorney, consultant or agent of the Issuer, the Trustee or the Credit
Obligor against any claim, liability or loss in any way connected with the
Project or the issuance and sale of the Bonds if such claim, liability or loss
arises out of or results from other than official action taken in the name and
behalf of the Issuer, the Trustee or the Credit Obligor, as the case may be, by
such director, officer, employee, attorney, consultant or agent.
Section 8.3 Inspection of Project. The Lessee will permit the Issuer, the
Trustee and their duly authorized agents at all reasonable times upon reasonable
notice to examine and inspect the Project or
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any part thereof. So long as any of the Indebtedness shall be outstanding and
unpaid, the Lessee will also permit the Trustee and the Credit Obligor and their
duly authorized agents to take such action as may be necessary, which may rely
on an opinion of counsel, to cause the Project to be kept in as reasonably safe
condition as its operations permit and the Project to be kept in good repair and
operating condition, all as and to the extent provided in Sections 6.1 and 6.6
hereof.
Section 8.4 Agreement to Maintain Existence. The Lessee will maintain its
existence, will not dissolve or otherwise dispose of all or substantially all of
its assets (either in a single transaction or in a series of related
transactions) and will not consolidate with or merge into another limited
liability company or corporation or permit one or more limited liability
companies or corporations to consolidate with or merge into it; provided that
the Lessee may, without violating the agreements contained in this section, do
or perform any of the following:
(a) it may consolidate with or merge into another United States
corporation or limited liability company, or permit one or more United States
corporations or limited liability companies to consolidate with or merge into it
if the company surviving such merger or resulting from such consolidation, if it
shall be one other than the Lessee, expressly assumes in writing all the
obligations of the Lessee contained in this Lease Agreement and other Financing
Documents;
(b) it may transfer to another United States corporation or limited
liability company all or substantially all its assets as an entirety, and (if it
so elects) thereafter dissolve, if the limited liability company or corporation
to which such transfers shall be made expressly assumes in writing all the
obligations of the Lessee contained in this Lease Agreement and the other
Financing Documents.
The Lessee will, promptly following any merger, consolidation or transfer
permitted under the provisions of this Section 8.4, furnish to the Issuer, the
Trustee and the Credit Obligor fully executed or appropriately certified copies
of the writing by which the Lessee's successor or transferring corporation
expressly assumes the obligations of the Lessee contained in this Lease
Agreement and the other Financing Documents.
If, after a transfer by the Lessee of all or substantially of its assets to
another United States limited liability company or corporation under the
circumstances described in the preceding clause (b) of this section, the Lessee
does not thereafter dissolve, it shall not have any further rights or
obligations hereunder.
Section 8.5 Qualification in Alabama. The Lessee warrants and represents
that it is now duly qualified to do business in the State of Alabama as a
foreign limited liability company and covenants that it, or any successor
limited liability company or corporation permitted under Section 8.4 hereof,
will remain qualified to do business in Alabama during the term of this Lease
Agreement.
Section 8.6 Covenant to Operate. The Lessee covenants to continuously
operate the Project as a industrial equipment manufacturing facility or other
"project" within the meaning of the Act, so long as any Indebtedness remains
outstanding; provided, however, the Lessee may interrupt or discontinue
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operations in the Project for a period of up to 12 months for the purpose of
effecting a transition to another permitted use of the Project under the Act to
the extent that the same will not affect the excludibility of interest on the
Bonds from income for federal income tax purposes.
Section 8.7 Covenants Concerning the Tax-Exempt Nature of the Interest
Income on the Bonds. (a) The Lessee shall at all times do and perform all acts
and things permitted by law and necessary or desirable in order to assure that
interest paid on the Bonds shall, for the purposes of federal income taxation,
be excludable from gross income of any holder thereof, except in the event, and
for the period, that any such holder is a "substantial user" of the Project or a
"related person" within the meaning of Section 147(a) of the Code or any
successor provision.
(b) The Lessee shall deliver written notice to the Trustee of the
occurrence of a Determination of Taxability immediately upon having knowledge
thereof.
(c) The Lessee shall not permit at any time or times any of the proceeds
of the Bonds or any of the funds to be used, directly or indirectly, to acquire
any asset or obligation the acquisition of which would cause the Bonds to be
"arbitrage bonds" for the purposes of Section 148 of the Code and shall
otherwise take any action or omit to take any action that would cause the Bonds
to be "arbitrage bonds" because of Section 148 of the Code. The Lessee shall
utilize the proceeds from the sale of the Bonds so as to satisfy the reasonable
expectations of the Lessee set forth in the Non-Arbitrage Certificate of the
Issuer delivered as of the date of issuance of the Bonds.
(d) In the event the Lessee does not spend the Gross Proceeds of the Bonds
(as such term is defined in the Code) within six months after the date of
issuance thereof, or otherwise qualify for an exemption from the requirements
therefor, the Lessee shall rebate to the United States of America on behalf of
the Issuer, the amount required by Section 148(f) of the Code. Each year, on
each July 1, the Lessee shall determine the amount of the rebate due to the
United States of America on behalf of the Issuer. The Lessee shall retain
records of all such determinations until six years after final payment of the
Bonds, whether or not the gross proceeds of the Bonds are expended within six
months after the date of issuance. The required rebate to the United States of
America shall be paid by the Lessee in installments as and when required by the
Code.
(e) The Lessee shall retain an independent party for the purpose of
advising the Lessee with respect to the obligations on the part of the Lessee
under Section 8.7(d) hereof to calculate the amount of, and make the required
payment of, any required rebate to the United States of America.
(f) The Lessee shall not make any changes in the Project which would, at
the time made, cause the "average reasonably expected economic life" of the
components of the Project, determined pursuant to Section 147(b)(2) of the Code,
to be less than the "average reasonably expected life" of the components set
forth in the certificates or letters of representation of the Issuer and the
Lessee delivered on the date of issuance, unless the Lessee delivers to the
Trustee an opinion of Independent Counsel nationally recognized in the area of
tax-exempt obligations, in form and substance satisfactory to the Trustee, to
the effect that such change to the Project will not adversely affect the
exclusion of the interest income on the Bonds from gross income of the
recipients thereof for federal income tax purposes.
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(g) If the Lessee receives written notice from the Owner of any Bonds, or
otherwise receives notice in writing indicating that the Internal Revenue
Service has claimed that interest on the Bonds is Taxable, the Lessee shall
promptly notify the Trustee in writing of such claim. After receipt of any such
notice, the Lessee shall not cause or permit the establishment of a trust for
the payment or redemption of Bonds pursuant to Article 16 of the Indenture,
unless the Lessee furnishes to the Trustee an opinion of Bond Counsel stating in
effect that (i) the Internal Revenue Service has abandoned its claim that
interest on the Bonds is Taxable or that such claim was determined to be
incorrect in a judicial or administrative proceeding from which no further
appeal may be taken by the Internal Revenue Service, and (ii) the interest on
the Bonds is not Taxable.
(h) If all Bonds are redeemed after a Determination of Taxability, any
default in the performance, or breach, of any covenant or warranty contained in
this Section 8.7 shall be deemed waived, and any Event of Default resulting
therefrom shall be deemed cured.
ARTICLE IX
CERTAIN PROVISIONS RELATING TO
ASSIGNMENT, SUBLEASING AND MORTGAGING
AND TO THE BONDS
Section 9.1 Provisions Relating to Assignment and Subleasing by Lessee.
The Lessee may assign the Lease and the leasehold interest created hereby, or
sublease the Project or any portion thereof upon giving at least 30 days written
notice to the Issuer, the Credit Obligor and the Trustee, but no such assignment
or subleasing shall relieve the Lessee of any liability hereunder.
Without the prior express written request or consent of the Lessee, the
Issuer will not, so long as no Event of Default shall have occurred and be
continuing, hereafter issue any bonds or other securities (including refunding
securities), other than the Bonds, that are payable out of or secured by a
pledge of the revenues and receipts derived by the Issuer from the leasing or
sale of the Project, nor, without such consent, will the Issuer, so long as no
Event of Default shall have occurred and be continuing, hereafter place any
mortgage or other encumbrance (other than the Mortgage and the Indenture and
supplemental indentures contemplated thereby) on the Project or any part thereof
or otherwise sell, transfer or convey all or any part of the Project.
Section 9.2 References to Bonds Ineffective after Indebtedness Paid. Upon
full payment of the Indebtedness and cancellation, satisfaction and discharge of
the Indenture and the Mortgage in accordance with the provisions thereof, all
references in the Lease to the Bonds, the Trustee and the Credit Obligor shall
be ineffective and neither the Trustee, the Credit Obligor, nor the Owners of
any of the Bonds shall thereafter have any rights hereunder, saving and
excepting any that shall have theretofore vested and except that the provisions
of Sections 8.2 and 8.3 shall survive. For purposes of the Lease, any of the
Bonds shall be deemed fully paid if there exist, with respect thereto, the
applicable conditions specified in Section 16.01 of the Indenture.
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If the Indebtedness is fully paid prior to the end of the Lease Term, the
Lessee shall be entitled to use of the Project for the remainder of the Lease
Term without the payment of any further Basic Rent but otherwise on all the same
terms and conditions hereof.
Section 9.3 Disposition of Trust Fund Moneys after Full Payment of
Indebtedness. The Issuer hereby assigns to the Lessee all surplus moneys (if
any) that may remain in the Construction Fund, the Bond Fund and the Bond
Purchase Fund or that may otherwise be held by the Trustee after the
Indebtedness has been fully paid, such assignment to be subject to the condition
that the Lease shall not have been terminated prior to full payment of the
Indebtedness as a result of the occurrence of an Event of Default. The Issuer
will provide in the Indenture for such surplus moneys to be paid to the Lessee
in accordance with such assignment. It is understood and agreed that surplus
moneys remaining in the Bond Fund or otherwise held by the Trustee shall not
include (i) any amounts so held for payment of matured but unpresented Bonds,
Bonds called for redemption but not yet presented for payment and matured but
unpresented interest coupons and (ii) any amounts held therein which are
referable to unmatured Bonds if such Bonds are considered fully paid pursuant to
the provisions of Section 16.01 of the Indenture by reason of the fact that such
amounts are so held by the Trustee. The provisions of this section shall
survive the expiration or prior termination of the Lease.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1 Events of Default Defined. The following shall be "Events
of Default" hereunder, and the term "Event of Default" shall mean, whenever it
is used in this Lease, any one or more of the following conditions or events:
(a) failure by the Lessee to pay any installment of Basic Rent or to make
any other payment required under the terms hereof [other than any payment
referred to in clause (b) of this section] on the date that such installment or
such payment shall become due and payable by the terms of the Lease;
(b) failure by the Lessee to perform or observe any agreement or covenant
on its part contained in the Lease [other than the covenants and agreements
referred to in the preceding clause (a) of this section], which failure shall
have continued for a period of 90 days after written notice, specifying, in
reasonable detail, the nature of such failure and requiring the Lessee to
perform or observe the agreement or covenant with respect to which it is
delinquent, shall have been given to the Lessee and the Credit Obligor by the
Issuer or the Trustee, unless (i) the Issuer and the Trustee shall agree in
writing to an extension of such period prior to its expiration, (ii) the Lessee
is by reason of force majeure at the time prevented from performing or observing
the agreement or covenant with respect to which it is delinquent, or (iii) the
Lessee commences the cure within the 90 day period and diligently pursues
corrective action until completion thereof.
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(c) there shall occur and shall be continuing any event of default, as
therein defined, under any other Financing Document (other than the Credit
Agreement or the Mortgage) and the expiration of the applicable grace period, if
any, specified therein.
Section 10.2 Remedies on Default. Whenever any Event of Default shall
have happened and be continuing, the Credit Obligor or, if the Letter of Credit
is no longer in effect, the Issuer, may take any one or more of the following
remedial actions:
(a) re-enter and take possession of the Project, exclude the Lessee from
possession thereof and rent the same for the account of the Lessee, holding the
Lessee liable for the balance of all rent and other amounts due under the Lease;
(b) terminate the Lease, exclude the Lessee from possession of the Project
and lease the same for the account of the Issuer, holding the Lessee liable for
all rent and other amounts due under the Lease until the date such other lease
is made for the account of the Issuer;
(c) declare immediately due and payable Basic Rent in an amount equal to
the principal amount of all outstanding Bonds plus interest accrued on such
Bonds to the date of such declaration;
(d) have access to, and inspect, examine and make copies of, the books,
records and accounts of the Lessee;
(e) take whatever legal proceedings may appear necessary or desirable to
collect the rent then due, whether by declaration or otherwise, or to enforce
any obligation, covenant or agreement of the Lessee under this Lease or any
obligation of the Lessee imposed by any applicable law.
Section 10.3 No Remedy Exclusive. No right, power or remedy herein
conferred upon or reserved to the Issuer, the Trustee or the Credit Obligor is
intended to be exclusive of any other available right, power or remedy, but each
and every such right, power or remedy shall be cumulative and shall be in
addition to every other right, power or remedy given under the Lease as now or
hereafter existing at law or in equity or by statute. No delay or omission to
exercise any right, power or remedy accruing upon any Event of Default shall
impair any such right, power or remedy or shall be construed to be a waiver
thereof but any such right, power or remedy may be exercised from time to time
and as often as may be deemed expedient.
Section 10.4 Agreement to Pay Attorneys' Fees. In the event that, as a
result of an Event of Default or a threatened Event of Default by the Lessee,
the Issuer, the Trustee or the Credit Obligor should employ attorneys at law or
incur other expenses in or about the collection of rent or the enforcement of
any other obligation, covenant, agreement, term or condition of the Lease, the
Lessee will pay to the Issuer, the Trustee or the Credit Obligor or one or more
of them, as the case may be, reasonable attorneys' fees and other reasonable
expenses so incurred.
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Section 10.5 No Additional Waiver Implied by One Waiver. In the event any
agreement contained herein should be breached by either party and thereafter
waived by the other party, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder. Further,
neither the receipt nor the acceptance of any rent hereunder by the Issuer, or
by the Trustee or the Credit Obligor on its behalf, shall be deemed to be a
waiver of any breach of any covenant, condition or obligation herein contained
or a waiver of any Event of Default even though at the time of such receipt or
acceptance there has been a breach of one or more covenants, conditions or
obligations on the part of the Lessee herein contained or an Event of Default
(or both) and the Issuer, the Trustee or the Credit Obligor have knowledge
thereof.
ARTICLE XI
OPTIONS
Section 11.1 Options to Terminate the Lease during Lease Term. If no
Event of Default shall be continuing, the Lessee shall have the right,
exercisable at its option, to cancel or terminate the Lease during the Lease
Term upon compliance with the conditions specified in the succeeding provisions
of this Section 11.1:
(a) At any time prior to full payment of the entire Indebtedness, the
Lessee may cancel or terminate the Lease by (i) giving the Issuer and the
Trustee written notice of such termination and specifying in such notice the
date on which such termination is to be effective, and (ii) paying to the
Trustee for the account of the Issuer, on or before the effective date of such
termination, an amount which, when added to the total of the amounts then held
in the Construction Fund, the Bond Fund and the Bond Purchase Fund will be
sufficient to pay, redeem and retire all the outstanding Bonds on the earliest
practicable date next succeeding the effective date of such termination on which
under their terms and the terms of the Indenture they may be paid or redeemed,
including, without limitation, principal, premium (if any), all interest to
mature until and on such payment or redemption date, the expenses of redemption
and all other Indebtedness then owing with respect to the Bonds and that will
accrue until the payment, redemption and retirement of all the outstanding
Bonds.
(b) At any time after the entire Indebtedness has been fully paid, the
Lessee may cancel or terminate the Lease by giving the Issuer written notice of
such termination not less than 30 days prior to the date on which such
termination is to be effective.
Any cancellation or termination of the Lease as aforesaid notwithstanding, any
obligations or liabilities of the Lessee hereunder, actual or contingent, which
have arisen on or before the effective date of such cancellation or termination
shall remain in full force and effect.
Section 11.2 Option to Purchase. If the Lessee pays all rent and other
amounts due hereunder, it shall have the right and option, hereby granted by the
Issuer, to purchase the Project from the Issuer at any time after payment in
full of the Indenture Indebtedness, at and for a purchase price equal to the sum
of $100. To exercise any such purchase option, the Lessee shall notify the
Issuer in writing not less
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than 30 days prior to the date on which it proposes to effect such purchase and,
on the date of such purchase, shall pay the aforesaid purchase price to the
Issuer in cash or bankable funds, whereupon the Issuer will, by deed or other
instrument complying with the provisions of Section 11.3 hereof, transfer and
convey the Project (in its then condition, whatever that may be) to the Lessee.
Nothing herein contained shall be construed to give the Lessee any right to any
rebate to or refund of any rent paid by it hereunder prior to the exercise by it
of the purchase option hereinabove granted, even though such rent may have been
wholly or partially prepaid.
Section 11.3 Options - In General. In the event of the exercise by the
Lessee of any of the options to purchase the Project, the Issuer will convey to
the Lessee, after compliance by the Lessee with the conditions to purchase
specified in the respectively applicable sections hereof, the property with
respect to which such option was exercised by statutory warranty deed, bill of
sale (in the case of personal property) or other appropriate instrument, subject
only to Permitted Encumbrances (other than this Lease, the Mortgage or the
Indenture), such liens, encumbrances and exceptions to which title to such
property was subject when such property was acquired by the Issuer, those to the
creation or suffering of which the Lessee consented and those resulting from the
failure of the Lessee to perform or observe any of the agreements or covenants
on its part contained in the Lease.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Covenant of Quiet Enjoyment. Surrender. So long as the
Lessee performs and observes all the covenants and agreements on its part
contained in the Lease, it shall peaceably and quietly have, hold and enjoy the
Project during the Lease Term subject to all the terms and provisions hereof.
At the end of the Lease Term, or upon any prior termination of the Lease, the
Lessee will surrender to the Issuer possession of all property then subject to
the demise of the Lease (unless it is simultaneously purchasing such property
from the Issuer) in its then condition, whatever that may be.
Section 12.2 The Lease to be a Net Lease. The Lessee recognizes and
understands that it is the intention hereof that the Lease shall be a net lease
and that until the Bonds are fully paid all Basic Rent shall be available for
payment of the principal and the interest and premium (if any) on the Bonds.
This Lease shall be construed to effectuate such intent.
Section 12.3 Statement of Intention Regarding Certain Tax Matters. The
Issuer and the Lessee acknowledge and agree that it is their mutual intention
that the Lessee, for federal and state income tax purposes, will be entitled to
all deductions and credits with respect to the Project (including, but not
limited to, depreciation and investment credits) and that for such purposes the
Lease will be deemed to be a financing of any part of the Project acquired with
the proceeds of the Bonds.
Section 12.4 Notices. (a) Any request, demand, authorization, direction,
notice, consent, waiver or other document provided or permitted by this Lease to
be made upon, given or furnished to, or filed with, the Issuer, the Trustee, the
Lessee, or the Credit Obligor shall be sufficient for every purpose hereunder if
in writing and (except as otherwise provided in this Indenture) (i) delivered
personally to
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the party or, if such party is not an individual, to an officer or other legal
representative of the party to whom the same is directed (provided that any such
document delivered personally to the Trustee must be delivered to a corporate
trust officer during normal business hours), at the hand delivery address
specified below, (ii) mailed by first-class, registered or certified mail,
postage prepaid, addressed as specified below, (iii) sent by recognized
overnight delivery service for next day delivery, or (iv) sent by telex or
telecopy or other facsimile transmission system to the number specified below.
The hand delivery address, mailing address and telex or telecopy number for the
parties are as follows:
Issuer Hand delivery address: c/o Maury Friedlander
740 Museum Drive
Mobile, Alabama 36608
Mailing address: Post Office Box 8548
Mobile, Alabama 36608
Telecopy number: (334) 344-1666
Trustee Hand delivery address: 424 Church Street, 6th Floor
Nashville, Tennessee 37219
Mailing address: Post Office Box 305110
Nashville, Tennessee 37230-5110
Telecopy number: (615) 748-5331
Lessee Hand delivery address: Attn: McGowin I. Patrick, Jr.
300 St. Francis Street
Mobile, Alabama 36602
Mailing address: Post Office Box 1352
Mobile, Alabama 36633
Telecopy number: (334) 432-2778
Credit Obligor Hand delivery address: Attn: James F. Hannon, V. P.
Atlanta Branch
200 Galleria Parkway, Suite 800
Atlanta, Georgia 30339
Telecopy number: (770) 980-9531
With a copy to:
Attn: Thomas M. Doss, V.P.,
Senior Credit Officer
125 West 55th Street
New York, New York 10019
Telecopy number: (212) 632-8564
Any of such parties may change the address or number for receiving any such
notice or other document by giving notice of the change to the other parties
named in this Section.
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(b) Any notice or other document shall be deemed delivered when actually
received by the party to whom directed (or, if such party is not an individual,
to an officer or other legal representative of the party) at the address or
number specified pursuant to this Section, or, if sent by mail, 3 days after
such notice or document is deposited in the United States mail, first class
postage prepaid, addressed as provided above.
Whenever, under the provisions hereof, any request, consent or approval of
the Issuer or the Lessee is required or authorized, such request, consent or
approval shall (unless otherwise expressly provided herein) be signed on behalf
of the Issuer by an Authorized Issuer Representative and, on behalf of the
Lessee by an Authorized Lessee Representative; and each of the parties and the
Trustee are authorized to act and rely upon any such requests, consents or
approvals so signed.
Section 12.6 Certain Prior and Contemporaneous Agreements Cancelled. The
Lease shall completely and fully supersede all other prior or contemporaneous
agreements, both written and oral, between the Issuer and the Lessee relating to
the Project Work and the leasing of the Project, all to the end that the Issuer
and the Lessee shall look to the Lease for ultimate definition and determination
of their respective rights, liabilities and responsibilities respecting the
Project Work, the Project and the Bonds. The Lessee and the Issuer acknowledge
that they have no outstanding agreement, commitment or understanding, either
express or implied, for the grant to the Lessee of any option to purchase the
Project or any part thereof other than those contained in Article XI hereof.
Section 12.7 Limited Liability of Issuer. The Issuer is entering into
this Lease Agreement pursuant to the authority conferred upon it by the Act. No
provision hereof shall be construed to impose a charge against the general
credit of the Issuer or any personal or pecuniary liability upon the Issuer
except with respect to the proper application of the proceeds to be derived from
the sale of the Bonds, moneys made available by the Lessee or the Issuer
pursuant to the provisions hereof, and the revenues and receipts to be derived
from any leasing or sale of the Project, including insurance proceeds and
condemnation awards. Further, none of the directors, officers, employees or
agents (other than the Lessee as agent of the Issuer in connection with the
Project Work) of the Issuer shall have any personal or pecuniary liability
whatever hereunder or any liability for the breach by the Issuer of any of the
agreements on its part herein contained. Nothing contained in this section,
however, shall relieve the Issuer from the observance and performance of the
several covenants and agreements on its part herein contained or relieve any
director, officer, employee or agent of the Issuer from performing all duties of
their respective offices that may be necessary to enable the Issuer to perform
the covenants and agreements on its part herein contained.
Section 12.8 Binding Effect. The Lease shall inure to the benefit of, and
shall be binding upon, the Issuer, the Lessee and their respective successors
and assigns. To the extent provided herein and in the Indenture and the
Mortgage, the Credit Obligor, the Trustee, and the Owners of the Bonds shall be
deemed to be third party beneficiaries hereof, but nothing herein contained
shall be deemed to create any right in, or to be for the benefit of, any other
person who is not a party hereto.
Section 12.9 Severability. In the event any provision of the Lease shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
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Section 12.10 Article and Section Captions. The article and section
headings and captions contained herein are included for convenience only and
shall not be considered a part hereof or affect in any manner the construction
or interpretation hereof.
Section 12.11 Governing Law. The Lease shall in all respects be governed
by and construed in accordance with the laws of the State of Alabama.
IN WITNESS WHEREOF, the Issuer and the Lessee have caused this Lease
Agreement to be executed in their respective names and their respective
corporate seals to be hereunto affixed, and have caused this Lease Agreement to
be attested, in six counterparts, each of which shall be deemed an original, and
have caused this Lease Agreement to be dated as of July 1, 1998.
THE INDUSTRIAL DEVELOPMENT BOARD OF
MOBILE COUNTY
(SEAL) By: /s/
___________________________________
Chairman of its Board of Directors
ATTEST:
__________________________
Assistant Secretary
AERO INTERNATIONAL, L.L.C.
By: /s/
___________________________________
Its: President
-30-
<PAGE>
STATE OF ALABAMA
COUNTY OF MOBILE
I, the undersigned, a Notary Public in and for said County in said State,
do hereby certify that Danny R. Price, whose name as Chairman of the Issuer of
Directors of THE INDUSTRIAL DEVELOPMENT BOARD OF MOBILE COUNTY, is signed to the
foregoing instrument, and who is known to me and known to be such officer,
acknowledged before me on this day that, being informed of the contents of said
instrument, he, in his capacity as such officer and with full authority,
executed the same voluntarily and as the act of said Issuer.
Given under my hand and seal of office this 24th day of July, 1998.
/s/
_________________________________________
NOTARY PUBLIC
My Commission Expires: September 30, 2001
STATE OF ALABAMA
COUNTY OF MOBILE
I, the undersigned, a Notary Public in and for said County in said State,
do hereby certify that _______________________, whose name as President of Aero
International, L.L.C. is signed to the foregoing instrument, and who is known to
me and known to be such officer, acknowledged before me on this day that, being
informed of the contents of said instrument, he, in his capacity as such officer
and with full authority, executed the same voluntarily and as the act of said
company.
Given under my hand and seal of office this _______ day of July, 1998.
/s/
_________________________________________
NOTARY PUBLIC
My Commission Expires:___________________
-31-
<PAGE>
Exhibit 12
Offshore Tool & Energy Corporation
Computation of Consolidated Earnings to Fixed Charges
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the For the
period from period from
1998 9/18/97-12/31/97 1/1/97 - 9/17/97 1996 1995 1994
--------- ---------------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income 1,297,000 620,000 527,000 406,000 (399,000) (725,000)
Provision for income taxes 167,000 29,000 284,000 218,000 - -
--------- ------- ------- -------- --------- --------
Earnings before provision for income
taxes 1,464,000 649,000 811,000 624,000 (399,000) (725,000)
--------- ------- ------- -------- --------- --------
Fixed charges:
Interest expense 1,944,000 209,000 3,000 1,000 - -
Interest portion of rentals 68,000 120,400 - - - -
--------- ------- ------- -------- --------- --------
Total fixed charges 2,012,000 329,400 3,000 1,000 - -
--------- ------- ------- -------- --------- --------
Earnings before provision for income
taxes and fixed charges 3,476,000 978,400 814,000 625,000 (399,000) (725,000)
========= ======= ======= ======= ========= ========
Ratio of earnings to fixed charges 57.8826% 33.6672% 0.3686% 0.1600% 0.0000% 0.0000%
========= ======= ======= ======= ========= ========
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF
OFFSHORE TOOL & ENERGY CORPORATION
Aero International, L.L.C., a limited liability company organized under the laws
of Louisiana.
ITS Investments, inc., organized under the laws of Texas.
ITS Engineered Systems, Inc., a subsidiary of ITS Investments, Inc., organized
under the laws of Delaware.
ITS Holdings Limited, organized under the laws of England.
ITS Drilling Services Limited, a subsidiary of ITS Holdings Limited, organized
under the laws of England.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,830
<SECURITIES> 0
<RECEIVABLES> 17,100
<ALLOWANCES> 859
<INVENTORY> 11,359
<CURRENT-ASSETS> 2,978
<PP&E> 25,030
<DEPRECIATION> 848,000
<TOTAL-ASSETS> 72,428
<CURRENT-LIABILITIES> 15,878
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 11,882
<TOTAL-LIABILITY-AND-EQUITY> 72,428
<SALES> 52,892
<TOTAL-REVENUES> 52,892
<CGS> 41,845
<TOTAL-COSTS> 7,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,944
<INCOME-PRETAX> 1,464
<INCOME-TAX> 167
<INCOME-CONTINUING> 1,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,297
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
